1. What is Rental Income Tax?

Rental income tax is the tax levied on the profit earned from renting out property. It's calculated by subtracting allowable deductions from gross rental income and applying the appropriate tax rate.

2. How the Calculation Works

The calculator uses the following formula:

Where:

• Rental Income — Total rent received from tenants
• Allowances — Depreciation and other non-cash deductions
• Expenses — Direct costs of maintaining the rental property
• Tax Rate — Your applicable income tax rate

Explanation: The calculation determines your taxable rental profit by subtracting legitimate expenses from gross income, then applies your tax rate to determine the tax liability.

3. Importance of Accurate Calculation

Details: Proper calculation ensures compliance with tax laws while maximizing legitimate deductions. Under-reporting can lead to penalties, while over-reporting means paying more tax than necessary.

4. Using the Calculator

Tips: Enter all amounts in dollars without commas. Include all deductible expenses like repairs, insurance, property taxes, and mortgage interest. The tax rate should be your marginal rate for rental income.

5. Frequently Asked Questions (FAQ)

Q1: What expenses are deductible?
A: Common deductions include mortgage interest, property taxes, insurance, maintenance, repairs, utilities, and property management fees.

Q2: How is depreciation calculated?
A: Residential properties depreciate over 27.5 years. Divide property value (excluding land) by 27.5 for annual depreciation.

Q3: Are security deposits taxable?
A: Only if kept due to damage. Normal security deposits returned to tenants aren't taxable income.

Q4: What if I have rental losses?
A: Losses may be deductible against other income, subject to passive activity rules and income limits.

Q5: Should I use cash or accrual accounting?
A: Most small landlords use cash basis (recording income when received and expenses when paid).