US Rental Income Tax Basics
Net rental income (gross rent minus allowable deductions) is taxed as ordinary income at your marginal federal tax rate. The key to minimizing rental tax is maximizing legitimate deductions.
- Common deductions: mortgage interest, property tax, depreciation (27.5-year straight-line), repairs, insurance
- Net income = Gross rent - All deductible expenses
- Tax owed = Net income × your marginal rate
Depreciation is one of the most valuable deductions — residential rental property is depreciated over 27.5 years. Consult a tax professional for depreciation calculations specific to your property.
Frequently Asked Questions
Generally no — passive rental income is not subject to self-employment tax (15.3%). However, if you are a real estate dealer or provide substantial services, it may be treated as active income.
Rental losses are generally passive. If your AGI is under $100,000 and you actively manage the property, you may deduct up to $25,000 in losses against ordinary income. Above $150,000 AGI, this allowance is phased out.