Rental Income in Retirement: The Tax It Adds, Federal and in Every State (2026)

Published 2026-10-07. Tax year 2026.

How much tax does rental income add for a retiree in 2026?

More than the tax bracket suggests. For a 67-year-old couple with $40,000 of Social Security and $30,000 of IRA withdrawals, $24,000 of net rental income adds $4,064 of federal tax (16.9% of the rent), because it also makes $20,400 more of their Social Security taxable. The state adds nothing in 22 jurisdictions; in the other 29 it adds a median of $749, up to $1,859 in Vermont.

Four retiree households, priced with no rental property and then with $12,000, $24,000 and $48,000 of net rental income (rents less expenses and depreciation, Schedule E), and with a $12,000 rental loss. Each household is priced in all 50 states and DC. The rental is held by an owner who actively participates in managing it and is not a real estate professional.

What rental income adds to the federal tax

Rental profit is ordinary income, so it is taxed at the household's bracket — but for a retiree it also raises provisional income, so more of the Social Security benefit becomes taxable, and it raises MAGI, which shrinks the senior deduction at higher incomes. For the couple with $40,000 of Social Security, $24,000 of rent made $20,400 more of their benefits taxable. Net rental income is also net investment income: above the NIIT threshold it carries the 3.8% net investment income tax, which added $627 on $24,000 of rent for the highest-income couple.

A loss is deductible against other income only through the passive-activity rules: up to $25,000 a year for an owner who actively participates, phased out as modified AGI rises from $100,000. The third couple deducted $12,000 of the loss and saved $1,440 of federal tax; the first two households owe no federal tax without the rental, so a loss saves them nothing federally; for the highest-income couple $0 of the loss was allowed and $12,000 carries forward to a later year.

What $24,000 of rental income adds to the state tax, by state

R1 to R4 are the four households above. Local income taxes are not included (see the local tax study). The state engine takes the rental result as the federal return allows it (after the passive-activity limit).

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Related: Ten retiree households, 51 state tax bills · Retiree income tax by state dataset · Social Security tax calculator

Download the data

Every row on this page, with its inputs: rental-income-tax-in-retirement-by-state-2026.csv · rental-income-tax-in-retirement-by-state-2026.json (CC0).

Questions

Is rental income taxed differently in retirement?

The rates are the same, but rental profit counts in provisional income, so it can make more Social Security taxable; it also counts in MAGI for the senior deduction, IRMAA and the ACA credit, and it is net investment income for the 3.8% NIIT above the threshold.

Can a retiree deduct a rental loss?

An owner who actively participates can deduct up to $25,000 of rental losses a year against other income; the allowance shrinks by half of modified AGI above $100,000 and is gone at $150,000. A disallowed loss carries forward.

Do states tax rental income?

Every state with an income tax taxes net rental income. In this study the same $24,000 added nothing in 22 jurisdictions (those without a tax on it, or where exclusions and credits absorb it for this household).

Does depreciation matter?

Net rental income here is after depreciation. Depreciation taken is recaptured when the property is sold (unrecaptured section 1250 gain); sales are not part of this study.

Sources and method

Every figure was computed by QuantCalc's open tax engines — federal 2.2.0 and state 1.14.1, the engines behind the federal and state tax APIs — for the 2026 tax year, and every row can be re-run through those APIs with the inputs in the data files. The engine documentation lists the official source of every rule; the rules this study leans on:

• Schedule E (Form 1040) 2025, Supplemental Income and Loss
• 26 U.S. Code § 469
• 26 U.S. Code § 86
• 26 U.S. Code § 1411
• Net Investment Income Tax
• 26 U.S. Code § 151
• Pennsylvania: Personal Income Tax
• New Jersey: 2025 Form NJ-1040 Instructions (Tax Rate Schedules, p.63)

Federal tax uses the tax rate schedule (the IRS Tax Table, used on returns below $100,000 of taxable income, differs by a few dollars). Households are illustrations, not averages; each takes the standard deduction.

An estimate, not tax advice. These are computed examples for the 2026 tax year from QuantCalc's open tax engines. Your own return depends on facts these examples do not include. Check any decision with your tax preparer before acting.

@misc{quantcalc2026howmuchtaxdoesrentalincomeaddinretiremen,
  title  = {How Much Tax Does Rental Income Add in Retirement? Federal and Every State, 2026},
  author = {{QuantCalc Research}},
  year   = {2026},
  url    = {https://quantcalc.app/research/rental-income-tax-in-retirement-by-state-2026/},
  note   = {Accessed <date>}
}