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Investment Property Tax Calculator

Calculate depreciation, deductions, and after-tax rental income

After-Tax Rental Income

$3,311

Depreciation

$8,727/yr

Tax Savings

$1,711

Cash-on-Cash

5.5%

$
$

Land cannot be depreciated. Typical split: 20% land, 80% building.

$
$
$

Insurance, repairs, management fees, etc.

$
$
%

After-Tax Rental Income

$3,311

per year

Cash-on-Cash Return

5.5%

Monthly After-Tax

$276

Tax Deductions

Depreciation (27.5 yr)$8,727
Mortgage Interest$14,000
Property Tax$3,600
Operating Expenses$4,800
Total Deductions$31,127

Income Summary

Gross Rental Income$24,000
Net Rental Income (pre-tax)$1,600
Taxable Income-$7,127 (paper loss)
Tax Savings (passive loss)+$1,711
After-Tax Income$3,311

Frequently Asked Questions

Q

How does rental property depreciation work?

Residential rental property is depreciated over 27.5 years using straight-line depreciation. Only the building value is depreciable, not land. For a $300,000 property with $60,000 land value: ($300,000 - $60,000) / 27.5 = $8,727/year in depreciation deductions.

  • Only the building (not land) can be depreciated: Cost Basis = Purchase Price - Land Value
  • $300K purchase with $60K land = $240K cost basis / 27.5 = $8,727/year
  • Straight-line method: same deduction every year for 27.5 years
  • Depreciation is a "paper loss" that reduces taxable income without cash outflow
  • At 24% tax bracket, $8,727 depreciation saves $2,094/year in taxes
Purchase PriceLand Value (20%)Cost BasisAnnual Depreciation
$200,000$40,000$160,000$5,818
$300,000$60,000$240,000$8,727
$400,000$80,000$320,000$11,636
$500,000$100,000$400,000$14,545
Q

What expenses can I deduct on a rental property?

Deductible expenses include mortgage interest, property taxes, insurance, repairs, property management fees (8-12% of rent), depreciation, and travel to the property. Improvements must be depreciated, while repairs can be deducted immediately.

  • Mortgage interest: often the largest deduction ($10,000-$20,000/year)
  • Property taxes: fully deductible against rental income (no SALT cap)
  • Depreciation: $5,000-$15,000/year depending on property value
  • Repairs and maintenance: immediately deductible (new faucet, paint, etc.)
  • Property management: 8-12% of collected rent
  • Insurance, HOA fees, advertising, and professional services
Q

What is a passive loss and how does it reduce my taxes?

When rental deductions exceed rental income, you have a passive loss. If your AGI is under $100,000, you can deduct up to $25,000 in passive losses against ordinary income. This phases out between $100K-$150K AGI. Real estate professionals have no limit.

  • Passive loss = Rental deductions > Rental income (common due to depreciation)
  • Up to $25,000 deductible against W-2/ordinary income if AGI < $100,000
  • Phase-out: $1 reduction per $2 of AGI over $100,000 (gone at $150,000)
  • Unused passive losses carry forward to future years
  • Real estate professional status: no passive loss limits (750+ hours/year)
AGIMax Passive Loss DeductionTax Savings at 24%
$80,000$25,000$6,000
$100,000$25,000$6,000
$120,000$15,000$3,600
$150,000+$0 (carries forward)$0
Q

How do I calculate after-tax cash-on-cash return?

After-tax cash-on-cash = After-Tax Income / Total Cash Invested x 100. For $60,000 down payment generating $5,400 after-tax income: $5,400 / $60,000 = 9.0%. This measures actual cash returns on the money you put in, after accounting for all tax effects.

  • Formula: After-Tax Income / Down Payment x 100
  • Net rental income = Gross rent - expenses - mortgage payment (P&I portion)
  • Tax effect: subtract tax owed on positive income, or add tax savings from losses
  • Example: $24,000 rent - $22,400 expenses - $2,094 tax benefit = $3,694 after-tax
  • $3,694 / $60,000 down payment = 6.2% after-tax cash-on-cash return
Q

What happens to depreciation when I sell the property?

When you sell, the IRS recaptures depreciation at a 25% rate (Section 1250). If you claimed $87,273 in depreciation over 10 years, you owe 25% x $87,273 = $21,818 in depreciation recapture tax, plus capital gains tax on any appreciation.

