1. What is Rental Property Net Income?

Rental property net income is the actual profit after accounting for all expenses and depreciation. It's a key metric for evaluating the financial performance of rental properties and determining taxable income.

2. How Does the Calculator Work?

The calculator uses the basic rental property income formula:

Where:

• \( \text{Rental Income} \) — Total gross rent collected
• \( \text{Expenses} \) — All deductible operating expenses
• \( \text{Depreciation} \) — Annual depreciation divided by 12 months

Explanation: Depreciation is a non-cash expense that accounts for the wear and tear of the property over time (typically calculated over 27.5 years for residential properties).

3. Importance of Depreciation in Rental Income

Details: Depreciation reduces taxable income while preserving cash flow. It's a powerful tax benefit of real estate investing that can make a property appear to lose money on paper while actually generating positive cash flow.

4. Using the Calculator

Tips: Enter all values in USD/month. For depreciation, divide the property's cost basis by 27.5 years (for residential) or 39 years (for commercial), then by 12 months.

5. Frequently Asked Questions (FAQ)

Q1: What expenses are deductible for rental properties?
A: Mortgage interest, property taxes, insurance, maintenance, repairs, utilities, property management fees, and other operating expenses.

Q2: How is depreciation calculated?
A: (Property cost - land value) / 27.5 years for residential or 39 years for commercial properties.

Q3: What's the difference between cash flow and net income?
A: Cash flow includes all cash transactions, while net income includes non-cash items like depreciation.

Q4: When does depreciation recapture occur?
A: When you sell the property for more than the depreciated value, the IRS "recaptures" the depreciation at a special tax rate.

Q5: Can I depreciate the land value?
A: No, land never depreciates. Only the building and improvements can be depreciated.