16 Rental Property Tax Deductions for Landlords

Owning residential rental property can be an excellent way to supplement your income. Being a rental property owner also qualifies you for several tax deductions to help ease your tax obligations. Explore 16 of the most common ones below.

Table of Contents

• Mortgage Interest
• Commissions and Professional Fees
• Asset Depreciation
• Repairs and Maintenance
• Utilities and Energy
• Travel Expenses
• Home Office and Operating Expenses
• Marketing Costs
• Start-Up Expenses
• Employees and Independent Contractors
• Insurance
• Theft and Casualty Losses
• Passive Activity Losses
• Property Taxes
• Training and Education
• Tenant Screening Costs
• Reporting Rental Income and Expenses
• Final Thoughts

1. Mortgage Interest

If you borrowed money to purchase your rental property, the interest you pay to the lender could be tax-deductible. If you haven’t paid off your mortgage, you will most likely pay real estate taxes through your mortgage broker or bank. The bank will outline these taxes in Form 1098, Mortgage Interest Statement.

When submitting your taxes, you must report your share of the interest using Form 1040 Schedule E.

2. Commissions and Professional Fees

You can deduct any commissions or professional fees from your taxable income. For example, if you require the services of a lawyer, accountant, or tax professional, you may be able to claim the costs as an expense.

Furthermore, you may be able to deduct any commission you pay to a property manager for managing your property. Commissions paid to a real estate agent when purchasing a rental property won’t be immediately deductible, but you can add the commission to your property’s basis. This strategic move can reduce capital gains when you eventually sell the property.

3. Asset Depreciation

Tenants will inevitably inflict wear and tear on your property, but you shouldn’t have to eat all the associated costs. Depreciation is a capital expense that provides a means to recover the costs of an income-producing property over its life (but not the land it sits on). You can use Form 4562 to claim your deduction and amortization for your property.

A rental property typically depreciates over 27.5 years, at which point you can recover all the associated expenses. [1]

For simple math, let’s consider an example. Suppose James buys a rental property for $300,000. If he divides $300,000 by 27.5 years, he gets an annual appreciation expense of roughly $10,909. Theoretically, he can deduct $10,909 as a depreciation expense from his gross taxable rental income.

4. Repairs and Maintenance

Most repairs and maintenance work are tax deductible for the year they occur. These expenses help you keep your property in operable condition, but they don’t enhance your property or add to its value. [2]

Some generally accepted repair and maintenance tasks include the following:

• Painting to protect surfaces from wear and tear
• Regular carpet cleaning services
• Minor plumbing repairs like replacing shower heads, unclogging drains, and fixing leaks
• Minor electrical repairs like repairing switches and outlets, replacing light fixtures, or fixing faulty wiring
• HVAC maintenance
• Roof, foundation, and window repairs
• Appliance repairs
• Exterior maintenance like landscaping and pest control

5. Utilities and Energy

If you pay for any utilities at your rental property as stipulated in the lease agreement, you may be able to claim them as an expense. These utilities may include electricity, gas, heating, water, sewer, cable, internet, trash, and recycling that the tenant doesn’t pay.

You may be able to claim a federal tax credit if you make any improvements or install appliances at your property that make it more energy efficient. [3]

Residential Energy Property Expenditures

The goal of residential energy-efficiency tax credits is to encourage individuals to increase residential energy-efficiency investments. Landlords can claim two kinds of credits on property:

1. The nonbusiness energy property tax credit regards energy-efficiency improvements made to the building envelope (insulation, windows, and doors) and allows for the purchases of high-efficiency heating, cooling, and water-heating appliances. [4]
2. The residential energy efficient property tax credit allows taxpayers to claim a credit for renewable energy (e.g., solar panels, geothermal heat pumps, small wind energy, fuel cells) systems installed on the residence. [5]

The US Department of Energy offers additional ways to make your rental property more energy-efficient and possibly claim it as an expense, depending on state law. [6]

6. Travel Expenses

You may be able to deduct travel expenses if they aren’t related to regular commuting. For example, you may be able to deduct the related expenses if you travel between multiple rental properties to collect rent, perform maintenance or repairs, or complete other business-related tasks. You cannot deduct the expenses if the trip’s primary purpose is to improve the property.

Deducting Vehicle Costs

If you use your vehicle for approved rental property business tasks, you can choose from the following two methods for deducting the expense:

1. Standard mileage rate: The standard mileage rate covers all operating expenses for your vehicle. The IRS establishes the standard rate annually. For 2024, it’s 67 cents per mile. [7]
2. Actual car expenses: Actual car expenses include depreciation, licenses, gas, oil, tolls, insurance, parking fees, repairs, registration, tires, garage rent, and insurance. Multiply your total expenses by the percentage of business use.

Deciding on the most advantageous method to use depends on whether you have low operating costs and whether your vehicle is new. If you have lower operating costs, the standard mileage rate might be more beneficial. On the other hand, if you have a brand-new vehicle, you may want to deduct the actual expenses because of the high depreciation associated with newer vehicles in the first year.

Regardless of which method you use, keep careful tabs on your mileage to ensure you know how far you’ve driven for business use versus personal use. For more information on deducting travel expenses, read chapter 4 of Publication 463 [8] or page 4 of Publication 527. [9]

7. Home Office and Operating Expenses

If you use part of your home as the office where you manage your property, you may deduct a portion of your home expenses, including the following:

• Rental costs (based on the square footage you use as the office)
• Stationary (such as ink, paper, pens, staples, etc.)
• Office equipment like printers and computers
• Rental software
• Phone and internet bills

Keep diligent records so no issues arise when it comes time to file your taxes. For more information on expenses claimed for your home office, read Publication 587 [10] on the business use of your home.

