💰 Landlord Tax Deductions: Complete Guide
Maximize your rental property tax savings. From mortgage interest and depreciation to repairs, travel, and professional services—learn every deduction available to landlords and reduce your taxable income legally.
Complete guide updated January
📑 Tax Deductions Guide
Rental real estate offers some of the best tax advantages of any investment. While rental income is taxable, the numerous deductions available can significantly reduce—or even eliminate—your tax liability on that income.
The key is understanding what you can deduct, how to properly categorize expenses, and maintaining the records you’ll need to support your deductions. Many landlords miss legitimate deductions simply because they don’t know they exist or don’t track expenses properly.
This guide covers the major tax deductions available to landlords, how to maximize them, and common mistakes to avoid. We’ll walk through everything from the well-known deductions like mortgage interest to often-overlooked write-offs that can add up to significant savings.
This guide provides general educational information about rental property tax deductions. Tax laws are complex and change frequently. Your specific situation may vary based on your income, other investments, entity structure, and many other factors. Always consult with a qualified tax professional (CPA or tax attorney) for advice specific to your situation.
Tax Benefits Overview
How rental property taxation works
How Rental Income Is Taxed
Rental income is reported on Schedule E (Supplemental Income and Loss) of your tax return. You report:
- Gross rental income: All rent received
- Minus expenses: All deductible expenses
- Equals net income (or loss): Taxed at your ordinary income rate (or may offset other income)
Types of Tax Benefits
1. Deductions
Expenses that reduce your taxable rental income:
- Mortgage interest
- Property taxes
- Insurance
- Repairs and maintenance
- Property management fees
- And many more…
2. Depreciation
A “paper loss” that reduces taxable income without any cash outlay. You deduct a portion of the building’s value each year over 27.5 years.
3. Capital Gains Treatment
When you sell, profit may be taxed at lower capital gains rates rather than ordinary income rates (with some recapture rules).
4. 1031 Exchange
Defer taxes when selling by exchanging into another investment property.
5. Pass-Through Deduction (QBI)
Additional 20% deduction on qualified business income for many landlords.
💡 Example: Tax Benefits in Action
Single rental property earning $24,000/year in rent:
Despite collecting $24,000 in rent, only $730 is taxable income after deductions. The $7,270 depreciation deduction alone is a “paper loss” that requires no cash outlay.
Mortgage Interest Deduction
Your biggest annual deduction
What You Can Deduct
For rental properties, you can deduct 100% of mortgage interest paid on loans used to acquire, build, or improve the property. This is often the largest single deduction for landlords.
Types of Deductible Interest
- Primary mortgage: Interest on the loan used to purchase the property
- HELOC/Home Equity Loan: If funds were used for the rental property
- Refinanced mortgage: Interest on refinanced amount (up to original loan balance for acquisition)
- Improvement loans: Interest on loans used for capital improvements
Important Distinctions
No Limit for Rental Properties
Unlike personal residences (which have a $750,000 mortgage interest deduction limit), rental properties have no cap on deductible mortgage interest.
Only Interest, Not Principal
Only the interest portion of your mortgage payment is deductible. Principal payments are not deductible (but they build equity).
Points on Purchase
Points paid to obtain a rental property mortgage are generally deducted over the life of the loan, not all at once like a primary residence.
Where to Find Your Interest
Your lender will send Form 1098 showing the mortgage interest paid during the year. This goes on Line 12 of Schedule E.
Depreciation
The powerful “paper loss” deduction
What Is Depreciation?
Depreciation is a tax deduction that allows you to recover the cost of the building (not land) over its “useful life.” For residential rental property, this is 27.5 years.
The powerful benefit: depreciation is a “paper loss”—you get a tax deduction without any cash outlay. Your building isn’t actually losing value (it’s likely appreciating), but you still get the deduction.
How to Calculate Depreciation
Step 1: Determine Building Value
Separate the building value from land value. Common methods:
- Use property tax assessment allocation (building vs. land)
- Get a professional appraisal
- Use a reasonable allocation based on comparable properties
Step 2: Calculate Annual Depreciation
Divide building value by 27.5 years:
- $200,000 building ÷ 27.5 = $7,273/year
- $300,000 building ÷ 27.5 = $10,909/year
Step 3: Prorate First Year
In the year you acquire the property, depreciation is prorated based on when you placed it in service (mid-month convention).
