Rental Property Calculator
Introduction to the Rental Income Calculator
For many investors, rental property can provide an excellent source of passive income. Before investing, however, you need to determine, with reasonable certainty, whether a property is a sound investment.
Rental Income Calculator prepares a before and after-tax income analysis.
- Considers taxes, inflation, cash investment, debt, depreciation, and more.
- Export to XLSX/DOCX.
Calculating Rental Property Profitability–FAQs
- What is the most important calculation when investing in a rental property?
- The most important calculation is the annualized rate–of–return (ROR). Many calculators can show profit and loss, but you need the ROR to understand how the property performs compared with other investments.
- How do you calculate an investment property’s ROR?
- Use a rental property calculator to first create an income cash flow schedule. The calculator will then calculate the ROR.
- What details do you need to prepare a rental income statement?
- You should know the gross income from rents, the property cost (for depreciation), maintenance expenses, mortgage payment amounts, and the projected occupancy rate.
- What is the tax impact of selling an investment property?
- A rental investment calculator needs to calculate taxes on capital gains and allow for depreciation recapture to determine the full tax impact.
- What is the impact of inflation on investment property profits?
- If you invest in real estate, your income and costs will not remain constant. A calculator should allow you to enter separate estimated annual increases for rental income, expenses, and property taxes.
Creating a cash flow summary can involve detailed work. It is particularly time–consuming if you include taxes to calculate an after–tax ROR.
This Rental Property Calculator (also called the Rental Income Calculator, Investment Property Cash Flow Calculator, or Real Estate Investment Calculator) removes much of this work.
Note: when you first review this calculator, do not be discouraged by the number of inputs. The calculator creates a thorough investment property cash flow schedule. You may leave many inputs set to 0 and update them later when you are ready (do not forget to save your work by clicking on “File”). More below…
The Calculator-Calculate a rental property’s profit and loss and cash flow
To set your preferred currency and date format, click the “$ : MM/DD/YYYY” link in the lower-right corner of any calculator.
Information
Options, settings, and inputs explained
Tip: Before changing inputs, first click on the “Cash Flow Schedule.” This lets you see the result you are working toward before reviewing the requirements for each input or drop-down.
At this point, we need to reference specific U.S. tax rules. The calculator follows the Internal Revenue Code (IRC) as closely as possible. Where appropriate, exceptions are noted. Investors should not focus on details that may be unclear or not yet relevant. For example, depreciation recapture may have a tax impact depending on prior filings and circumstances. However, it becomes an issue only when you sell the property. If your analysis spans 20 years, future tax rules may change.
Let’s begin. The following explains every input.
Property
Purchase Price — The closing price or contract price of the rental property. In tax terms, the closing price is the “basis.”
Value of Land — Estimate the value of the land. The estimate is deducted from the “Adjusted Basis.” Per IRS Publication 527 Residential Rental Property 2023 (Revised 18-Sep-2023), p.9
Certain property can’t be depreciated. This includes land and certain excepted property. You can’t depreciate the cost of land because land generally doesn’t wear out, become obsolete, or get used up. But if it does, the loss is accounted for upon disposition.
Additions to Purchase Price — When buying a rental property, you cannot expense (deduct from income) all costs associated with purchasing and preparing the building for use. Certain closing and development costs must be depreciated rather than expensed immediately. Include all one-time costs here that cannot be expensed under the IRC.
The calculator adds these costs to the purchase price to calculate the “Adjusted Basis.”
Per IRS Publication 551 (2023), Basis of Assets, p3:
The following items are some of the settlement fees or closing costs you can include in the basis of your property
- Abstract fees (abstract of title fees).
- Charges for installing utility services.
- Legal fees (including title search and preparation of the sales contract and deed).
- Recording fees.
- Surveys
- Transfer taxes.
- Owner’s title insurance.
- Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
And from Publication 527, Residential Rental Property (Including Rental of Vacation Homes), (2023), p7:
Improvements. You must capitalize any expense you pay to improve your rental property. An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Table 1-1 shows examples of many improvements.
Some examples from Table 1-1, p. 8:
- Additions such as bedroom, bathroom, deck
- Lawn & Grounds including landscaping, driveway, walkway, fence
- Miscellaneous items such as storm windows, doors, new roof, central vacuum, wiring upgrades
- Interior Improvements, for example, built-in appliances, kitchen modernization, flooring, wall-to-wall carpeting
Business Use — Set this to 100% unless part of the structure is for personal use. For example, if the building has three equal units and you live in one and rent two, set business use to 66.6% (two-thirds). Business use affects the depreciation calculation.
