Rental Income Tax Calculator
Model the depreciation shelter, the passive-loss taper and the recapture bill that builds quietly underneath a rental — all on 2026 rules.
Rental Income Tax Calculator
Results recalculate instantly on every keystroke. Nothing you type is transmitted.
What this result does not account for
- Uses a full-year depreciation convention; the true first and last years use a mid-month convention.
- Assumes active participation and a single filer at 2026 thresholds.
- Does not model real estate professional status or the short-term rental exception, which remove the passive limitation entirely.
- Recapture is shown at the 25% maximum; your effective rate is lower if your bracket is below it.
In short: A rental collecting $30,000 with $10,500 of expenses and $11,000 of mortgage interest produces $8,500 of cash but a $1,500 taxable LOSS, because $10,000 of depreciation is deducted without being spent. At $120,000 of MAGI that loss is deductible, refunding $330.00 — but the depreciation accrues a 25% recapture bill payable on sale.
Formula
Allowed or allowable is the phrase that catches people. The recapture is computed on the depreciation you were entitled to take, whether or not you actually claimed it, so failing to depreciate costs you the deduction without avoiding the tax.
Worked Example
- Separate the building from the land. Only the building depreciates. A $275,000 building over 27.5 years gives $10,000 a year of deduction that costs no cash.
- Compute the real cash. $30,000 of rent less $10,500 of operating expenses and $11,000 of interest leaves $8,500 of actual cash in hand.
- Apply depreciation to reach the taxable figure. $8,500 of cash less $10,000 of depreciation is a $1,500 taxable loss — depreciation is 117.65% of the cash flow, so it erases the entire taxable profit.
- Test the loss against the passive-loss taper. At $120,000 of MAGI the $25,000 allowance is tapered by $10,000 to $15,000, which comfortably covers the $1,500 loss. It refunds $330.00 at the 22% marginal rate.
- Count the bill accruing underneath. Ten years of depreciation is $100,000, carrying $25,000 of recapture at 25% on sale — 29.41% of all the cash the property will have produced.
Depreciation is the reason a rental can pay you cash and report a loss, and it is also a deferral rather than a forgiveness. The recapture is charged at up to 25%, which is higher than the 15% long-term rate on the appreciation itself. Investors who model only the annual shelter and never the exit consistently overstate their returns.
Strengths & Limits Of This Model
Where this engine is strong
- Shows the gap between cash collected and income reported, which is the whole point of the asset.
- Applies the passive-loss taper rather than treating the $25,000 allowance as universal.
- Accrues the recapture liability that annual-cash-flow models ignore.
Where it stops
- Does not model cost segregation, which accelerates depreciation substantially.
- Treats a single property in isolation rather than netting across a portfolio.
- Ignores state income tax on the rental, which varies widely.
Practical Use Cases
Deciding whether a rental will shelter your salary
Only if your MAGI is under $150,000 and you actively participate. Above that the loss suspends and waits for the sale.
Setting the land-to-building split at purchase
A higher building allocation raises annual depreciation and the eventual recapture. The property tax assessment is the usual defensible source for the split.
Modelling the exit before you buy
Recapture plus capital gain determines the real return. Pair with the Capital Gains Tax Calculator.
Comparing a rental against a passive alternative
A rental producing $8,500 of pre-tax cash on real equity should be judged after recapture. Benchmark against the Tax Equivalent Yield Calculator.
Methodology & Editorial Standards
Residential rental property is depreciated straight line over 27.5 years under the General Depreciation System per IRS Publication 527, applied to the building only; land is never depreciable. This engine uses a full-year convention rather than the mid-month convention of the first and last years, which slightly overstates depreciation in those two years. Rental activity is passive under IRC 469; the special allowance of $25,000 for active participants is reduced by 50 cents per dollar of modified AGI above $100,000 and is eliminated at $150,000. Those thresholds have not been indexed since 1986. Suspended losses carry forward indefinitely and are released in full on a fully taxable disposition to an unrelated party under IRC 469(g). Cumulative depreciation is recaptured on sale as unrecaptured section 1250 gain at a maximum federal rate of 25% under IRC 1(h)(1)(E), computed on depreciation allowed or allowable. Real estate professional status and the short-term rental exception both remove the passive limitation and are not modelled here, nor is the section 199A deduction that may apply to a rental rising to the level of a trade or business. The engine implements the standard published formula for this calculation. Inputs are validated for domain and sign before evaluation, and any undefined case returns an em-dash rather than a spurious value.
