Investment Property Tax Calculator

Taxable rental income is rarely the same as the rent you collect. What you actually owe depends on the deductions you can apply against that gross income, and the three big ones are operating expenses, mortgage interest, and depreciation. Getting these right is what separates a property that looks profitable on paper from one that genuinely lowers your tax bill.

The estimate is built by starting from total rental income and subtracting deductible items in layers: operating expenses such as property taxes, insurance, and maintenance, then deductible mortgage interest, and finally depreciation. Depreciation on residential rental property follows the Modified Accelerated Cost Recovery System (MACRS), which spreads the building's cost, not the land's, over 27.5 years on a straight-line basis. You enter that yearly figure yourself: a full year is the depreciable basis divided by 27.5, and the first year is prorated under the mid-month convention. The calculator multiplies the taxable rental income, shown as zero if the deductions exceed the rent, by the bracket you pick, and its net income after tax is rent minus operating expenses, mortgage interest and that tax, since depreciation costs no cash.

Documentation is where investors most often lose money. Without thorough records of every dollar of income and expense, legitimate deductions go unclaimed simply because they can't be substantiated. Watch the passive activity loss rules as well: unless you qualify as a real estate professional, those rules can cap how much of a rental loss you're allowed to deduct against income from other sources.