Rental Property Tax Calculator
Rental income is taxed as ordinary income, but depreciation and expenses can create paper losses that offset other income. This calculator models depreciation, the $25,000 passive activity loss allowance, and the AGI phase-out.
Rental Property Income & Expenses
Your Other Income
Rental Income Analysis
Schedule E Summary
Passive Activity Loss (IRC §469)
Tax Impact of Rental Property
How Rental Property Taxes Work
Depreciation is the biggest tax benefit. Residential rental property is depreciated over 27.5 years (straight-line). A $300,000 building creates $10,909/year in depreciation deductions — a paper loss that offsets real rental income. Only the building value is depreciable, not the land.
Passive activity loss rules (IRC §469). Rental activities are generally passive. If your rental shows a net loss after depreciation, you can deduct up to $25,000 against non-passive income (wages, etc.) if you actively participate. This allowance phases out between $100,000 and $150,000 MAGI, losing $0.50 for every $1 over $100K. At $150K MAGI, the allowance is zero.
Married filing separately: the $25,000 allowance is $0 unless you lived apart from your spouse for the entire year.
Depreciation recapture.When you sell a rental property, all prior depreciation is recaptured and taxed at a maximum rate of 25% (IRC §1250). This is often the hidden cost of rental property depreciation.
Real estate professional status. If you spend more than 750 hours per year in real property trades or businesses and materially participate, rental losses are treated as non-passive and can offset unlimited ordinary income. This is a high bar that most W-2 employees cannot meet.
Material participation vs. active participation: Active participation (required for the $25K allowance) is a lower bar — you make management decisions like approving tenants and setting rent. Material participation requires substantially more involvement.