  • Depreciation recapture is taxed at 25% (not your ordinary rate)
  • 10 years of $8,727/yr depreciation = $87,273 total recapture
  • Recapture tax: $87,273 x 25% = $21,818
  • 1031 exchange: defer both capital gains and depreciation recapture
  • Even with recapture, the time value of tax deferral makes depreciation valuable

Example Calculations

1$300,000 Rental Property at 24% Tax Rate

Inputs

Purchase Price$300,000
Land Value$60,000 (20%)
Annual Rental Income$24,000
Operating Expenses$4,800
Mortgage Interest$14,000
Property Tax$3,600
Tax Rate24%
Down Payment$60,000

Result

After-Tax Rental Income$3,310/yr
Annual Depreciation$8,727
Total Deductions$31,127
Cash-on-Cash Return5.5%

Depreciation = ($300,000 - $60,000) / 27.5 = $8,727/yr. Total deductions = $8,727 + $14,000 + $3,600 + $4,800 = $31,127. Taxable income = $24,000 - $31,127 = -$7,127 (paper loss). Tax savings = $7,127 x 24% = $1,710. Net rental income = $24,000 - $4,800 - $14,000 - $3,600 = $1,600. After-tax = $1,600 + $1,710 = $3,310. Cash-on-cash = $3,310 / $60,000 = 5.5%.

2$500,000 Rental Property at 32% Tax Rate

Inputs

Purchase Price$500,000
Land Value$100,000 (20%)
Annual Rental Income$36,000
Operating Expenses$7,200
Mortgage Interest$22,000
Property Tax$6,000
Tax Rate32%
Down Payment$100,000

Result

After-Tax Rental Income$5,198/yr
Annual Depreciation$14,545
Total Deductions$49,745
Cash-on-Cash Return5.2%

Depreciation = ($500,000 - $100,000) / 27.5 = $14,545/yr. Total deductions = $14,545 + $22,000 + $6,000 + $7,200 = $49,745. Taxable income = $36,000 - $49,745 = -$13,745 (paper loss). Tax savings = $13,745 x 32% = $4,398. Net rental income = $36,000 - $7,200 - $22,000 - $6,000 = $800. After-tax = $800 + $4,398 = $5,198. Cash-on-cash = $5,198 / $100,000 = 5.2%.

Formulas Used

Annual Depreciation (Straight-Line)

Annual Depreciation = (Purchase Price - Land Value) / 27.5

Calculates the yearly depreciation deduction for a residential rental property using the IRS straight-line method.

Where:

Purchase Price= Total acquisition cost of the property
Land Value= Value of the land (not depreciable)
27.5= IRS recovery period for residential rental property (years)

Source: IRS Publication 946

Taxable Rental Income

Taxable Income = Gross Rent - Operating Expenses - Mortgage Interest - Property Tax - Depreciation

Calculates the net taxable income from rental operations after all deductions.

Where:

Gross Rent= Total annual rental income collected
Operating Expenses= Insurance, repairs, management fees, etc.
Mortgage Interest= Annual interest portion of mortgage payments
Property Tax= Annual property tax paid
Depreciation= Annual straight-line depreciation deduction

After-Tax Cash-on-Cash Return

Cash-on-Cash = (After-Tax Income / Down Payment) x 100

Measures the after-tax return on the actual cash invested in the property.

Where:

After-Tax Income= Net rental income after all taxes and deductions
Down Payment= Total cash invested (down payment + closing costs)

Understanding Investment Property Tax Benefits

Investment property offers some of the most powerful tax benefits available to individual investors. Depreciation allows you to deduct the cost of the building over 27.5 years, creating "paper losses" that offset rental income and potentially other income.

Our calculator computes annual depreciation based on the IRS straight-line method, factors in mortgage interest and property tax deductions, and shows your true after-tax rental income. The results help you understand how tax benefits improve your real returns.

Keep in mind that tax laws are complex and individual situations vary. Consult a tax professional for advice specific to your situation, especially regarding passive activity rules, depreciation recapture, and 1031 exchanges.

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Last Updated: Mar 25, 2026

This calculator is provided for informational and educational purposes only. Results are estimates and should not be considered professional financial, medical, legal, or other advice. Always consult a qualified professional before making important decisions. UseCalcPro is not responsible for any actions taken based on calculator results.

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