What Can Be Depreciated
- Building: The structure itself (27.5 years)
- Land improvements: Driveways, fences, landscaping (15 years)
- Appliances/equipment: Refrigerators, washers, etc. (5-7 years)
- Furniture: If provided furnished (5-7 years)
Cost Segregation
A cost segregation study separates building components into shorter depreciation categories (5, 7, 15 years instead of 27.5), accelerating deductions. Often worthwhile for properties over $500,000.
When you sell the property, depreciation you’ve taken is “recaptured” and taxed at up to 25%. This doesn’t mean you shouldn’t take depreciation—it’s essentially an interest-free loan from the government. Plus, you must take depreciation whether you claim it or not (IRS calculates as if you took it). Always claim your depreciation deduction.
Repairs vs Improvements
A critical distinction for landlords
Why It Matters
The distinction between repairs and improvements has significant tax implications:
- Repairs: Deductible immediately in the year paid
- Improvements: Must be capitalized and depreciated over time
Getting this classification right can mean the difference between a deduction this year versus spread over 27.5 years.
Repairs (Immediately Deductible)
Repairs maintain the property in its current condition. They don’t add value or extend useful life:
- Fixing a broken window
- Patching holes in drywall
- Repairing a leaky faucet
- Replacing a broken light fixture
- Painting (maintenance, not major renovation)
- Fixing HVAC issues
- Repairing appliances
- Fixing roof leaks (not full replacement)
- Unclogging drains
- Replacing broken door locks
Improvements (Must Be Depreciated)
Improvements add value, extend useful life, or adapt the property to a new use:
- New roof (full replacement)
- New HVAC system
- Kitchen or bathroom remodel
- Room additions
- New flooring throughout
- New appliances (can depreciate over 5-7 years)
- Upgrading electrical or plumbing systems
- New windows throughout
- Adding a deck or patio
- Adding a fence
The IRS Tests
The IRS looks at whether the expense:
- Betters the property (fixes defect, increases capacity, upgrades quality)
- Restores the property (returns to operating condition after major event, rebuilds to like-new)
- Adapts the property (changes the use of the property)
If yes to any of these, it’s likely an improvement that must be capitalized.
| Expense | Repair or Improvement? | How to Deduct |
|---|---|---|
| Replace broken window | Repair | Deduct immediately |
| Replace all windows | Improvement | Depreciate over 27.5 yrs |
| Patch roof leak | Repair | Deduct immediately |
| Full roof replacement | Improvement | Depreciate over 27.5 yrs |
| Fix HVAC unit | Repair | Deduct immediately |
| Replace entire HVAC | Improvement | Depreciate over 27.5 yrs |
| Paint one room | Repair | Deduct immediately |
| Paint entire exterior | Repair (usually) | Deduct immediately |
| Replace faucet | Repair | Deduct immediately |
| Remodel bathroom | Improvement | Depreciate over 27.5 yrs |
| Replace refrigerator | Improvement | Depreciate over 5 yrs |
The IRS allows you to deduct (not capitalize) items costing under a certain threshold:
- Without written policy: $2,500 per item/invoice
- With written policy: $5,000 per item/invoice
This means that new appliance under $2,500 can be deducted immediately rather than depreciated over 5 years.
Operating Expenses
Day-to-day costs you can deduct
Property Taxes
Real estate taxes paid to local government are fully deductible for rental properties. Unlike personal residences, there’s no $10,000 cap on SALT deductions for investment properties.
Insurance
Landlord insurance premiums, umbrella insurance allocable to rentals, flood insurance, and any other property-related insurance are deductible.
Property Management
Fees paid to property managers (typically 8-10% of rent) are fully deductible. This includes leasing fees, maintenance coordination, and tenant management.
Utilities
Any utilities you pay as the landlord (water, sewer, gas, electric, trash) are deductible. If tenant pays, not applicable.
HOA Fees
Homeowners association fees and condo association fees are deductible operating expenses. Special assessments may need to be depreciated.
Advertising
Costs to advertise your rental: listing fees, yard signs, photography, online ads. All deductible.
Cleaning & Maintenance
Turnover cleaning, regular maintenance, landscaping, snow removal, pest control—all deductible.
Tenant Screening
Background check fees, credit report costs, and other screening expenses are deductible business expenses.
🔍 Tenant Screening is Tax Deductible
Every dollar you spend on tenant screening is a deductible business expense—and thorough screening saves you money by avoiding problem tenants.
