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Rental Property Tax Calculator
Most rental properties show positive cash flow but a Schedule E tax loss — thanks to depreciation. This calculator models gross rent, operating expenses, mortgage interest, and 27.5-year depreciation to show your true after-tax cash flow.
Property + financing
Annual income + expenses
Common 2025 brackets: 12%, 22%, 24%, 32%, 35%, 37%.
Taxable income (Schedule E)
-$1,027
Tax owed: $0 · Tax loss
Pre-tax cash flow
$4,500
After-tax cash flow
$4,500
Breakdown
- Building basis (depreciable)$240,000
- Annual depreciation (÷ 27.5)$8,727
- Gross rent$28,800
- − Operating expenses$9,600
- − Mortgage interest$11,500
- − Depreciation$8,727
- = Schedule E taxable income-$1,027
- Depreciation tax shield (24.0%)$2,095/yr
Estimates only. Actual tax outcome depends on passive activity rules, QBI deduction (Section 199A), state tax, and your total income. Always consult a CPA before relying on these numbers for tax planning.
Run the full analysis with these numbers — cash flow, depreciation, after-tax return — freeThe four big rental tax deductions
- Operating expenses. Property tax, insurance, repairs, property management, utilities you pay, HOA, legal, advertising, and supplies may be deductible when they are ordinary, necessary, properly allocated, and otherwise allowed. Timing and treatment vary; improvements generally must be capitalized rather than deducted as repairs.
- Mortgage interest. The interest portion of your mortgage payment — not the principal. Big in year 1, tapers each year.
- Depreciation. 1/27.5th of the building basis per year in a simplified full-year residential-rental example. Basis allocation, placed-in-service timing, personal use, and passive-activity rules can materially change the result.
- Travel + home office (limited). Real estate education, mileage to check properties, portion of home office if you self-manage. Strict documentation required.
For a deeper breakdown of every deductible expense category, see the full guide: 14 rental property tax deductions every landlord should know.
Why your cash flow and your taxable income disagree
Cash flow and tax math measure two different things. Cash flow asks: how much money hit your account this year? Tax math asks: what does the IRS think your income was? Two big differences:
- Principal paydown is cash out but not deductible. You wrote a check for $1,200 of principal — it's gone from your bank — but the IRS treats it as equity, not an expense.
- Depreciation is deductible but not cash out. You didn't spend $8,727 this year — the IRS pretends you did. That phantom deduction often shifts a $5,000-positive cash flow year into a Schedule E paper loss.
Use this when planning: cash-on-cash measures pre-tax dollars in your pocket; cap rate ignores financing + tax; ROI measures total return including the equity build. All three are useful — none of them tells you what you'll actually pay in tax. This calculator does.
Frequently asked questions
How is rental property income taxed?
Many directly owned rentals are reported on Schedule E, but entity, services, mixed-use, ownership, and activity facts can change the form and treatment. TrueCap's gross rent minus modeled expenses, interest, and depreciation is a simplified illustration—not taxable income or tax due. Principal is generally not an expense; interest deductibility and allocation remain fact-specific.
What is rental property depreciation?
Eligible residential rental buildings generally use a 27.5-year GDS recovery period, but land is excluded and basis allocation, placed-in-service date, conventions, personal use, prior depreciation, elections, and other rules affect the deduction. An 80% building allocation and full-year straight-line amount are editable examples, not a filing position or promise of a tax loss.
Can I deduct mortgage payments on rental property?
Principal is generally not a rental expense. Interest allocable to a rental activity may be deductible subject to use, allocation, tracing, limitation, timing, and other rules. Use the lender's tax statement and a qualified preparer rather than a generic amortization percentage.
How much of purchase price is land vs building?
Land is generally not depreciable, but there is no universal land percentage. Support the allocation from the property's facts and appropriate valuation evidence, then have a qualified tax professional review it before filing; TrueCap's default is only a scenario input.
What's the depreciation recapture issue?
A sale can create unrecaptured section 1250 gain and other gain whose character, rate, and amount depend on basis, depreciation allowed or allowable, use, transaction costs, entity, and taxpayer facts. A qualifying 1031 exchange may postpone recognition, and basis-at-death rules depend on then-current law and facts; neither path automatically or indefinitely removes tax.
Are passive losses always deductible?
No. Passive-activity, active-participation special-allowance, material-participation, real-estate-professional, basis, at-risk, excess-business-loss, and disposition rules can all matter. Real-estate-professional status alone does not make every loss currently deductible. TrueCap does not determine eligibility; consult a qualified tax professional.
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