The Big Picture on Rental Property Tax Deductions:

    • Landlords have different rental property tax deductions that can help with keeping more of their income in their pocket. They can deduct virtually every real estate investing business-related expense, and they typically go on Schedule E (so you can still also take the standard deduction).
    • You can also deduct for “paper expenses,” like depreciation, that you don’t actually incur.
    • The more aggressive you get in taking deductions like meals, travel, entertainment, and a home office, the more likely you are to trigger an IRS audit.
rental property tax deductions

Real estate comes with some of the best tax advantages in the world. Landlord tax deductions include just about every conceivable expense associated with rental properties – plus some just-on-paper expenses.

However, tax laws change fast, so investors need to stay on top of real estate tax deductions and other tax law changes. So, before you jump into the rental property tax deductions checklist, ensure you’re up to speed on how recent tax law changes affect landlords’ tax returns.

Rental Property Tax Deductions for Landlords

Landlords have 23 rental property tax deductions from expenses, so you can keep more of your money in your pocket where it belongs. It’s not 100% exhaustive, as there are a few obscure tax deductions that only apply to a few landlords, but think of this as a rental property deductions checklist for the average landlord.

IMPORTANT: These rental property tax deductions are “above the line” deductions, meaning they come directly off your taxable income for rental properties. That means you can deduct these expenses, including those on appliances and furniture for your rental income properties, including those on appliances and furniture for your rental income properties, including those on appliances and furniture for your rental income properties, and still take the standard deduction!

Download our Rental Property Income Tax Deductions Checklist PDF and complete it on your own.

 

1. Losses from Theft or Casualty

The Tax Cuts and Jobs Act of 2017 (TCJA) suspended the itemized deduction for personal casualty and theft losses for 2018 through 2025. Before 2018, deductions of this kind were permitted when they exceeded $100.

However, landlords can still deduct losses from theft or damage to their rental properties as business expenses.

2. Property Depreciation

Depreciation makes for a handy “paper expense.” Much of the cost of buying your property can be written off as a tax deduction, although it must be spread over 27.5 years (don’t ask me where that number came from). Buildings lose value as they age (at least theoretically), so the IRS lets you deduct 1/27.5th of the property’s cost each year.

Major property upgrades and “capital improvements” must also be depreciated rather than deducted in the year you make them. For example, a new roof is a capital improvement that must be depreciated rather than deducted all at once.

But the patching of a roof leak? That’s a repair.

Read more about rental property depreciation before writing it off, and use our rental property depreciation calculator to make your life easier.

If you want to take advantage of depreciation, consider investing passively in real estate syndications. You show a huge up-front loss due to bonus depreciation and cost segregation. And no, you don’t need huge sums — you can invest small amounts every month by joining our passive real estate investment club.  

3. Repairs & Maintenance

Basic repairs and maintenance, such as new paint and new carpets, are deductible for your rental properties. That’s not the case for your primary residence, in which repairs are not deductible.

Remember, if it’s a large improvement or replacement (like the roof example), it may count as a “capital improvement,” in which case you’ll have to spread the deduction over multiple years in the form of depreciation.

However, the line isn’t always crystal clear, like the roof example above. Here’s an example of how it gets blurry: replacing all your windows to modernize and improve your energy efficiency is a capital improvement. If a baseball goes through one window, which you replace, it’s a repair. But what if you replaced a few windows last year but not all?

Talk to an accountant and build a defensible argument for any repairs you deduct.

4. Segmented Depreciation

Some improvements include landscaping and “personal property” inside the home (e.g., appliances and furniture). refrigerators) can be depreciated faster than the building itself. It’s more paperwork to segment the depreciation of certain improvements as separate from the building’s depreciation. Still, it means a lower tax bill right now, not in the distant, unknowable future.

5. Utilities

Do you pay for gas, heating, trash removal, sewer, or any other utility for your rental? Be sure to deduct these costs when you file your tax return.

However, note that if your tenant reimburses you for a utility, that would be considered income. So you have to declare both the income and the expense, even though they offset each other.

6. Home Office

The home office is a popular deduction, but it’s also one you must be careful about, as it can trigger audits. You have to set aside a percentage of your home for only doing work/business/real estate investing-related activities, and that percentage of your housing bill can be deducted. The IRS has put this deduction under the microscope in recent years.

One recent downer: no more home office deduction for those who work for others in the comfort of their home. But as a real estate investor, you’re a business owner, so you can still claim it if you use the space “exclusively for business.”

Talk to an accountant about this, and keep the percentage realistic.

7. Real Estate-Related Travel: A Dangerous Write-Off

One of the more popular but dangerous rental property tax deductions is travel expenses. However, that requires you traveling for real-estate related business—and you will need to prove it. Many people get cute with this one, and when they go on vacation, they’ll go see one or two “potential investment” properties and then write off the entire trip as a business expense.