Estimated Selling Price (FV) — The calculator creates a cash flow statement from purchase through sale. The selling price determines capital gain or loss. Set this to “0” to have the calculator compute the value using the “Annual Appreciation” rate.
Annual Appreciation — Use this if you want the selling price calculated from an assumed appreciation rate. If neither “Estimated Selling Price” nor “Annual Appreciation” is zero, the calculator recalculates “Annual Appreciation” to keep both values aligned.
Closing Date (purchase date) — The date you take ownership and the date the mortgages close. Expenses begin on this date.
In Service Date — The date rental income and depreciation begin. The “In Service Date” and “Closing Date” may be the same. If they differ, the “In Service Date” must be the first day of a month after the “Closing Date.”
Other rental income calculators do not provide this flexibility, which can be limiting. A property may require renovation before it is ready to rent, and the delay affects cash flow.
Date Property Sold — In most cases this is an estimate. The date determines the length of the cash flow statement the calculator produces.
Estimated Selling Costs — Usually this includes the real estate broker commission and attorney fees. Additional costs may also apply.
Expenses
Initial One-Time Expenses — Payments that can be expensed (not depreciated) in the first tax year. “Initial One-Time Expenses” do not affect the basis.
Per Publication 551 (2023) Basis of Assets, p. 3:
The following items are some settlement fees and closing costs you cannot include in the basis of the property.
- Casualty insurance premiums.
- Rent for occupancy of the property before closing.
- Charges for utilities or other services related to occupancy of the property before closing.
- Charges connected with getting a loan. The following are examples of these charges.
- Points (discount points, loan origination fees).
- Mortgage insurance premiums.
- Loan assumption fees.
- Cost of a credit report.
- Fees for an appraisal required by a lender.
- Fees for refinancing a mortgage.
Monthly Expenses — Ongoing charges that occur during the cash flow period. For accurate analysis, include expenses that do not occur monthly but still affect cash flow. If an expense occurs quarterly, prorate it to a monthly value. For example, a $600 quarterly insurance premium equals $200 per month.
Expenses are deducted from income.
Per IRS Publication 527, Residential Rental Property (2023), p. 5:
Listed below are the most common rental expenses:
- Advertising.
- Auto and travel expenses.
- Cleaning and maintenance.
- Commissions.
- Depreciation.
- Insurance.
- Interest (other).
- Legal and other professional fees.
- Local transportation expenses.
- Management fees.
- Mortgage interest paid to banks, etc.
- Points.
- Rental payments.
- Repairs.
- Taxes.
- Utilities.
Annual Expense Increase — An estimate of how much monthly expenses will increase each year. Enter a value between 0% and 99%.
Annual Property Taxes — Enter the annual total, even if taxes are paid quarterly or monthly. Property taxes affect cash flow and are deductible from U.S. federal taxes as an expense.
Annual Property Tax Increase — Estimate how much you expect property taxes to increase each year. If you expect taxes to decrease, enter a negative value.
Income
Monthly Rent Total — Enter the maximum monthly rent. This amount, plus “Monthly Service Income,” accounts for the entire income stream. Enter an amount that assumes all units are rented 100% of the time.
Monthly Service Income — If you charge tenants for additional services, enter the prorated monthly total. Income increases by the amount entered here.
Annual Rent Increase — Landlords may increase rent to improve cash flow, cover rising costs, or improve the rate of return. Enter the annual percentage you expect.
Occupancy Rate — For a more accurate analysis, do not assume full occupancy. The percentage you enter adjusts income to allow for vacancies. Expenses are not adjusted.
Why is the default “Occupancy Rate” 95.8%?
The calculation assumes each rental unit is vacant one month out of every two years (1/24). Therefore, the income portion of the cash flow statement reflects 95.8% of the combined total for “Monthly Rent Total” and “Monthly Service Income.”
Initial Upfront Investment
Cash Required — Calculated value. The formula is: “purchase price” + “initial improvements” − “mortgages or loans” + “points.” If you want to finance the initial improvements but the cost is not included in the mortgage, use the second loan option to cover that cost.
Mortgages, Debt and Loan Calculators
This Rental Property Calculator includes two fully functioning loan calculators. The cash flow analysis can incorporate two debt streams, if needed, into the statement.
You may enter “0” or “Unknown” for any one of the following:
- Mortgage amount
- Annual interest rate
- Number of monthly payments
- Monthly payment amount
When you click “Calc” or “Schedule Preview,” the calculator determines the unknown value.