Travel & Mileage
Deducting transportation costs
Local Travel
You can deduct the cost of traveling to your rental property for:
- Property inspections
- Meeting with tenants
- Collecting rent
- Showing the property
- Meeting contractors
- Picking up supplies
- Any other property-related trips
Two Methods for Vehicle Expenses
Standard Mileage Rate
For , the IRS standard mileage rate is approximately 67 cents per mile (check current rates). Simply track miles driven for rental activities and multiply by the rate.
- Pros: Simple, no need to track individual expenses
- Cons: May be lower than actual costs for some vehicles
Actual Expense Method
Track all vehicle expenses and deduct the percentage used for rental activities:
- Gas
- Insurance
- Repairs and maintenance
- Depreciation
- Registration
- Lease payments (if applicable)
Pros: May yield higher deduction for expensive vehicles or high costs
Cons: More record-keeping required
Long-Distance Travel
If you travel to a distant rental property, you may deduct:
- Airfare or driving costs
- Lodging
- Meals (50% deductible)
- Car rental
Important: The primary purpose of the trip must be business-related. If you combine with vacation, only the business portion is deductible.
Record-Keeping for Travel
Keep a mileage log showing:
- Date
- Destination
- Business purpose
- Miles driven
Apps like MileIQ, Everlance, or simple spreadsheets work well.
Professional Services
Expert help is deductible
Deductible Professional Fees
- Accountant/CPA: Tax preparation fees for rental portions, tax planning, bookkeeping
- Attorney: Lease review, eviction proceedings, entity formation, legal advice
- Property manager: Full management fees or a la carte services
- Real estate professionals: Fees for rental-related services
- Contractors: All repair and maintenance labor
- Appraisers: If for insurance or refinance purposes
Partially Deductible
- Tax preparation: Only the portion attributable to rental property (Schedule E)
- Attorney fees: Only for rental-related matters
- Financial advisor: Only if specifically for rental investments
Education and Training
Costs to maintain or improve skills related to your rental business may be deductible:
- Landlord courses and training
- Real estate investing seminars
- Industry publications and books
- Professional association memberships
Note: Education to qualify for a new trade (like getting a real estate license) is generally not deductible.
Home Office Deduction
If you manage from home
When You Can Claim It
If you regularly use a portion of your home exclusively for managing your rental properties, you may be able to deduct home office expenses.
Requirements
- Regular and exclusive use: The space must be used regularly and exclusively for rental management
- Principal place of business: It should be the main place where you conduct rental management activities
What You Can Deduct
Calculate the percentage of your home used for the office, then apply that percentage to:
- Mortgage interest or rent
- Property taxes
- Utilities
- Insurance
- Repairs to home
- Depreciation of home
Simplified Method
The IRS offers a simplified calculation: $5 per square foot of office space (up to 300 sq ft = $1,500 max).
Considerations
- Most landlords with just a few properties may not meet the “regular and exclusive” requirement
- Home office deduction can trigger depreciation recapture when you sell your home
- May be more worthwhile for landlords with many properties or property managers
Qualified Business Income (QBI) Deduction
The 20% pass-through deduction
What Is the QBI Deduction?
The Tax Cuts and Jobs Act created a 20% deduction on qualified business income for pass-through entities, including rental real estate activities.
How It Works
If you qualify, you can deduct 20% of your net rental income from your taxable income:
- $10,000 net rental income × 20% = $2,000 additional deduction
- This is on top of all your other deductions
Do Rental Activities Qualify?
The IRS provides a “safe harbor” for rental real estate to qualify for QBI if you:
- Maintain separate books and records for each rental
- Perform at least 250 hours of rental services per year
- Keep contemporaneous records of services performed
Services include: advertising, tenant screening, negotiating leases, rent collection, property management, repairs and maintenance, and supervision of employees/contractors.
Income Limitations
The full 20% deduction is available if taxable income is below:
- Single: Approximately $182,000 (2024)
- Married filing jointly: Approximately $364,000 (2024)
Above these thresholds, the deduction phases out based on W-2 wages paid and property values.
To maximize QBI deduction eligibility, keep detailed records of:
- Time spent on rental activities
- Description of services performed
- Dates and hours worked
- Which property each activity was for
A simple log or spreadsheet is sufficient.