Whenever you plan on deducting travel expenses, assemble as much documentation as possible to make a strong case that it was an actual business trip. For example, meet with a real estate agent in the area and keep your email correspondence with them. Keep all listing information and investment calculations for any properties you visit. Track your mileage for all driving done to and from rental properties.

C-Y-A!

8. Meals

This one’s dangerous, too, but still legal.

Landlords and real estate investors can deduct 50% of meal costs while traveling to visit rental properties they manage for rental income. They cannot write off meals when scouting for prospective rental properties.

In your home market, defined as a 40-mile radius of your home, you can deduct 50% of meal costs when meeting with other business contacts, such as partners, real estate agents, or contractors. Real estate investors cannot take a deduction for meals they eat alone in their home market.

As with the other rental property deductions on this list, always keep receipts and documentation, and always be prepared to defend all deductions if audited by the IRS!

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9. Closing Costs

Many closing costs are tax deductible, and others can be depreciated over time as part of your acquisition cost. Use an accountant with a deep knowledge of real estate investments, and send them the settlement statement (previously called a HUD-1, now known as a CD or closing document) for each property you bought last year.

10. Property Management Fees

Paid a property manager to handle the headaches and field those dreaded 3 am phone calls from tenants? You can write off their management fees, including monthly percentage fees, new tenant placement fees, and any other fees the manager slaps you with.

If you’re still on the fence about hiring one, here’s what you should know about whether to hire a property manager.

11. Rental Property Insurance Is Also Deductible

Like homeowner’s insurance for your primary residence, your landlord insurance premium for each property is also tax deductible.

Unlike homeowner’s insurance, you don’t have to itemize your personal deductions to take landlord insurance as a rental property deduction. 

12. Rent Default Insurance

You can also deduct the cost of rent default insurance policies for each property. Not familiar with rent default insurance? If the tenant stops paying the rent, the insurance company pays it until you go through the eviction process and sign a lease agreement with a new tenant. It protects you against tenants failing to pay rent, so you never go without rental cash flow.

They’re not very expensive either, usually $300-900 per year. Try The Guarantors or Steady; we’ve vetted both as a reputable and easy insurance provider to work with.

Often, the renter foots the bill for rent default insurance policies, making the landlord deduction a moot point.

13. Mortgage Interest

All interest you pay to your mortgage lender on rental property loans remains tax deductible. As mentioned above, it’s an “above the line” deduction from your taxable rental property income on Schedule E of your tax return.

But for your primary residence, the IRS limits the deductibility of mortgage interest only up to $750,000 of home mortgage debt for married couples, $375,000 for single filers.

14. Mortgage Insurance (PMI/MIP)

No one likes mortgage insurance (other than banks). But at least you can deduct the cost from your taxable rental property income.

Note that mortgage insurance only applies to conventional and FHA loans, not privately issued portfolio loans. You don’t have to worry about mortgage insurance if you borrowed your rental property loan through a private portfolio lender like Kiavi or Forman Loans.

While at it, check to see if your mortgage balances have fallen below 80% of their respective property values. If so, you can apply to have PMI removed from the loan and potentially save yourself hundreds of dollars per month.

The same goes for your home, not just your rental properties!

All professional fees associated with your rental properties are tax deductible. Bookkeeping, accounting, attorney, real estate agent, and any other fees you pay for professional services can be deducted from your taxable income. Don’t forget the cost of any bookkeeping or landlord software (ahem!) you use.

However, one wrinkle introduced by the TCJA is that personal tax preparation expenses are no longer deductible since 2018. However, business accounting – such as for your real estate LLC or S-corp – is still deductible as a rental business expense for landlords. Talk to your accountant about shifting as many tax preparation expenses as possible to the business side of the books!

16. Tenant Screening

Those fees are deductible if you paid for tenant credit reports, criminal background checks, identity verifications, eviction history reports, employment and income verification, or housing history verification.

Even better, the applicant should be able to pay directly for tenant screening report costs. Which, I might add, our landlord software allows you to do!

17. Legal Forms

Did you buy a state-specific lease agreement this year? Eviction notices? Property management contracts? The cost of legal forms is also deductible.

18. Deductible Property Taxes

Under the Tax Cuts and Jobs Act, landlords can still deduct rental property taxes as an expense.

But it’s a little more complicated for homeowners, and even though this is a list of landlord tax deductions, let’s take a moment to review the changes for homeowners, shall we?

However, you can no longer deduct for state and local taxes (SALT deduction) over $10,000, a significant change since 2017. These state taxes include state and local income, sales, personal property, and… homeowner property taxes.

What does this mean for landlords calculating rental income in high-tax states like New York, New Jersey or Connecticut? It could mean that more people may relocate to lower-tax states like Florida and even spark lower property values in states like New Jersey. Only time will tell.