IMPORTANT: You may also enter all four values, and the calculator will use them. Recalculation will not occur.
Not recalculating is a double–edged feature.
This feature is useful if you have arranged financing with special terms. The calculator will support your negotiated loan terms.
However, after you calculate an unknown value (such as the payment amount), the calculator continues to use it. If you change the loan amount, set the payment amount to 0 to force recalculation.
Amortization Method — If you finance the property with a traditional mortgage, leave this set to “Normal.” Otherwise, you may select interest–only loans, Canadian loans, or no–interest loans.
Loan Origination Points — Points are an up–front payment made in exchange for a lower interest rate. Points are a percentage of the amount borrowed. One point equals one percent. For example, if the mortgage is $500,000 and the lender requires 2 points for a lower rate, you will pay $10,000 in points at closing.
Warning: Points are handled correctly in the cash flow but are not incorporated into the tax calculation correctly. Proper treatment means points are neither expensed as a lump sum nor depreciated.
IRS Publication 527 (2023), p. 8, states:
The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. In this case, points paid (or treated as paid (such as seller paid points)), by a borrower to a lender increase OID which is the excess of:
- Stated redemption price at maturity (generally the stated principal amount of the mortgage loan) over
- Issue price (generally the amount borrowed reduced by the points).
Because this calculation is complex, the calculator includes points in depreciation. This approach will likely understate the tax impact. When calculated using OID rules, any refund may be slightly larger, or any tax payment may be slightly smaller.
Deductible Closing Costs — Some fees associated with obtaining a mortgage can be expensed in the year you take out the mortgage. Enter the total deductible charges here.
Examples of fees and charges that can be deducted immediately:
IRS Publication 527 (2023), p. 11, states:
The following are settlement fees and closing costs you cannot include in your basis in the property. (This means you expense them.)
- Fire insurance premiums.
- Rent or other charges relating to occupancy of the property before closing.
- Charges connected with getting or refinancing a loan, such as:
- Points (discount points, loan origination fees),
- Loan assumption fees,
- Cost of a credit report, and
- Fees for an appraisal required by a lender.
Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance.
Tax Considerations
(The details below are guidelines to help you use the calculator. While every effort is made to keep the information accurate and current, if a tax item is important to your cash flow analysis, confirm it with the original IRS source or your accountant.)
Marginal Tax Rate — The marginal tax rate is the percentage of tax paid on the next dollar earned. The marginal rate depends on income and filing status. See details on the IRS website.
Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
The other rates are:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
Capital Gain Tax Rate — If the property sells for more than the “Adjusted Basis,” the difference is a capital gain, and capital gains tax usually applies. Enter the rate used to calculate tax on the gain.
The cash flow statement shows the projected capital gain or loss in the “Sold” row in the “Profit and Loss” column.
Per IRS Topic 409 Capital Gains and Losses (Last Reviewed or Updated: 30-Jan-2024):
Capital gains tax rates
Net capital gains are taxed at different rates depending on overall taxable income. Some or all net capital gain may be taxed at 0%. For taxable years beginning in 2023, the tax rate on most net capital gain is no higher than 15% for most individuals.
A capital gains rate of 0% applies if your taxable income is less than or equal to:
- $44,625 for single and married filing separately;
- $89,250 for married filing jointly and qualifying surviving spouse; and
- $59,750 for head of household.
A capital gains rate of 15% applies if your taxable income is:
- more than $44,625 but less than or equal to $492,300 for single;
- more than $44,625 but less than or equal to $276,900 for married filing separately;
- more than $89,250 but less than or equal to $553,850 for married filing jointly and qualifying surviving spouse; and
- more than $59,750 but less than or equal to $523,050 for head of household.
A 20% rate applies to capital gains above the 15% thresholds.
Some exceptions allow rates greater than 20%:
- The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
- Net capital gains from selling collectibles are taxed at a maximum 28% rate.
- Unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.
Net short-term capital gains are taxed as ordinary income at graduated rates.
Recapture Tax Rate — This rate applies to depreciation recapture. For details, see IRS Publication 544, p. 40, under “Depreciation Recapture.”
Adjusted Basis — Calculated. “Purchase Price” plus “Additions to Purchase Price” equals the “Adjusted Basis.” The “Estimated Selling Price” minus the “Adjusted Basis” plus “Estimated Selling Costs” equals the capital gain or loss.
Depreciation Basis — Calculated. “Adjusted Basis” minus “Value of Land” equals the “Depreciation Basis.”
