# What is the tax rate on rental income in California?

Olivia Watson · August 4, 2026

> California's rental income tax rates can be as high as 13.3% for high-income earners, making it one of the highest state tax rates in the country...

California's rental income tax rates can be as high as 13.3% for high-income earners, making it one of the highest state tax rates in the country.

Rental income is considered "passive income" in California and is taxed at the same rates as ordinary income, unlike some other states that have separate tax brackets for rental earnings.

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Short-term rental properties (under 30 days) in California may be subject to an additional Transient Occupancy Tax (TOT) on top of the regular state income tax, depending on local city/county rules.

California landlords can deduct various expenses related to their rental properties, such as mortgage interest, property taxes, insurance, and repairs, which can help offset the high state tax burden.

The state's Proposition 13 caps annual property tax increases at 2%, even as home values skyrocket, providing some relief for long-term rental property owners.

California has a tiered tax system, so the rental income tax rate depends on the landlord's total taxable income - the more they earn, the higher the marginal tax rate.

Unlike some states, California does not offer any special tax credits or deductions specifically for rental property owners, beyond the standard deductions available.

High-income rental property owners in California may also be subject to the 3.8% Net Investment Income Tax (NIIT) imposed by the federal government.

California taxes rental losses differently than other states - landlords can only deduct up to $25,000 in rental losses if their modified adjusted gross income is under $100,000.

The state's Franchise Tax Board closely scrutinizes rental property deductions, so landlords must carefully document all eligible expenses to avoid audits and potential penalties.

California's state tax agency provides detailed guidance and forms for reporting rental income and expenses, including the FTB 3801 "Passive Activity Loss Limitations" form.

Landlords in California should consult a tax professional to ensure they are complying with the state's complex rental income tax rules and maximizing available deductions.

The tax treatment of rental income can differ significantly between short-term vacation rentals and long-term leases in California, so owners must be aware of the nuances.

California's high cost of living and housing prices have led to increased demand for rental properties, but the state's strict tenant protection laws can also impact a landlord's profitability.

Rental property owners in California may be able to mitigate their state tax burden by exploring 1031 exchange options when selling investment properties.

The state's rental income tax rules can become even more complicated for landlords who own properties in multiple states or have a mix of residential and commercial tenants.

California's rental income tax regulations are subject to frequent updates and changes, so landlords must stay vigilant and consult reliable sources to ensure they are in compliance.

While the state's rental income tax rates are high, California also offers landlords various property tax exemptions and incentives, such as the Senior Citizens' Property Tax Postponement Program.

Proper record-keeping and documentation are crucial for California rental property owners, as the state's tax authorities place a strong emphasis on audit trail and substantiation.

Savvy landlords in California may explore strategies like forming limited liability companies (LLCs) or real estate investment trusts (REITs) to optimize their tax planning for rental income.

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