Most rental calculators show cash flow. This one shows what the IRS sees: your real Schedule E taxable income after depreciation — the deduction that turns many cash-positive rentals into paper losses. Find out what you'll actually owe, and whether you're missing the biggest deduction in real estate.
The mistake that costs landlords thousands: Depreciation must be recaptured when you sell — whether you claimed it or not ("allowed or allowable," IRS Pub 527). If you're not claiming it, you're paying tax now AND paying recapture later. This tool shows exactly what you're leaving on the table.
Start the Estimator
YOUR RENTAL PROPERTYStep 1 of 5
Step 1 — Rental Income
What's your monthly rent?
Enter the monthly rent you collect. We'll annualize it and account for vacancy in the next steps.
$
$500$8,000
Vacancy this year (months with no tenant)
Step 2 — Your Property (For Depreciation)
What did you pay for the property?
Depreciation is calculated on the building value only — not the land. This is usually the largest deduction landlords have.
Purchase price (+ major improvements)
$
Building portion (% of value that's NOT land)
Typical: 75–85%. Check your county assessor's land/building split.
Are you currently claiming depreciation on your tax return?
Yes
On Schedule E every year
No
Never claimed it
Not sure
My preparer handles it
Step 3 — Annual Operating Expenses
What are your annual property expenses?
Enter annual amounts. Rough estimates are fine — you can refine later.
Mortgage interest (not principal)
$
Property tax
$
Insurance
$
Repairs & maintenance
$
Property management (if any)
$
Other (HOA, utilities, advertising, travel)
$
⚠️ Repairs vs. improvements: Repairs (fixing a leak, patching drywall) are deductible this year. Improvements (new roof, kitchen remodel) must be depreciated over 27.5 years — don't include them here; add them to your purchase price in Step 2 instead.
Step 4 — Your Tax Situation
A few details about your overall taxes.
These determine your marginal rate on rental income — and whether rental losses are deductible against your other income.
Filing status
Single
Married (Joint)
Head of Household
Your total income from other sources (W-2, business, etc.) — this is roughly your MAGI before rental
$
💡 This matters because if your rental shows a loss, the $25,000 passive loss allowance phases out between $100,000–$150,000 MAGI.
ℹ️ What counts toward MAGI: W-2 wages, self-employment income, interest & dividends, retirement account distributions (traditional IRA/401k), and most other taxable income — before the standard deduction. Entering the wrong number here is the most common cause of a wildly wrong loss-deduction estimate.
Step 5 — Your Involvement
Do you actively participate in managing this rental?
"Active participation" is a low bar: you make management decisions like setting rent, approving tenants, or authorizing repairs — even if a property manager handles day-to-day.
Yes, I make the decisions
I set rent, approve tenants, or authorize repairs
No, fully hands-off
Someone else makes all decisions (e.g., limited partner)
This determines whether you qualify for the $25,000 passive loss allowance if your rental shows a loss (IRS Publication 925).
⚠️ Federal taxes only: This calculator estimates federal income tax on rental income. State income tax (0–13.3% depending on your state) and local taxes are not included. Some states also have specific rental income rules that differ from federal treatment.
Why Depreciation Changes Everything for Landlords
Depreciation is the reason many profitable rentals pay little or no tax. The IRS lets you deduct the cost of your residential rental building over 27.5 years — even while the property appreciates in market value. On a $300,000 property with an 80% building allocation, that's roughly $8,727 per year in deductions that require zero cash outlay (IRS Publication 527).
Here's the critical detail most landlords miss: depreciation recapture applies whether you claimed the deduction or not. The IRS rule is "allowed or allowable" — when you sell, your cost basis is reduced by the depreciation you could have claimed, and that amount is taxed at up to 25% (unrecaptured Section 1250 gain). A landlord who never claims depreciation pays full tax on rental income every year AND pays recapture tax at sale. Claiming it is not optional in any practical sense — it's the single most expensive mistake in rental property taxation.
The Passive Loss Rules in Plain English
Rental real estate is classified as a passive activity by default (IRC Section 469). Passive losses normally can only offset passive income — not your W-2 salary. But there's an important exception: if you actively participate in managing your rental and your modified adjusted gross income (MAGI) is $100,000 or less, you can deduct up to $25,000 of rental losses against your ordinary income. Between $100,000 and $150,000 MAGI, this allowance phases out at 50 cents per dollar. Above $150,000, it's gone entirely — but disallowed losses aren't lost. They carry forward and become deductible when you have passive income or when you sell the property.
2026 Numbers This Calculator Uses
Residential depreciation period: 27.5 years straight-line (IRS Pub 527). Passive loss allowance: $25,000 with $100k–$150k MAGI phase-out (IRS Pub 925). Net Investment Income Tax: 3.8% on rental income when MAGI exceeds $200,000 single / $250,000 married filing jointly. 2026 federal brackets and standard deductions per IRS Rev. Proc. 2025-32. De minimis safe harbor: items under $2,500 can be expensed immediately.
Frequently Asked Questions
Technically it's a deduction, not a requirement — but the IRS treats it as if you claimed it either way. Under the "allowed or allowable" rule, when you sell, your cost basis is reduced by all the depreciation you could have claimed, and that amount is subject to recapture tax at up to 25%. Skipping depreciation means paying more tax now and the same recapture tax later. If you haven't been claiming it, a CPA can often fix prior years using Form 3115 (change in accounting method) and recover the missed deductions.
Only under specific conditions. If you actively participate in managing the rental and your MAGI is $100,000 or less, you can deduct up to $25,000 in rental losses against ordinary income. The allowance phases out between $100,000–$150,000 MAGI and disappears above $150,000. Real estate professionals (750+ hours/year in real estate, more than half of total working time) can deduct unlimited rental losses. Disallowed losses carry forward — they're deferred, not lost.
A repair keeps the property in its ordinary working condition (fixing a leak, patching drywall, replacing a broken window pane) and is fully deductible in the year paid. An improvement adds value, adapts the property to a new use, or extends its life (new roof, kitchen remodel, room addition) — it must be capitalized and depreciated over 27.5 years. The IRS uses the "BAR test": Betterment, Adaptation, or Restoration means improvement. One helpful exception: the de minimis safe harbor lets you immediately expense items costing $2,500 or less per invoice.
Long-term rentals go on Schedule E — this means the income is NOT subject to self-employment tax (a significant advantage over business income). Schedule C applies only when you provide substantial services to tenants (like a bed-and-breakfast or hotel-style operation) or for certain short-term rental situations. If you host on Airbnb with average stays of 7 days or less and provide substantial services, your income may belong on Schedule C — with SE tax consequences. This distinction is worth a CPA conversation for short-term rental hosts.
The NIIT is an additional 3.8% federal tax on net investment income — including net rental income — that applies when your MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). If your total income is below these thresholds, NIIT doesn't apply to you. If you're above them, your net rental profit is taxed at your marginal rate plus 3.8%. This calculator flags NIIT automatically based on your income inputs.
All depreciation claimed (or claimable) reduces your cost basis, and that portion of your gain is taxed as "unrecaptured Section 1250 gain" at a maximum rate of 25% — separate from and typically higher than the long-term capital gains rate on the rest of your appreciation. A 1031 exchange can defer both the capital gain and the depreciation recapture indefinitely by rolling into another investment property. Planning the exit is as important as planning the hold — our Sell vs Keep Calculator (coming soon) models this decision.