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 — Landlor