19. Phones, Tablets, Computers, Phone Service, Internet

Did you buy a new phone this year? Maybe a new laptop or tablet? If you use it for work, you can probably persuade your accountant (and the IRS) that the costs should be deducted from your taxable income. Or, more likely, depreciated, as most of these devices come with a lifespan that the IRS classifies as multiple years.

Likewise, for internet bills, phone service charges, and the like, with the caveat that you need to be able to document that it was for business purposes. Printer toner, computer paper, pens, and the like; keep those receipts.

20. Rental Property Licensing & Registration Fees

Licensing and registration fees are sometimes a local requirement for landlords, and they can be added as rental property tax deductions. For instance, in the city of Philadelphia, a rental license fee and an inspection of the property are required.

So, if you’ve had to purchase or renew a landlord or rental license for the property, that cost is deductible.

Furthermore, some localities will require a vacation rental license for short-term rentals such as seasonal, AirBnB, etc. These licensing costs are deductible as well.

21. Occupancy Tax Expense

Some states assess an occupancy tax on collected rental amounts, comparable to paying sales tax. You see this more often in states where short-term rentals are common. Florida, Arizona, and New Jersey are examples of states that charge an occupancy or tourist tax.

If you own rental property in an area that charges an occupancy-like tax, then the amount is tax deductible. Remember, however, that the tax will not only differ from state to state but also from local jurisdictions like cities and counties.

investment property loansWhat do lenders charge for a rental property mortgage? What credit scores and down payments do they require?

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22. Business Entity Pass-Through Deduction

The TCJA significantly changed how legal entities (e.g., LLCs) and pass-throughs are treated. Sole Proprietorship, Partnership, and Corporate Entities are now entitled to a “pass-through” deduction as long as the rental activities meet the requirements for business tax purposes.

The short version is that landlords can deduct 20% of their rental business income from their taxable business income amount. For example, if you own a rental property that netted you $10,000 last year, the pass-through deduction reduces your taxable rental business income from $10,000 to $8,000. Pretty sweet, eh?

There are restrictions, of course. The deduction phases out for single taxpayers with adjusted gross incomes over $163,300, and married taxpayers earning over $326,600. Although higher-earning landlords can still take advantage of the pass-through deduction under some conditions — definitely discuss this with your accountant.

One more reason, beyond asset protection, to own rental properties under a legal entity!

Lastly, beware that the pass-through deduction is currently scheduled to expire at the end of 2025 unless extended by Congress.

We’ve said it before and’ll say it again: talk to an accountant before taking this deduction. It gets complicated quickly, and you don’t want to end up in boiling water with the IRS.

23. “Augusta Rule” Home Rental Deduction

The Augusta Rule (IRS Section 280A) lets homeowners rent out their homes for up to 14 days each year and pay no income taxes on the rent. Named after Augusta, GA, the rule originates in letting homeowners rent their houses to guests during the Masters golf tournament.

Yes, you could rent your home on Airbnb for up to two weeks a year for tax-free income. However, business owners can get even more creative with the Augusta Rule.

If you own a business as a partnership LLC, S-corp, or C-corp, you can rent your home to your business using the Augusta Rule. That lets you double dip on tax breaks: you rent the property to your business and write it off as a business expense. That transfers money from your business to you personally, and you don’t pay any taxes on it as personal income.

For example, say you plan an annual retreat for your employees or senior management. Instead of booking space at a hotel, you book your own home. You pay yourself $500 daily for five days of usage, plus a day for setup and breaking down the space. That comes to $3,500 of tax deductions for your business and tax-free income for you.

Not too shabby.

The Augusta Rule comes with a few limitations, however. You can’t take advantage of the Augusta Rule as a sole proprietor. You must also pay fair market rent to yourself for your home — inflate the rent at your peril. Look up comparable rents for short-term usage through sites like Airbnb.

And, of course, keep excellent records, possibly using a worksheet or software like Turbotax or Quicken for tracking rental income and expenses. If the IRS audits you, you must prove that the rental was for legitimate business purposes and that your business paid market rates for rent. 

Final Thoughts On Rental Tax Deductions

It’s hard to get ahead if 50% of your income goes to taxes (which it probably is if you add up everything you pay in sales, property, federal, state, local, and FICA taxes). But by being savvier with your documentation and deductions, landlords and real estate investors can pay less taxes than other people and truly realize the advantages of entrepreneurship.

Remember always to document every expense you plan to deduct. That means keeping receipts, invoices, and bills throughout the year as expenses pop up; to help with this, keep a separate checking account for your real estate expenses if you don’t already. Never swipe that debit card or write a check from that account without getting documentation!

We will continue updating and expanding this article content as the upcoming tax changes continue.

Feel free to pass this rental property deductions checklist on to other landlords to ensure they’re taking advantage of all rental property tax deductions available for landlords! 

How aggressive do you get with your travel deductions and home office deductions? Do you leave your mortgages in place just for the interest deduction? Spill the beans!

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