Passive Activity Losses
When your rental shows a loss
The Passive Loss Rules
Rental activities are generally considered “passive” for tax purposes. Passive losses can only offset passive income, with some exceptions.
The $25,000 Exception
If you actively participate in your rental activities, you may deduct up to $25,000 of passive losses against non-passive income (like W-2 wages).
Active Participation Requirements
- Own at least 10% of the property
- Make management decisions (approving tenants, setting rent, approving repairs)
- Not the same as “material participation”—lower threshold
Income Phase-Out
The $25,000 allowance phases out for modified AGI between $100,000 and $150,000:
- $100,000 MAGI: Full $25,000 allowance
- $125,000 MAGI: $12,500 allowance
- $150,000+ MAGI: No allowance
Real Estate Professional Status
If you qualify as a “real estate professional,” passive loss rules don’t apply. You can deduct unlimited rental losses against any income.
Requirements
- More than 750 hours per year in real estate activities
- More than 50% of your working hours in real estate
- Material participation in rental activities
This status is valuable but difficult to achieve if you have a full-time job in another field.
Carrying Forward Losses
If you can’t deduct passive losses currently, they carry forward to future years and can be used when:
- You have passive income to offset
- Your income drops below phase-out thresholds
- You sell the property (all suspended losses become deductible)
Record Keeping
Documentation you need to maintain
Why Record Keeping Matters
Good records are essential for:
- Accurately claiming deductions
- Surviving an IRS audit
- Calculating capital gains when you sell
- Making informed business decisions
Records to Keep
Income Documentation
- Lease agreements
- Rent payment records
- Security deposit records
- Bank statements
Expense Documentation
- Receipts for all expenses
- Invoices from contractors
- Credit card statements
- Canceled checks or bank records
Property Records
- Purchase documents (HUD-1/closing disclosure)
- Cost basis calculation
- Capital improvement records
- Depreciation schedules
Activity Records
- Mileage log
- Time log (for QBI safe harbor)
- Travel records
How Long to Keep Records
- Tax returns: At least 7 years
- Property records: For as long as you own the property, plus 7 years after sale
- Depreciation records: For as long as you own the property, plus 7 years
- Supporting documents: 7 years minimum
📋 Annual Tax Document Checklist
- Form 1098 (Mortgage Interest Statement)
- Property tax statements
- Insurance premium invoices
- All repair and maintenance receipts
- Property management statements
- Utility bills (if landlord pays)
- HOA statements
- Mileage log
- Professional service invoices
- Tenant screening receipts
- Advertising/listing costs
- Bank and credit card statements
- Lease agreements and amendments
- Prior year depreciation schedule
Common Tax Mistakes
Errors that cost landlords money
✅ Do
- Claim depreciation every year (required!)
- Keep receipts for all expenses
- Track mileage for property visits
- Separate repairs from improvements
- Use a dedicated bank account
- Work with a tax professional who knows real estate
- Keep records for years after selling
- Claim all legitimate deductions
❌ Don’t
- Skip depreciation (you’ll be taxed on it anyway)
- Throw away receipts
- Forget about small expenses (they add up)
- Deduct improvements immediately
- Mix personal and rental expenses
- Use generic tax software without rental expertise
- Ignore passive loss carryforwards
- Forget to include all properties
My first few years as a landlord, I used basic tax software and missed thousands in deductions—I had no idea about depreciation, was calling everything “repairs,” and wasn’t tracking mileage. Hiring a CPA who specializes in rental properties was the best investment I made. She found enough deductions to more than pay her fee, and I’ve used her ever since.
Related Resources
Become a Landlord
Complete guide
Raising Rent
Legal process
Non-Payment
What to do
Lease Breaks
Landlord rights
Deposit Laws
State-by-state
Landlord-Tenant Laws
Legal overview
Screening Process
Step-by-step
Best Practices
Industry standards
First-Time Landlord
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Eviction Laws
State requirements
Abandoned Property
What to do
Rental Application
Professional form
🔍 Tenant Screening is a Deductible Expense
Every screening report you purchase is a tax-deductible business expense—and thorough screening protects your investment and income. It’s a win-win for your bottom line.
⚖️ Tax Disclaimer
This guide provides general educational information about rental property tax deductions as of . Tax laws are complex and subject to change. This information is not tax advice and should not be relied upon as such. Consult with a qualified tax professional (CPA, Enrolled Agent, or tax attorney) for advice specific to your situation.
