9 Rental Property Tax Deductions for Landlords (2024)

Being a landlord can significantly bolsteryour savings, but it’s also a lot of work. On top of the finances and responsibilities of your own living space, you have to find tenants, secure insurance and pay a mortgage and property taxes. Renting a home can also complicate your personal tax situation. Luckily, the government allows you to deduct some expenses associated with running a rental property. The IRS stipulatesthat deductible expenses must be ordinary and generally accepted in the rental business, along with being necessary for managing and maintaining the property.

You can also work with a financial advisor who can help manage the tax and financial impact of your real estate holdings.

Top Rental Property Tax Deductions

As a rental property owner, there are several expenses that you can deduct from your taxes to save you money and improve your overall operation. These expenses relate to a number of business-related activities that include buying, operating and maintaining the property all add up to make it a thriving rental property. The nine most common rental property tax deductions are:

1. Mortgage Interest

Most homeowners use a mortgage to purchase their own home, and the same goes for rental properties. Landlords with a mortgage will find that loan interest is their largest deductible expense. To clarify, you can’t deduct the portion of your mortgage payment that goes toward the principal loan amount. Instead, the deduction only applies to payments toward interest charges. These components will be listed separately on your monthly statement, and are therefore easy to reference. Simply multiply the monthly amount by 12 to get your annual total interest.

In addition to mortgage interest, you can deduct origination fees and points used to purchase or refinance your rental property, interest on unsecured loans used for improvements and any credit card interest for purchases related to your rental property. Come tax time, you must have already spent money on these purchases to qualify. Since it can be tricky to determine what counts and how to file these extraneous interest charges, consider consulting an accountant or financial advisor to help.

2. Property Taxes

Almost every state and local government collects property taxes. Depending on your rental property’s location, they can range anywhere from a few hundred dollars to hundreds of thousands. You can find the exact tax rate in your area by checking your escrow summary or inquiring with your tax professional. If your state has rental licensing requirements, you can also deduct any accompanying landlord or vacation rental license fees.

You should note that the IRS limits the deduction of state and local income, as well as sales and property taxes to a combined deduction of $10,000 ($5,000 for married taxpayers filing separate returns). This means you cannot deduct state or local taxes paid above the limit.

If you manage short-term rentals, your state, city, county or town may charge a kind of fee known as an occupancy tax. Very similar to sales tax, you can deduct occupancy taxes too. Speaking of which, if you pay sales tax on business-related items, wage and Social Security taxes for employees or inspection fees, be sure to deduct those as well.

3. Travel and Transportation Expenses

If you’re a landlord who travels to multiple properties or your rental is located far from your residence, your transportation expenses are deductible. This includes paying to show your rental property, collecting rental income and conserving your rental property throughout the year. Not part of this policy, however, are any reasonable commutes you regularly make.

You can deduct travel using two methods: actual expenses or the standard mileage rate. For 2023, the standard mileage rate for business use was 65.5 cents per mile.

4. Real Estate Depreciation

Over time, wear, tear and obsolescence lower the value of your rental property and its contents. This process, known as depreciation, is tax deductible. You can claim depreciation as soon as your home or apartment is available for rent, even if you don’t have any tenants yet. The deduction can be taken for the expected life of the property, but it must be spread out over multiple years (Note that the IRS says rental properties can depreciate over 27.5 years.) Keep in mind, though, that the value of the structure can depreciate, but not the value of the land.

You can also claim the value of equipment that helps you run your rental business, like your computer or automobile, as well as improvements you make to the property that add value, adapt its use or extend its life. This could include installing a new roof, adding furniture or updating the household appliances. To qualify as a deductible expense, it must be expected to last for more than a year, be valuable to your rental business and lose value over time. IRS Publication 946, “How to Depreciate Property,” can help you navigate this sometimes convoluted process.

5. Maintenance and Repairs

While home improvements are deductible through depreciation, the tax code does allow you to deduct certain repair and maintenance costs separately. The big difference is that these efforts keep your property in rentable condition, but do not add significant value.

According to IRS Publication 527, examples of improvements include additions (bedrooms, bathrooms, decks, garages, patios, porches), landscaping, heating and air conditioning, plumbing, insulation, interior upgrades (kitchen, built-in appliances, wall-to-wall carpeting, and other miscellaneous repairs (roofing, storm windows, security systems, wiring).

If you hire someone else to do the work, you can deduct the labor costs. The same goes for property or on-site managers, should you choose to hire one. If you take the “do-it-yourself” approach, you can deduct any rental fees for tools and equipment. Homeowner association and condo fees are also deductible following the same principle.

6. Utilities

Every landlord handles utilities differently. If you choose to cover things like gas, electricity, water, heating and AC for your tenant, they’ll be tax deductible. If you pay for internet, cable or satellite, you can deduct those as a utility expense as well. Even if your tenant agrees to reimburse you for utilities later, you can continue to file the rental property deduction and claim the reimbursem*nt as income.

7. Legal and Professional Fees

Landlords can deduct certain professional fees from the rental property. If you use a CPA or computer software to prepare your tax return, be sure to deduct the cost. Hire a lawyer to oversee rental paperwork at any point in the year. Deduct those exorbitant hourly fees. If you used a real estate agent to find your tenants, deduct the commission. Advertise the property in the newspaper, over the radio, or online. Deduct those ad dollars.

You can even write off advisor services so long as you meet to discuss the rental property. If you have to evict someone, this deduction would help cover the legal and court filing fees. These are all considered operating expenses and should be deducted as such. You cannot, however, deduct legal fees used to defend the title of your property or recover and improve the property.

8. Insurance Premiums

Lenders can stipulate that homeowners get an insurance policy before securing their mortgage. Luckily, any form of insurance is considered an ordinary and necessary rental property expense and is thus deductible. The deduction applies to basic homeowners insurance as well as special peril and liability insurance.

If you have employees, you can deduct the cost of their health and workers’ compensation insurance too. Although insurance premiums tend to be a bit higher for rentals, this boost can help offset that. Landlords can also deduct losses, including those caused by hurricanes, earthquakes, floods or theft.

9. Office Space

Whether you conduct business in a commercial property or a spare bedroom, you can deduct the accompanying costs. Square footage or rental costs will probably be the largest expenses. However, you can also include the price of a printer, computer software and anything else you use.

Keep documentation of the purchases you make and record the time you spend managing your rental property. This is one of the most commonly flagged deductions. In turn, be sure you’re keeping yourself honest about the breakdown between business and personal use.

How to Claim Rental Property Tax Deductions

In general, you should file rental property tax deductions the same year you pay the expenses using a Schedule E form. The process will be much more manageable if you keep specific records of all income and costs about the property as they occur. Plus, if you ever go through an audit, you’ll have to provide proof for every deduction you claim.

While we review several rental property tax deductions above, the filing process gets more complex if you use the rental property as your primary residence at any point in a tax year. Each year’s Schedule E form denotes the number of days that you can personally use your home and the percentage of days that the property can be rented out at fair market value before anything changes.

In most cases, you won’t be able to deduct expenses or losses for personal use on Schedule E. You may be able to file them using a Schedule A formif you choose to itemize your deductions.

Bottom Line

You can deduct several expenses related to the operation of your rental property as a business. From the cost to maintain the yard to repairing the property in between tenants or even the mortgage interest, you pay all year long, you’ll be able to cut down your total tax bill. The important thing is to keep meticulous records of all your operational activities so that you can properly claim the right expenses and the right amounts at the end of the year.

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