Computation runs in IEEE-754 double precision at full internal precision; rounding to two decimal places occurs strictly at the display layer, so no cumulative drift enters the result. All monetary outputs use accounting presentation — grouped thousands, two decimals, negatives in parentheses — so figures can be transcribed directly into a model or working paper. Division-by-zero and out-of-domain inputs return an em-dash rather than a misleading number.
This engine was reconciled against an independent reference implementation and hand-verified for the worked example above before release. Our full five-stage review process is published on the About Us page.
Disclaimer. This calculator is provided for informational and modelling purposes only and does not constitute financial, tax, legal, medical, or engineering advice. Verify all figures with a qualified professional before acting on them.
Rental Income Tax Calculator — 20 Expert FAQs
20 analyst-written answers to the questions practitioners actually ask — optimised for voice and answer-engine retrieval.
How can my rental pay me cash and still report a loss?
Depreciation is deducted without being spent. Here $10,000 of depreciation turns $8,500 of real cash into a $1,500 reported loss.
How long do I depreciate a residential rental over?
27.5 years, straight line, on the building only. Commercial property uses 39 years. Land is never depreciable.
Can I deduct rental losses against my salary?
Up to $25,000 if you actively participate and your MAGI is at or below $100,000. The allowance tapers by 50 cents per dollar above that and is gone at $150,000.
What happens to a loss I cannot use?
It is suspended and carried forward indefinitely. It offsets future passive income, or is released in full when you sell the property in a fully taxable sale.
What is depreciation recapture?
On sale, the cumulative depreciation is taxed as unrecaptured section 1250 gain at up to 25%. Here ten years of depreciation carries a $25,000 bill.
Can I avoid recapture by not claiming depreciation?
No, and this is the costliest misunderstanding in the field. Recapture applies to depreciation allowed or allowable, so skipping it loses the deduction without avoiding the tax.
How do I split the purchase price between land and building?
The property tax assessment ratio is the most commonly accepted method. Only the building portion depreciates, so the split materially affects your deduction.
Is mortgage principal deductible?
No. Only the interest portion is deductible. Principal is a return of borrowed capital, which is why cash flow and taxable income diverge.
What counts as active participation?
A low bar: owning at least 10% and making genuine management decisions such as approving tenants, setting rents and authorising repairs. You may still use a property manager.
What is real estate professional status?
More than 750 hours and over half your working time in real property trades, plus material participation. It removes the passive limitation entirely, with no income cap.
Does the short-term rental exception help high earners?
Often, yes. If the average guest stay is seven days or less the activity is not a rental activity for passive-loss purposes, so material participation makes the losses non-passive.
Can a 1031 exchange defer the recapture?
Yes. A like-kind exchange defers both the capital gain and the recapture into the replacement property, though the deferred liability follows the basis.
Are repairs and improvements treated the same?
No. A repair is deductible immediately; an improvement must be capitalised and depreciated. The betterment, restoration and adaptation framework governs the distinction.
Does the $25,000 allowance rise with inflation?
No. It and the $100,000 to $150,000 phase-out band have been fixed since 1986, so more landlords lose the allowance every year.
What is cost segregation?
A study that reclassifies parts of the building into 5, 7 and 15-year property, accelerating depreciation substantially. It is not modelled here and warrants professional analysis.
Is this rental income tax calculator free to use?
Yes. It is free, requires no account, and has no usage limits. ApexConverter is funded by contextual advertising, never by selling user data.
Is my data sent to a server?
No. The engine runs as Vanilla JavaScript inside your browser under our Zero-Server Client-Side Execution model. Your figures are computed locally and are never transmitted, logged, or stored.
How accurate is this calculator?
It applies the standard closed-form formula in IEEE-754 double precision, rounding only at the display layer. The engine is reconciled against an independent reference implementation before release.
Does it work on mobile?
Yes. The interface is mobile-first with numeric keypad hints and is tested down to a 320-pixel viewport with no horizontal scrolling.
Can I use it offline?
Largely, yes. Because computation is client-side, the page continues to calculate without a network connection once it has loaded.