Rental property tax calculator — Schedule E, depreciation and passive losses

Worked example

With the default inputs, the property collects $26,220 and pays $11,598 in operating costs and $18,189 of mortgage interest. Depreciation on the building — 80% of the price plus closing costs, spread over 27.5 years — adds a $10,678 deduction. On paper the rental loses $14,244.

With other income of $90,000, the loss qualifies for the $25,000 special allowance, so $14,244 offsets wages and saves $3,846 of federal and state tax. Cash flow before tax is -$6,710; after tax it is -$2,864.

How the calculation works

Depreciation. Residential rental buildings are depreciated straight-line over 27.5 years using the mid-month convention: a property placed in service in February gets 3.182% in the first year, the example in IRS Publication 527 that our engine reproduces. Land is not depreciable, so enter a realistic land share.

Passive losses. Rental activities are passive. Under IRC §469(i), if you actively participate you can deduct up to $25,000 of rental losses against other income; the allowance falls by 50 cents for each dollar of adjusted gross income above $100,000 and is gone at $150,000. Losses you can't use are suspended, carried forward against future rental income, and released in full when you sell the property in a taxable sale.

The rental's income or loss sits on top of your wages, so it is taxed at your marginal rate. KeptOffer shows what your wages alone leave you after tax.

Federal tax. The engine uses the 2026 brackets and standard deduction from Rev. Proc. 2025-32 and adds the 3.8% net investment income tax when your modified AGI exceeds $200,000 ($250,000 joint). State tax is a flat rate you enter.

What this calculator does not include

• Real estate professional status and short-term rental rules, which can make losses non-passive.
• Bonus depreciation or cost segregation studies.
• Itemized deductions, credits, the QBI deduction and AMT.
• State-specific rules — the state rate is a flat approximation.
• Married filing separately and head of household (single and joint only).

Questions landlords ask

Is depreciation on a rental optional?

No. IRS Publication 527 says your basis is reduced by the depreciation you were allowed to take even if you did not claim it, and that reduced basis is used when you sell.

Can rental losses offset my W-2 income?

Up to $25,000 a year if you actively participate and your AGI is $100,000 or less, phasing out completely at $150,000. Above that, losses are suspended until you have rental income or sell.

Is mortgage principal deductible?

No. Only interest is deductible; principal reduces your cash flow but not your taxable income.

Does net investment income tax apply to rental income?

Rental income is generally investment income for NIIT. The 3.8% tax applies to the lesser of that income and the amount by which modified AGI exceeds $200,000 ($250,000 joint).