How to claculate taxes on a new rental?

4 Replies

Hi everybody!

I am thinking of buying a rental in Maricopa county.

Trying to figure out how rents will be taxed? 

Rent is 1K per month, so 12K per year. 

Property taxes are 2K/ year

How am I gonna be taxed on the rents that I receive? Is this 12K in rents that I will receive from the tenant will be taxed like an ordinary income? (I am in 30% tax bracket, so approximately 4K I will have to pay in taxes then for this rental In addition to the 2K property taxes? )

Thank you!

I believe it’s taxed as normal income. But you write off depreciation and interest. This typically makes your tax bill minor if not negative. Hence RE being a tax haven. 

But I’m new to the rental idea. 

@Andrew Guza

That is not how to calculate tax on rental income.

You need to calculate the net income on your rental properties. 

Below is a sample calculation for net rental income
Rental receipts less depreciation less property management fees less mortgage interest less repairs less property taxes less home owners insurance.
The above calculation does not include all potential expenses and you may have additional expenses.

If the net figure is positive, add the number to your adjusted gross income and it would then be taxed at your marginal tax rate

If the net figure is negative, the loss may or may not be utilized depending on several factors that your accountant should be able to explain.

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