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Tax Planning

Rental Property Tax Deductions: What Landlords Can Deduct

Landlords can deduct ordinary rental expenses and depreciate the building over 27.5 years, but passive loss rules often limit how much reduces tax now.

Rental Property Tax Deductions: What Landlords Can Deduct

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What can you deduct on a rental property?

  • Ordinary and necessary rental expenses are deductible on Schedule E, including mortgage interest, property tax, insurance, HOA dues, management fees, and advertising.
  • The building, but never the land, is depreciated: residential rentals over 27.5 years and commercial property over 39 years.
  • Repairs are deducted in the year paid; improvements are capitalized and depreciated.
  • Whether a net loss reduces your current tax depends on the passive activity rules, which limit many owners.
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Full Guide

What can you deduct on a rental property?

  • Ordinary and necessary rental expenses are deductible on Schedule E, including mortgage interest, property tax, insurance, HOA dues, management fees, and advertising.
  • The building, but never the land, is depreciated: residential rentals over 27.5 years and commercial property over 39 years.
  • Repairs are deducted in the year paid; improvements are capitalized and depreciated.
  • Whether a net loss reduces your current tax depends on the passive activity rules, which limit many owners.

How does depreciation work, and what happens at sale?

  • Depreciation starts when the property is placed in service as a rental, based on the building's share of your cost basis.
  • A cost segregation study can move components such as appliances or site work into 5-, 7-, or 15-year classes.
  • Qualifying property acquired after January 19, 2025 is eligible for permanent 100% bonus depreciation under the 2025 tax law.
  • At sale, straight-line depreciation on the building is taxed at up to 25%, and shorter-life components are generally recaptured as ordinary income.

Is it a repair or an improvement?

  • Work that keeps the property in ordinary operating condition, such as fixing a leak or repainting, is generally a deductible repair.
  • Work that betters the property, restores it, or adapts it to a new use is an improvement and must be capitalized.
  • The de minimis safe harbor lets many owners expense items costing $2,500 or less per invoice or item, if elected on a timely filed return.
  • Owners with qualifying small buildings may also use a separate safe harbor for small taxpayers; your CPA can confirm eligibility.

Why might a rental loss not reduce your taxes?

  • Rental activity is generally passive, so losses offset passive income only and the excess is carried forward.
  • Active participants may deduct up to $25,000 of losses against other income, phasing out between $100,000 and $150,000 of modified AGI.
  • Real estate professionals who materially participate can treat rental losses as nonpassive, but the hour tests are strict.
  • Suspended losses are generally released when you sell your entire interest in a fully taxable sale.

Which other costs are commonly deductible?

  • Local travel to manage or maintain the property, using actual costs or the IRS standard mileage rate for that period.
  • Legal, accounting, and tax preparation fees tied to the rental activity.
  • Points paid on a rental property loan, which are deducted over the life of the loan rather than all at once.
  • A home office, but only if the rental activity rises to the level of a trade or business and the space meets IRS tests.

What records and reporting apply?

  • Report rental income and expenses on Schedule E, and track depreciation on Form 4562 in the years it is required.
  • If your rental is a trade or business, payments of $2,000 or more to a contractor in 2026 generally require Form 1099-NEC.
  • Keep basis records, such as closing statements and improvement invoices, until the limitation period ends for the year you sell.
  • Receipts, bank records, and mileage logs support deductions if the return is examined.

Key takeaways

  • Rental expenses and building depreciation are deductible, but land never is.
  • Repairs are deducted now; improvements are depreciated, with safe harbors for small items.
  • Depreciation lowers tax now but is partly taxed back at sale.
  • Passive loss limits often decide the real benefit; confirm your situation with a CPA.
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