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Calculate your rental property returns and estimate your income tax liability with our comprehensive rental income calculator.
Whether you're analyzing a potential investment or reviewing an existing property, this tool helps you understand both pre-tax and after-tax returns, including cash-on-cash return, cap rate, and net cash flow after taxes.
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This rental return calculator requires basic information about your property purchase, financing, operating costs, and tax situation:
Property Purchase Details: Enter your purchase price, down payment percentage, and financing terms, including interest rate and amortization period. The calculator uses these to determine your principal and interest payments.
Rental Income & Vacancy: Input your expected monthly rent and annual vacancy days. Most landlords experience 5-15 days of vacancy per year between tenants, though this varies by market and property type.
Operating Expenses: Include your annual property tax, insurance, repairs and maintenance (typically 5-10% of rent), property management fees (usually 8-10% if using a manager), and any leasing fees charged when placing new tenants.
Tax Information: Enter your marginal tax rate and the percentage of your purchase price attributed to land value (typically 10-20%). Land value matters because you can only depreciate the building portion of your property—land isn't depreciable for tax purposes.
Once you've entered your information, click ‘Calculate’ to see your complete return analysis including both pre-tax and after-tax metrics.
Rental income is taxed as ordinary income at your marginal tax rate, but the actual tax you pay is calculated on your taxable rental income not your gross rent collected.
Taxable rental income = Gross rent - Operating expenses - Mortgage interest - Depreciation
This is a crucial distinction. While you might collect $30,000 in annual rent, your actual taxable income could be significantly lower after accounting for deductible expenses and depreciation.
• Operating expenses are fully deductible.
Property tax, insurance, repairs, property management fees, utilities you pay, and other operating costs reduce your taxable income dollar-for-dollar in the year you incur them.
• Mortgage interest is deductible, principal is not.
In the early years of your mortgage, most of your payment goes toward interest, which is tax-deductible. The principal portion builds equity but doesn't reduce your tax liability.
• Depreciation is a non-cash deduction.
The IRS allows you to deduct depreciation on your building (not land) over 27.5 years for residential rental property. This means you get a tax deduction each year even though you're not actually spending money—a powerful benefit that can create "paper losses" while you still generate positive cash flow.
• Paper losses can offset other income.
If your deductible expenses and depreciation exceed your rental income, you may be able to use these losses to offset other ordinary income, subject to passive activity loss rules and income limitations.
The rental income tax calculator follows the same method the IRS uses to determine your taxable rental income:
Step 1: Calculate Net Operating Income (NOI)
Start with your gross rental income and subtract all operating expenses (property tax, insurance, repairs, property management, etc.). This gives you your Net Operating Income—a key metric for evaluating property performance before financing costs.
Step 2: Subtract Mortgage Interest
Deduct the interest portion of your mortgage payments. Note that only interest is tax-deductible; principal payments are not.
Step 3: Calculate and Deduct Depreciation
Take your purchase price, subtract the land value, and divide by 27.5 years (the IRS depreciation schedule for residential rental property). This annual depreciation amount reduces your taxable income.
Step 4: Apply Your Tax Rate
Multiply your taxable rental income by your marginal tax rate to determine your income tax liability.
Example calculation:
• Gross Rent: $30,000
• Operating Expenses: $9,100NOI: $20,900
• Mortgage Interest: $6,953Depreciation: $6,545
Taxable Income: $7,401 | Tax (30% rate): $2,220
In this example, despite earning $30,000 in gross rent and $11,881 in net cash flow before tax, you only pay tax on $7,401.
Rental income is taxed as ordinary income at your marginal federal tax rate, plus any applicable state and local income taxes.
Your rental income tax rate depends on your total taxable income from all sources, including wages, business income, and other rental properties. For 2025/26, federal marginal tax rates range from 10% to 37%:
Cap Rate: Measures your Net Operating Income as a percentage of purchase price. Cap rate is useful for comparing properties regardless of financing—it shows the property's inherent return potential. A higher cap rate generally indicates a better investment, though this varies by market and property type.
Cash-on-Cash Return: Shows your pre-tax cash flow as a percentage of your initial cash investment (down payment plus closing costs). This metric matters most for cash flow investors who care about annual return on dollars invested.
Debt Service Coverage Ratio: Indicates how many times over your NOI covers your mortgage payment. Lenders typically want to see DSCR of 1.25 or higher. A ratio above 2.0 suggests strong cash flow cushion.
After-Tax Return: Your annual profit after paying income taxes on your taxable rental income. This is what you actually keep.
After-Tax Cash Flow: Your net cash remaining after all expenses, debt service, and income taxes. This is the actual cash in your pocket each year.
Cash-on-Cash After-Tax: Your after-tax cash flow as a percentage of invested capital. This is your true annual return accounting for tax liability—often the most meaningful metric for evaluating rental property investments.
Taxable Income: The amount of rental income subject to taxation after all allowable deductions. Note how this is substantially lower than your gross rent or even net cash flow due to mortgage interest and depreciation deductions.
Income Taxes: Your estimated tax liability based on your taxable rental income and marginal tax rate.
Annual Depreciation: The non-cash deduction that reduces your taxable income. Remember this creates a "recapture" tax obligation when you eventually sell, but it provides valuable tax deferral in the meantime.
A good rental return depends on your market and strategy, but most investors target 8-12% cash-on-cash return and 5-8% cap rate. Higher-risk markets may offer 15%+ returns, while stable markets might deliver 6-10%. After-tax cash-on-cash returns of 8-12% are generally considered strong performance.
Related: How Much Profit Should You Make on A Rental Property?
Use your marginal federal income tax rate plus any state income tax. Your marginal rate is the percentage you pay on your last dollar of income. If you're in the 24% federal bracket and your state charges 5%, your combined rate is 29%.
Related: Tax On Rental Income: How Much Tax Do You Owe?
Operating expenses (property tax, insurance, repairs, property management, utilities, HOA fees), mortgage interest, depreciation, travel to the property, advertising for tenants, legal and professional fees, and home office expenses if you qualify.
Principal payments and capital improvements are not deductible.
Related: The Complete Guide To Tax Deductions For Rental Property
Rental income is taxed as ordinary income at your regular tax rates, there's no special lower rate like there is for capital gains.
However, operating deductions and non-cash deductions like depreciation provide a significant tax benefit, allowing you to reduce your taxable rental income, often resulting in lower effective tax rates than wage income.
The IRS requires rental property to be depreciated over what is deemed the assets 'useful life', in the case of residential rental property this is 27.5 years. You calculate depreciation by taking your property's basis (purchase price minus land value) and dividing by 27.5. This annual deduction reduces your taxable income even though it's not an actual cash expense.
Note that commercial real estate has a different 'useful life' set by the IRS and must be depreciated over 39 years.
Related: Understanding Rental Property Depreciation and Depreciation Recapture
You pay tax on your taxable rental income, not cash flow. Due to depreciation and other deductions, you might show a tax loss even with positive cash flow, or you might have taxable income even with negative cash flow. The calculator shows you both your cash flow and taxable income separately.
If you have a tax loss you will not have any taxable income and no income tax will be owed. Tax losses can be carried forward into future tax years.
Related: How Much Cash Flow is Good For a Rental Property?
When you sell, you'll pay a 25% tax on the depreciation you claimed during ownership. However, you can defer this using a 1031 exchange. Despite recapture, depreciation is still beneficial because it defers taxes during ownership, giving you more working capital to grow your portfolio.
Related: Depreciation Recapture In Real Estate
