Rental property tax deductions: what landlords can write off

Who it fits

Owners of one to ten long-term rentals ask about deductions most, often W-2 earners filing their own returns for the first few years. The questions are the same every spring: what counts as a deduction, what has to be depreciated, and why a loss on paper did not lower the tax bill.

Short-term rentals and real estate professionals follow some different rules. Our short-term rental guide and REPS guide cover those.

How rental income is taxed

Rent is ordinary income, reported for most landlords on Schedule E. You are taxed on the net: rent minus the expenses the law lets you deduct, including depreciation. That is why a rental can produce cash every month and still show a small profit or a loss on the return.

Rental income includes more than monthly rent. Advance rent is income in the year you receive it, whatever period it covers. A security deposit is not income if you plan to return it, but it becomes income if you keep part or all of it. If a tenant pays one of your expenses, such as a utility bill, that payment is rental income, and you can deduct it if it is a deductible rental expense.

The deductions most landlords take

You can deduct the ordinary and necessary expenses of managing, conserving, and maintaining a rental. The common ones:

• Mortgage interest. The interest is deductible; the principal part of the payment is not.
• Property taxes and insurance. Insurance paid more than a year in advance is deducted year by year.
• Repairs and maintenance. See the next section for where repairs end and improvements begin.
• Management fees, advertising, cleaning, and utilities you pay.
• Legal and other professional fees, including tax return preparation for the rental.
• Local transportation to collect rent or manage, conserve, or maintain the property.
• Depreciation of the building and of improvements.

Expenses also count while a rental sits vacant, as long as you hold it out for rent. Lost rent while it is empty is not a deduction.

Repairs or improvements

A repair keeps the property in its normal operating condition, and you deduct it in the year you pay it. An improvement has to be capitalized and depreciated. The IRS treats a cost as an improvement if it results in a betterment, restores the property, or adapts it to a new or different use. Replacing a roof, adding a deck, or renovating a kitchen are improvements. Fixing a leak or repainting a room are usually repairs.

The line matters because a repair lowers this year’s tax, while an improvement spreads over many years. Keep the invoices separate. You will need the cost of improvements when you depreciate them and when you sell.

Three safe harbors that turn some improvements into deductions

The tangible property regulations give landlords three ways to deduct costs that might otherwise be capitalized. Most of the guides that rank for this topic skip them, and they can matter for a small landlord.

• De minimis safe harbor. If you elect it for the year, you can deduct items costing up to $2,500 per invoice or per item instead of depreciating them. A new refrigerator or a set of blinds often fits. The election is made each year with the return.
• Routine maintenance safe harbor. Recurring work you expect to do more than once during the property’s class life, to keep it in its ordinary operating condition, can be deducted even when it might otherwise count as an improvement. It does not apply to betterments.
• Safe harbor for small taxpayers. For a building with an unadjusted basis of $1 million or less, an owner with average annual gross receipts of $10 million or less can elect to deduct repairs, maintenance, and improvements on that building for the year if the total is no more than the lesser of $10,000 or 2% of the building’s unadjusted basis.

Depreciation: the deduction that does not cost cash

You recover the cost of a residential rental building over 27.5 years, starting when the property is ready and available for rent. Land is not depreciated, so the purchase price has to be split between land and building. On a $400,000 purchase with $70,000 allocated to land, the $330,000 building produces about $12,000 of depreciation in a full year.

Depreciation lowers taxable income without any money leaving your account, and it reduces your basis in the property. It also comes back when you sell: the part of the gain that comes from depreciation is taxed under its own rules. The deduction is not optional in practice, because the basis reduction applies whether or not you claimed it.

Furniture, appliances, and carpets in a rental can be depreciated over 5 years, and land improvements such as fences and driveways over 15 years. A cost segregation study separates those shorter-life parts from the building so the deductions come sooner.

Travel, points, and costs before the first tenant

Local transportation to collect rent or to manage, conserve, or maintain a rental is deductible, either at the standard mileage rate or as actual costs. Travel between your home and a rental is generally commuting unless your home is your principal place of business. Keep a log of dates, miles, and the reason for each trip.

Points paid to get a rental mortgage are prepaid interest. You generally deduct them over the life of the loan, not all in the year you pay them.

Expenses for managing, conserving, or maintaining a property are deductible from the time you make it available for rent.

When a rental loss does not lower your tax this year

Rental activities are generally passive. A loss from a passive activity can offset passive income, and the rest carries forward. If you actively participate, you can deduct up to $25,000 of rental loss against wages and other income. That allowance is reduced by 50% of modified adjusted gross income over $100,000 and is generally gone at $150,000.

Above that income, a loss usually waits for future rental income or a sale, unless you qualify as a real estate professional or the property follows the short-term rental rules.

A worked example

Say a rental brings in $2,400 a month, or $28,800 a year. Cash expenses come to $20,904: $9,600 of mortgage interest, $3,600 of property taxes, $1,500 of insurance, $2,100 of repairs, $2,304 of management fees, $1,200 of utilities and HOA dues, and $600 of mileage and professional fees. Depreciation on a $330,000 building adds $12,000.

Total deductions are $32,904, so the return shows a $4,104 loss even though the property produced about $7,900 of cash before principal payments. With $120,000 of modified adjusted gross income and active participation, the allowance is $15,000, so the full loss can offset wages. At $160,000, the allowance is gone and the loss carries forward. The figures are illustrative.

How Bellamy approaches it

It starts with a free 15-minute intro call with Corben. Return preparation starts from $650 for an individual return with one rental, quoted as a firm number after a short call, and every return is explained on video before you sign. When the questions go beyond the return, a planning session, $1,500, about 60 minutes recorded, maps purchases, repairs, and timing before the year closes.

Rated 4.8 on Google from 37 reviews. Tax year 2025, through August 2026: more than 200 federal returns filed for individuals and businesses, plus state returns in more than 25 states.

What does not work

Deducting a new roof as a repair. Skipping depreciation to keep the return simple. Counting a monthly mortgage payment as an expense instead of separating interest from principal. Rebuilding a mileage log from memory in April.

Informational only, not tax advice.