Rental Property Tax Deductions: Complete Guide for Landlords

Rental properties offer some of the best tax advantages in the tax code. Here's every deduction you can claim—and how to maximize them.

The Big Picture: How Rental Taxes Work

Rental income is taxed as ordinary income, but you can offset it with deductions. If deductions exceed income, you may have a "paper loss" that reduces other taxable income.

Formula: Gross Rental Income - Deductible Expenses = Taxable Rental Income

Every Deductible Expense

1. Mortgage Interest

Your largest deduction. Fully deductible on investment property loans.

2. Property Taxes

100% deductible. No $10,000 SALT cap for investment properties.

3. Insurance Premiums

• Landlord insurance
• Liability coverage
• Flood insurance
• Umbrella policies

4. Property Management Fees

Whether you use a company or pay yourself through an entity.

5. Repairs and Maintenance

• Plumbing fixes
• Appliance repairs
• Painting
• Landscaping maintenance
• Pest control
• Snow removal

6. Utilities (If Paid by Landlord)

• Water/sewer
• Electricity
• Gas
• Trash
• Internet (if provided)

7. Professional Services

• Accountant fees
• Attorney fees
• Property manager
• Bookkeeper

8. Advertising

• Listing fees
• Signage
• Online advertising

9. Travel Expenses

Mileage to/from property for management activities. Keep a log.

• 2024 rate: 67 cents per mile

10. Home Office (If Qualifying)

Portion of home used exclusively for rental management.

11. Depreciation

The magic deduction. See below.

Depreciation: The Hidden Goldmine

Depreciation lets you deduct the cost of your building over time—even though it's likely appreciating.

Residential Depreciation

• Timeframe: 27.5 years
• Method: Straight-line

Example:

• Property value: $300,000
• Land value: $60,000 (not depreciable)
• Building value: $240,000
• Annual depreciation: $240,000 ÷ 27.5 = $8,727/year

That's $8,727 in "phantom" deductions—no cash out of pocket.

Cost Segregation

Accelerate depreciation by identifying components with shorter lives:

• Appliances: 5 years
• Carpeting: 5 years
• Land improvements: 15 years

A cost segregation study can front-load deductions. Worth it for properties $500K+.

Repairs vs Improvements

This distinction matters:

Repairs (Deductible Immediately)

• Fixing a broken window
• Patching a roof leak
• Replacing a faucet
• Repainting walls

Improvements (Depreciated Over Time)

• New roof
• Kitchen renovation
• Adding a room
• New HVAC system

The test: Does it restore (repair) or add value/extend life (improvement)?

Real Example: Tax Savings

Property: Single-family rental

This property generates $24,000 in rent but only $600 in taxable income. In the 24% bracket, you'd pay just $144 in taxes.

Actual cash flow: Much higher (depreciation is non-cash).

The Real Estate Professional Loophole

Normally, rental losses are "passive" and can only offset passive income. But if you qualify as a Real Estate Professional:

• 750+ hours in real estate activities
• More than half your working hours in real estate

You can use rental losses to offset W-2 or business income. Powerful for high earners with rental properties showing paper losses.

Common Tax Mistakes

1. Missing Depreciation

You must claim it—or the IRS assumes you did (depreciation recapture on sale).

2. Not Separating Land Value

Land isn't depreciable. Get a proper allocation.

3. Poor Record Keeping

Keep receipts for everything. Use software like Stessa or Quickbooks.

4. Mixing Personal and Rental Expenses

Keep separate bank accounts and credit cards.

5. Forgetting About Loan Interest

HELOC interest used for rental property is deductible.

HELOC Interest Deduction

If you use a HELOC on your primary residence to fund rental property expenses or down payments:

• Interest is deductible as investment interest
• Trace the funds to substantiate the deduction
• Keep documentation of how funds were used

Learn more about HELOCs for investment properties →

Year-End Tax Planning

Before December 31:

• Prepay insurance or property taxes
• Make repairs you've been postponing
• Purchase supplies for next year
• Consider cost segregation study

Before Filing:

• Gather all 1099s from property managers
• Compile mileage logs
• Organize receipts by category
• Review depreciation schedules

When to Hire a Professional

Consider a CPA specializing in real estate if you:

• Have 3+ rental properties
• Have complex ownership structures
• Are attempting RE Professional status
• Have significant rental income or losses
• Are doing 1031 exchanges

Cost: $300-1,000 per return typically. Worth it.

Key Takeaways

1. Track everything - every expense is a potential deduction
2. Don't skip depreciation - it's often your biggest deduction
3. Understand repairs vs improvements - timing of deductions matters
4. Consider RE Professional status - if you qualify, huge benefits
5. Use HELOC interest wisely - may be deductible for investment use

Ready to Build Your Portfolio?

Your home equity can help fund rental investments—and the interest may be deductible.

Explore HELOC options for investors or check your pre-qualification status.