Rental Property Tax Deductions: What Landlords Can Write Off

How Rental Property Deductions Work

Rental income is taxable, but the IRS lets you deduct the ordinary and necessary costs of running the property before that income is taxed. Rental activity is reported on Schedule E, where your rents are listed at the top and your deductible expenses are subtracted line by line to arrive at taxable profit or loss.

Because deductions come off the top of rental income, a property with solid cash flow can still show a small taxable profit, or even a paper loss, once every allowable expense and depreciation is counted. Knowing what qualifies is one of the highest-return pieces of homework a landlord can do.

Mortgage Interest and Loan Costs

Mortgage interest is usually the largest deduction a leveraged landlord has. All interest paid on a loan used to buy or improve the rental is deductible against rental income, and unlike a personal residence, there is no cap tied to the loan balance for rental property interest.

Points and loan origination fees on a rental loan are not deducted all at once. They are amortized over the life of the loan, so a $3,000 origination fee on a 30-year loan gives you $100 per year. If you refinance, any remaining unamortized fees from the old loan can generally be deducted in that year.

Repairs vs. Improvements

Repairs keep the property in its current condition and are fully deductible in the year you pay for them. Fixing a leak, patching drywall, replacing a broken window pane, and repainting between tenants are classic repairs.

Improvements add value, extend the life of the property, or adapt it to a new use, and they must be capitalized and depreciated instead of deducted immediately. A new roof, a kitchen remodel, or an addition falls on this side of the line. The distinction matters because a repair saves you tax this year while an improvement spreads the benefit over many years.

Operating Expenses You Can Deduct

• Property taxes and any local licensing or registration fees for the rental.
• Landlord insurance premiums, including fire, liability, flood, and loss-of-rent coverage.
• Property management fees, leasing commissions, and tenant screening costs.
• Utilities you pay as the landlord, such as water, trash, or common-area electricity.
• HOA dues on condos and townhomes used as rentals.
• Advertising, legal fees, accounting, tax preparation for the rental, and software subscriptions used to manage it.
• Pest control, landscaping, snow removal, and routine maintenance contracts.

Depreciation: The Biggest Non-Cash Deduction

Depreciation lets you deduct a slice of the building value every year for 27.5 years, even though it costs you nothing out of pocket. On a property with a $250,000 depreciable basis, that is roughly $9,091 per year of deduction layered on top of your actual expenses.

Depreciation is claimed whether or not the property gained market value, and the IRS assumes you took it when calculating recapture at sale, so skipping it only hurts you. Our guide on rental property depreciation walks through the land-versus-building split and the 27.5-year schedule step by step.

Travel, Home Office, and Mileage

Driving to the rental to handle repairs, meet contractors, or show the unit is deductible, either at the IRS standard mileage rate or using actual vehicle costs. Keep a log of the date, purpose, and miles for each trip, because unsupported mileage is one of the first things examiners strike.

If you manage rentals from a dedicated space at home used regularly and exclusively for that purpose, a home office deduction may apply, along with a share of internet and phone costs tied to the rental activity. Overnight travel to a distant rental is deductible too, but mixed-purpose trips must be split between rental and personal time.

Deductions Landlords Get Wrong

• The value of your own labor is never deductible, no matter how many hours you spend on repairs.
• Improvements written off as repairs are a common audit adjustment; when in doubt, capitalize.
• Personal-use periods of a vacation rental reduce the share of expenses you can deduct.
• Expenses before the property is available to rent generally get added to basis, not deducted immediately.
• Lost rent from a vacancy is not deductible; you simply have less income to report.

Passive Loss Rules and Recordkeeping

Rental losses are passive by default, which means they usually offset only passive income. The main exception is the $25,000 active-participation allowance: if your modified adjusted gross income is under $100,000 and you actively participate in the rental, you can deduct up to $25,000 of losses against ordinary income, with the allowance phasing out entirely at $150,000. Disallowed losses carry forward and are released when the property is sold.

Every deduction is only as good as the paper behind it. Keep receipts, invoices, bank statements, mileage logs, and closing documents for at least the period the property is owned plus several years after sale. Clean records turn tax season into arithmetic and make an audit a formality rather than a fight.

Frequently Asked Questions