Guide for rental owners
How much tax will I owe on rental income?
You're taxed on what's left after expenses and depreciation, not on the rent.
You don't pay tax on the rent you collect. You pay tax on what's left after your expenses and depreciation, and for many owners that's a lot less than they expect.
How it's worked out
- Start with the rent you received.
- Subtract your expenses: interest, taxes, insurance, repairs and so on.
- Subtract depreciation.
- What's left is your taxable rental income, taxed at your ordinary income tax rate.
Example
$36,000 of rent − $12,000 of expenses − $9,800 of depreciation → $14,200 taxable. At a 24% rate, that's about $3,400 in federal tax. Without depreciation it would be about $5,760.
Other things to know
- No self-employment tax on a typical long-term rental reported on Schedule E.
- The 3.8% net investment income tax can apply if your modified AGI is over $200,000 (single) or $250,000 (married filing jointly).
- State income tax usually applies too, at your state's rates.
- A loss may lower your other taxes or carry forward. See passive loss carryover.
Tethered Properties does this for you
Tethered Properties shows how much of your rent is actually taxable so far this year, and an estimate of the tax to set aside, updated with every entry.
This guide is general information for rental owners, not tax advice. Tax rules change and every situation is different; your CPA or tax advisor knows your full picture. Figures are estimates.