Massachusetts Rental Income Tax Rate: 5%, Surtax, and Deductions

The Massachusetts rental income tax rate is a flat 5% on your net rental profit, meaning what’s left after you subtract allowable expenses from the rent you collect.¹ The state groups rent with wages, salaries, and business earnings as Part B income.² Two other rates can layer on top: a 4% surtax if your total taxable income crosses the millionaire threshold, and a separate excise tax if you rent short-term stays of 31 days or less.

What the 5% Actually Applies To

You don’t pay 5% on gross rent. You pay it on net rental income: gross receipts minus the operating expenses the state allows you to deduct.

Gross receipts include the monthly rent along with anything else tenants pay you: pet fees, parking charges, utility reimbursements, and similar add-ons.³ Once you subtract legitimate costs, the remaining profit is what the 5% hits.

Massachusetts follows federal rules closely on which expenses qualify as ordinary and necessary for maintaining a rental.⁴ In practice, the deductions you claim on your federal return generally carry over to your state return without adjustment.

Deductions That Lower Your Tax Bill

The gap between a painful tax bill and a manageable one usually comes down to how carefully you track expenses. The categories Massachusetts accepts mirror federal Schedule E:³

Property taxes assessed on the rental each year
Hazard, liability, and fire insurance premiums on the unit⁴
Mortgage interest (not principal)
Repairs and maintenance, such as fixing a leaky faucet or repainting between tenants⁴
Property management fees, listing fees, and other costs of finding tenants

Repairs and capital improvements are treated differently, and getting the line wrong is a common audit trigger. Fixing a broken window is a repair, fully deductible the year you pay. Replacing every window in the building is a capital improvement that adds value and gets spread out over years through depreciation.

Depreciation

The IRS requires you to depreciate residential rental property over 27.5 years using the straight-line method.⁵ You depreciate the building’s value only, never the land. Divide the cost basis by 27.5 and deduct that amount each year. A building with a $275,000 depreciable basis produces a $10,000 annual deduction. That deduction flows through to your Massachusetts return and directly reduces your taxable rental profit.

Capital improvements like a new roof get added to the depreciable basis and recovered over the same 27.5-year schedule.⁶ Appliances and carpeting typically use shorter recovery periods, often five or seven years. Skipping depreciation to “save” the deduction for later doesn’t work: the IRS adjusts your basis as though you claimed it, so you lose the benefit either way.

The 4% Surtax on High Earners

Since 2023, Massachusetts has added a 4% surtax on total taxable income above an annually adjusted threshold. For tax year 2025 the threshold was $1,083,150.⁷ The surtax applies to your combined income of all types, including wages, investment gains, and rental profits.

Only the portion above the threshold gets the extra 4%. A landlord with $200,000 in salary and $900,000 in net rental income would owe 5% on all of it, plus 4% on the amount over the surtax line. For small landlords this rarely comes into play, but owners of larger portfolios and anyone with a high-income day job should factor it in.

Short-Term Rentals Are Taxed Separately

If you rent property for stays of 31 consecutive days or less, Massachusetts imposes a room occupancy excise entirely separate from income tax. The state rate is 5.7% of the total rent charged.⁸ Cities and towns can add a local excise of up to 6% on top of that, or 6.5% in Boston.

Additional layers can stack. Municipalities may impose a community impact fee of up to 3% on professionally managed units or short-term rentals in owner-occupied two- and three-family homes.⁹ Boston, Worcester, Cambridge, Springfield, West Springfield, and Chicopee charge an extra 2.75% for convention center funding. Barnstable, Nantucket, and Dukes Counties can add another 2.75% for water protection.⁸

A Cape Cod host could face a combined excise above 14% before the 5% state income tax on net profit even enters the picture. You collect the excise from your guests and remit it to the Department of Revenue through MassTaxConnect. The excise doesn’t apply when the daily rate is under $15.

Quarterly Estimated Payments

Rental income has no tax withheld at the source, so you probably owe estimated payments through the year. Massachusetts requires quarterly estimated tax if you expect to owe more than $400 on income not subject to withholding.¹⁰ Rental income is explicitly named as an income type that triggers this requirement.¹¹

Each installment is 25% of your expected annual tax liability. For tax year 2026, the due dates are:

First quarter: April 15, 2026
Second quarter: June 16, 2026
Third quarter: September 15, 2026
Fourth quarter: January 15, 2027

Missing a payment triggers its own penalty on top of whatever you owe at filing time.¹⁰ If your net rental income is $10,000 and you have nothing else covering the roughly $500 in state tax, you need to be sending these in.

How to File

Massachusetts has its own Schedule E that mirrors the federal one. Complete Schedule E-1 for each rental property, then carry the total to Form 1 (Line 7) as a resident or Form 1-NR/PY (Line 9) as a nonresident or part-year resident.¹² You’ll also complete federal Schedule E (Form 1040) for the same income.¹³

If you report rental income on Schedule E, Massachusetts requires computer-generated forms produced by tax software, either self-prepared or through a paid preparer.¹² Paper forms are only accepted when you don’t have access to software. E-filing through MassTaxConnect produces a confirmation number as proof of submission.¹⁴

Refunds on e-filed returns generally arrive in four to six weeks. Paper returns take eight to ten weeks, with an extra week if you want a paper check instead of direct deposit.¹⁵

Late Filing Penalties and Record Keeping

The annual deadline matches the federal date of April 15. Filing late costs 1% of the unpaid tax for each month or partial month the return is overdue, up to a maximum of 25%.¹⁶ Interest accrues on top of the penalty.

Keep records that support your return for at least three years after the due date or the date you actually filed, whichever is later. That window matches the Department of Revenue’s general statute of limitations for assessing additional tax. Two exceptions extend the timeline indefinitely: failing to file a required return, or fraud.¹⁷ Records tied to property basis, like purchase documents and capital improvement receipts, should be kept until three years after you sell the property and file the return reporting the sale.

1
General Court of Massachusetts. Massachusetts Code Chapter 62 Section 4 – Rates of Tax for Residents, Non-Residents and Corporate Trusts
2
Mass.gov. Massachusetts Gross, Adjusted Gross, and Taxable Income
3
Internal Revenue Service. Tips on Rental Real Estate Income, Deductions and Recordkeeping
4
Massachusetts Department of Revenue. Learn About Rent, Royalties, and REMIC
5
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
6
Internal Revenue Service. Depreciation and Recapture
7
Mass.gov. Massachusetts 4% Surtax on Taxable Income
8
Mass.gov. Room Occupancy Excise Tax
9
General Court of Massachusetts. Massachusetts Code Chapter 64G Section 3D – Community Impact Fee
10
Mass.gov. Massachusetts DOR Personal Income and Fiduciary Estimated Tax Payments
11
Mass.gov. AP 241 – Estimated Income Tax Payments
12
Massachusetts Department of Revenue. 2025 Schedule E Reconciliation and Information Total Supplemental Income and Loss
13
Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss
14
Massachusetts Department of Revenue. Filing Returns in MassTaxConnect
15
Massachusetts Department of Revenue. Your Personal Income Tax Refund
16
Massachusetts Department of Revenue. Massachusetts Tax Penalty Rates
17
Massachusetts Department of Revenue. 830 CMR 62C.25.1 – Record Retention