8. Marketing Costs

The costs associated with finding and keeping tenants are also deductible expenses. Some examples of deductible marketing expenses include the following:

• Fees for listing the property online
• Costs of printed ads in brochures, flyers, and newspapers
• Costs of physical signage advertising that a property is available for rent
• Website maintenance fees
• Loyalty discounts (like rent reduction) to retain long-term tenants
• Referral programs
• Move-in gifts
• Branded items
• Costs of community events, welcome events, and holiday parties

When considering marketing and advertising deductions, ensure that your efforts serve a clear business purpose, such as attracting new tenants, improving tenant relations, or increasing retention. This can include online strategies like email marketing, which is an effective way to engage with tenants and build long-term relationships. Additionally, keep detailed records of your marketing initiatives and events to report expenses properly.

9. Start-Up Expenses

Your property may qualify as a start-up business, and, as such, you might be able to claim costs incurred for creating or investigating the acquisition of your active trade or business.

Landlords can only claim these expenses if both of the following conditions are true: [11]

1. The cost is one that a business could deduct if it paid (or incurred it) to operate an existing trade or active business, and
2. The cost is one that a business pays (or incurs) before its active trade or business begins.

Some examples of the costs you may be able to claim include the following:

• Analysis of the market, including the examination of potential properties and research of local property markets
• Legal fees for establishing their business structure
• Fees for acquiring the necessary business licenses, permits, and registration
• Travel to and from real estate agencies

10. Employees and Independent Contractors

You might be able to deduct wages if you have hired staff to work on the property, either full-time or part-time.

This can include management fees, as previously mentioned, but can also refer to contractors hired to maintain or fix the property or if you have hired a superintendent or groundskeeper.

If you hire independent contractors, you must use Form 1099-NEC to report all payments you made (if the payments exceeded $600 total for the year). If you hire employees, you must use Form W-2 to report the salary or wages you paid them.

11. Insurance

The insurance premium you use to protect your property is generally deductible. The types of insurance you may claim as an expense include:

• Insurance that covers fire, storm, theft, accident, or similar losses
• Credit insurance that covers losses from bad business debt
• Group hospitalization and medical insurance for employees, including long­-term care insurance
• Professional liability insurance
• Workers’ compensation insurance set by state law that covers any claims for bodily injuries or job­ related diseases suffered by employees in your business, regardless of fault
• Coverage for discrimination claims

12. Theft and Casualty Losses

Theft is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Causality refers to the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Such events include a storm, fire, or earthquake.

If your building is vandalized or harmed by a natural disaster or fire, the loss not covered by your insurance can be considered a tax deduction. If your insurance company has paid you for losses incurred due to theft and casualty, you may also be able to claim it as a gain instead of a loss.

► READ MORE: Publication 547 (Casualties, Disasters, and Thefts)

13. Passive Activity Losses

Many rental real estate activities are “passive” activities, meaning you receive income mainly for the use of tangible property rather than services. Renting your property to a tenant is generally considered a passive activity, even if you materially participated.

Deductions or losses from these activities are limited. Usually, you cannot offset income or losses from passive income activities.

According to the IRS, there are two types of passive activities: [12]

1. Trade or business activities in which you do not materially participate during the year.
2. Rental activities, even if you do materially participate in them unless you are a real estate professional.

However, there is an exception: a special $25,000 allowance. Suppose you or your spouse actively participated in a passive rental real estate activity. In that case, the amount of disallowed passive activity loss decreases. Therefore, you can deduct up to $25,000 of loss from the activity from your non-passive income.

This allowance is an exception to the general rule, so ask your tax accountant if you qualify.

14. Property Taxes

Your state and local governments will likely collect property taxes on your rental. You may deduct these taxes up to $5,000 if you’re filing as an individual or $10,000 if you’re filing with your spouse. [13]

If you rent out short-term rentals, you may be responsible for paying city-specific occupancy taxes. These taxes may be deductible, but you can confirm with a tax specialist.

15. Training and Education

Any supplementary training or additional education may qualify as a tax deduction. The training or education should help you improve your skills as a landlord and directly relate to your rental business. Eligible courses may help you learn more about real estate investments, landlord-tenant law, or property management.

For example, imagine you just moved to Florida from Ohio. After completing all necessary Florida requirements, you decide to take a course on Florida landlord-tenant law. This will likely qualify as a tax-deductible expense because it will help you better navigate the legal intricacies of Florida law.

16. Tenant Screening Costs

Tenant screening costs are related to your scope of business, as you pay them to help you with the tenant selection process. Whenever a tenant fills out a rental application form, you may be able to deduct the fee charged by a third-party service if you choose to use it.

Furthermore, you can deduct the costs of background checks, credit report checks, and reference checks. These checks can help you assess a tenant’s eviction history and determine if they’ll be a suitable fit for your property.

Reporting Rental Income and Expenses

Rental property owners must report their rental income and expenses when tax season comes around. Forming an LLC for your rental properties can help streamline this process, offering valuable tax benefits and personal asset protection. Examples of rental property income include the following:

• Rent payments
• Advance rent
• Security deposits
• Payments for canceling a lease
• Expenses that your tenant pays if your tenant pays any associated expenses
• Property or services received instead of rent payments

You may report any expenses described earlier and claim them as deductions. Use Form 4562 for depreciation-related expenses and Form 1040 Schedule E for other expenses. Maintain thorough records throughout the year to make the reporting process easier.

Final Thoughts

Being a landlord involves many costs, from marketing and advertising to mortgage interest and compensating independent contractors and employees. Knowing your rental property tax deductions can help you be more profitable while still complying with the IRS’s regulations.

If preparing your tax return is more complicated than anticipated, consider consulting an accountant or tax professional for assistance.