Depreciation Method — The Rental Income Calculator follows the rules in IRS Publication 946, How to Depreciate Property for all supported methods. Confirm the correct method with your accountant. A reasonable choice is “GDS Straight Line.” This generally provides a greater benefit than ADS straight line and is less aggressive than declining balance methods.
If you choose a straight line method, then per p. 30 of IRS Publication 544, you may avoid depreciation recapture when you sell the property (if held more than one year):
You will not have additional depreciation if any of the following conditions apply to the property disposed of. You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method;
Residential rental property is depreciated for 27.5 years under the General Depreciation System (GDS) and for 40 years under the Alternative Depreciation System (ADS).
For more information about depreciation, see the MACRS Depreciation Calculator.
What is the tax impact of selling an investment property?
The calculator must compute capital gains tax and allow for depreciation recapture to determine the full tax impact.
What is the impact of inflation on investment property profits?
If you invest in real estate, income and costs change over time. A calculator should allow separate estimated annual increases for rental income, expenses, and property taxes.
Suggestions for tax rate settings
Do not treat this content as tax advice. These are explanations and examples to help you understand the options. Consult an attorney or tax professional for advice.
Marginal tax is straightforward. For accurate results, enter your marginal tax rate. This rate is used for “Taxes Due” in every row except the row labeled “Sold.”
Taxes on capital gains (“Taxes Due” in the “Sold” row) are more complex. Two components are taxed at different rates:
- Tax on the depreciation recapture portion of the gain.
- Tax on the remaining gain.
If this level of detail is unnecessary, set both “Capital Gain Tax Rate” and “Recapture Tax Rate” to the same value. The entire gain will be taxed at one rate.
To account for depreciation recapture, set the “Recapture Tax Rate” as needed. Tax on the portion of the gain up to the total “Accumulated Depreciation” uses that rate. Any remaining gain is taxed using the “Capital Gain Tax Rate.”
Tax Effects — This setting controls how income tax is calculated. If you select “All Advantages” (the default), depreciation and loan interest reduce profit (or increase loss) and lower taxes due (or increase refunds). When “No Depreciation” is selected, depreciation is not calculated, so profit increases (or loss narrows). When “Not considered” is selected, neither depreciation nor loan interest is deducted.
Are you a financial professional? CPA? Attorney? Investor?
If you find this calculator useful, you may also want to review the Accurate Investment Calculator and the Ultimate Financial Calculator.
RUSSELL PFEIFFER says:
how would I use this calculator to solve for a rental I already own? whether I should sell or not?
Karl says:
The calculator is not going to tell you if you should sell. It’s going to calculate for you your profit/loss and your return on investment (ROI).
If the ROI is meeting your personal goal, then you should not sell. If you are not meeting your goal, then you should look into what changes are necessary (increase rent for example) or if changes aren’t possible, then you should probably cut and run.
As to the question about already owning the property, I don’t think that changes how you use the calculator. That is, for example, you still have the cost of the property to consider. Did you have a more specific question?
Brock says:
Annual appreciation looks like it can be edited, but always resets back to 3% no matter what is entered and the cash flows continue to use this default value. Just so you know. Excellent calculator, thank you!
Karl says:
You’re welcome!
Guess what though, the calculator seems to be working as designed. But the problem is, the way it is designed is confusing.
Notice if you refresh the page that "Estimated Selling Price (FV)" is set to 0. When the user provides the value for "Annual Appreciation", the selling price is calculated. Then if the user changes the appreciation, but does not set the selling price to 0, the calculator uses the selling price to calculate the appreciation i.e. the calculator will keep these 2 values in sync.
So the bottom line is, when you change the appreciation, set the selling price to 0 to tell the calculator you want it calculated.
As I said, this detail is far from obvious. I’ll probably have to have the calculator auto clear the selling price if the user resets the appreciation.
Brock says:
Thanks Karl! What about considerations of capital improvements over time that add back into the depreciable basis? For example: In my monthly expense I can capture the monthly component of property insurance, but I also add a monthly set-aside for capital improvements (based on projections) such as replacement of roof or HVAC. Because these expenditures would add back to the depreciable basis, it would be good to have a field in the expenses section that would ask the percentage of the monthly expenses that would add back to the depreciable basis. This would provide a more accurate ROI especially over longer time horizons.
Karl says:
Hi Brock, thanks for trying the Rental Income Calculator and for your suggestion. It’s a good one. I will most likely add the feature the next time the calculator is updated. The thing is, that won’t be for sometime. I have a very long to-do list. I still have more calculators to build (though that list is getting smaller).