Rent is reported on Schedule E and taxed at ordinary rates, but the figure that lands there is net — gross rent minus mortgage interest, property tax, insurance, repairs, and the line that does the heavy lifting, depreciation. The full machinery of real estate taxation — cost segregation, bonus depreciation, the professional-status shelter, the short-term-rental loophole, and the sale-side maneuvers ( IRC §121, IRC §1031, depreciation recapture) — has its canonical home in chapter “Real Estate Investing”. What belongs in an income survey is the handful of nuances that decide how a rental dollar is taxed before any of that.
The losses are usually trapped. Rental real estate is per se passive under IRC §469, “Passive activity losses and credits limited”: the paper loss that depreciation so reliably manufactures offsets only passive income, not your salary or portfolio gains. The one retail relief is the $25,000 active-participation allowance under IRC §469(i) — a non-professional who actively manages a rental may deduct up to $25,000 of loss against ordinary income, but it phases out between $100,000 and $150,000 of MAGI and is gone above it. Escaping the passive wall in earnest requires real estate professional status (section “Real Estate Professional Status”) or the short-term-rental route (section “The Short-Term Rental Loophole”), both of which demand material participation.
Personal use rations the deductions. Mix personal use into a rental and the write-offs get capped. Use a dwelling yourself for more than the greater of 14 days or 10% of the rented days and it becomes a personal residence, limiting deductions to rental income with no loss allowed. The flip side is the cleanest tax-free income in the code: rent your home for fewer than 15 days a year — the “Augusta rule” under IRC §280A(g) — and the rent is entirely tax-free and goes unreported. The full personal-use mechanics are in section “Personal Use of Rental Property”.
QBI, recapture, and the NIIT. Net rental income can qualify for the 20% qualified business income deduction if the activity rises to a trade or business (a safe harbor covers 250 or more hours of rental services a year), while passive rental income above the thresholds is exposed to the 3.8% net investment income tax under IRC §1411 — though income earned by a real estate professional is not. And the depreciation that shelters income along the way is borrowed, not forgiven: on sale it is recaptured as “unrecaptured §1250 gain,” taxed at up to 25% (section “Real Estate Income Taxation”).