How to Calculate After-Tax Rental Yield
Rental yield measures the annual return from a rental property relative to its purchase price. Gross yield ignores expenses; net yield subtracts operating costs; after-tax yield accounts for income taxes. Each gives a different view of profitability, and all three matter for a complete investment decision.
Yield Comparison Example ($400,000 property, $2,200/mo rent)
| Metric | Value | Calculation |
|---|---|---|
| Gross Yield | 6.60% | $26,400 ÷ $400,000 |
| Net Yield (after $8,000 expenses) | 4.60% | $18,400 ÷ $400,000 |
| After-Tax Yield (22% rate) | 3.59% | $14,352 ÷ $400,000 |
Note that depreciation deductions (not included above) can significantly reduce the taxable portion of rental income. The IRS allows you to depreciate the structure (not land) over 27.5 years, which often creates a paper loss even when the property generates positive cash flow. Consult a CPA for a full tax-optimized analysis.
Frequently Asked Questions
This calculator focuses on yield relative to purchase price (unlevered return). If you use a mortgage, your actual cash-on-cash return on the down payment will be different — higher if the yield exceeds mortgage rate, lower if it does not.
Vacancy is a real cost. If a property is vacant 1 month per year, your effective annual rent is 11/12 of the listed amount. For a more conservative estimate, reduce monthly rent by 5–8% before entering it here.