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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.
The four big rental tax deductions
- Operating expenses. Property tax, insurance, repairs, property management, utilities you pay, HOA, legal, advertising, supplies. All deductible in the year paid.
- 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. The single most powerful tax deduction in residential real estate — turns most cash-flow-positive rentals into tax-loss reporters.
- 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?
Rental income flows through Schedule E of your personal tax return. The math: gross rent minus operating expenses minus mortgage interest minus depreciation = Schedule E taxable income. That number is then taxed at your marginal income tax rate. Importantly, principal paydown is NOT a deduction — only interest is.
What is rental property depreciation?
The IRS lets you deduct 1/27.5th of the building's value every year for residential rental property — pretending the building wears out over 27.5 years even when it doesn't. On a $300,000 property with 80% building basis, that's $8,727/year of paper deduction. Most rental properties show a Schedule E tax loss even when they generate positive cash flow — because of depreciation.
Can I deduct mortgage payments on rental property?
Only the interest portion, not the principal. Principal paydown is treated as equity build, not an expense. This is why year-1 of a financed rental shows much bigger tax deductions than year-30 — early-year payments are 80%+ interest, late-year payments are 80%+ principal.
How much of purchase price is land vs building?
Land is non-depreciable. Most CPAs use 15-25% land allocation as a default — actual ratio depends on the local property tax assessor's split, comparable land sales in the area, or a formal appraisal. Higher land % = lower depreciation deduction. Get your CPA's view before filing; the IRS scrutinizes outlier ratios.
What's the depreciation recapture issue?
When you sell, the IRS 'recaptures' the depreciation you took — taxed at up to 25%. So depreciation isn't free money; it's a tax deferral. Two ways to defer the recapture: (1) hold forever and step up basis at death, or (2) 1031 exchange into another rental. Both push the tax liability indefinitely.
Are passive losses always deductible?
Not always. The IRS limits rental losses against ordinary income. If your AGI is under $100k, you can deduct up to $25k/yr of rental losses against ordinary income (phases out at $150k AGI). Above $150k, losses become 'suspended' — carried forward until you have rental income OR sell the property. Real estate professional status (REPS) bypasses this limit.
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