15 Rental Property Tax Deductions For Landlords

Understanding the rental property tax deductions is essential if landlords want to minimize their end-of-year tax liabilities and maximize their rental property ROI. However, not every real estate investor takes full advantage of the available tax deductions for their rental properties and some end up overpaying their taxes, sometimes by thousands of dollars.

In order to maximize deductions landlords need to have a good understanding of which expenses are deductible, how each expense should be categorized, how to report these rental property tax deductions at the end of the year, and, of course, employ a quality real estate accounting software like Landlord Studio to ensure their records are kept accurate and up to date throughout the tax year.

So, this is exactly what we’re going to cover in this article. Let’s get stuck in.

What Qualifies As Rental Property Tax Deduction?

There are two types of expenses: current expenses and capital expenses.

Current expenses

Current expenses are ordinary and necessary operating expenses. These are generally normal every-day expenses that keep the property in good working condition and habitable such as maintenance work, or help you operate your rental business.

You can deduct these expenses from your taxes in the same year they were incurred. Here’s what necessary to qualify as a current expense:

• It must be ordinary and necessary. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.
• It must be current. Current expenses must have more short-term value than long-term value. Fixing a hot water heater has short-term value. Replacing the appliance has long-term value.
• It must be directly related to your rental activity. The expense must be business-related.
• It must be reasonable in amount. If for example, you claimed to have paid $500 for a toilet seat, you may get audited.

Capital expenses

Anything that increases the value of the property or extends its life is categorized as a “capital expense” or “improvement” and must be capitalized and depreciated over multiple years.

Stay Organized With the Best Income Expense Tracking Tools

Before being able to claim any of the expenses outlined below, you need to ensure you have detailed and accurate records to back up each of your claims. This is why it’s suggested use quality real estate accounting software like Landlord Studio to make your income and expense tracking and financial reporting as easy as possible.

With Landlord Studio track your income and expenses, digitize receipts at the point of sale, automate your mileage tracking, connect your bank accounts for easy reconciliation, and instantly generate any of over 15 accountant-approved reports including a P&L and Schedule E report.

Poorly kept records with outdated systems like spreadsheets or paper are prone to errors hard to keep up to date which leads to innaccurate tax filings, overpaid taxes, and may even open you up to an IRS audit.

Getting started with Landlord Studio takes as little as five minutes and is completely free!

15 Common Rental Property Tax Deductions for Landlords:

1. Advertising
2. Auto and Travel
3. Cleaning and Maintenance
4. Commissions
5. Insurance
6. Legal and Professional Fees
7. Management Fees
8. Mortgage Interest
9. Other Interest
10. Repairs
11. Supplies
12. Taxes
13. Utilities
14. Depreciation Expense or Depletion
15. Other (List)

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1. Advertising

Expenses incurred for advertising your property when looking for new tenants, such as newspaper ads, yard signs, online listings, and website costs, are all rental property tax deductions you can claim.

2. Auto and Travel

Travel expenses can be a significant deductible cost especially if you don’t live near your rentals. Business-related travel might include routine property inspections or property showings during vacancies. 

If you have to fly to your rental you can deduct airfare, and up to half of meal expenses during travel. You can deduct mileage at the standard mileage rate (65.5 per mile for 2023).

Detailed record-keeping, like a mileage log, is crucial, as the IRS may closely examine significant travel expenses.

3. Cleaning and Maintenance

Routine cleaning and maintenance, covering tasks like gardening, pest control, snow removal, and pressure washing. Both labor and supplies purchased for these purposes are eligible.

4. Commissions

Commissions paid to find tenants are generally deductible business expenses. However, commissions to real estate agents during property purchases do not qualify.

5. Insurance

This includes all landlord insurance premiums for rental properties, including additional policies like flood protection.

6. Legal and Other Professional Fees

Fees for legal and professional services, such as overseeing paperwork, tax preparation, and CPA costs, are deductible. However, legal fees for defending property titles or enhancing the property are not eligible.

7. Management Fees

This includes property management fees, typically ranging from 8 to 12 percent of monthly rental income.

8. Mortgage Interest

Your investment property’s mortgage interest can be listed as a business expense and reported on your Schedule E form at the end of the tax year. It’s important to note that only the interest, not the principal, is deductible.

9. Other Interest

Interest from loans, including interest on credit cards used to pay for things like property improvement or repairs is deductible. Even loans from non-bank lenders without a Form 1098 mortgage interest statement can be reported.

10. Repairs

All costs associated with normal and ordinary repairs necessary for maintaining the property in its current condition can be deducted. This includes things like, fixing plumbing or broken cupboard doors. However, expenses that add value to the property or are otherwise deemed improvements by the IRS should be added to the cost basis of the property and depreciated.

Related: Rental Property Accounting 101: Capital Improvements vs. Repairs

11. Supplies

This rental property tax deduction includes supplies used exclusively for managing rental properties, like office equipment or maintenance toolkits.

12. Taxes

Property taxes and fees related to permissions to rent, such as local licensing fees or occupancy taxes, are deductible.

13. Utilities

Landlords covering utilities for tenants can deduct expenses for gas, electric, water, heating, AC, or internet. If tenants reimburse later, the reimbursement should be recorded as income.

14. Depreciation Expense or Depletion

Residential rental properties, excluding land, can be depreciated over their useful life, the IRS deems this to be 27.5 years. The IRS stipulates that commercial property and short-term rentals have a ‘useful life’ of 39 years. 

You can also depreciate assets inside the property as well as capital improvements. Talk to your CPA or accountant about depreciation schedules and the pros and cons of cost segregation studies. 

15. Other (List)

Any additional expenses related to property ownership, maintenance, or management, such as HOA fees, should be listed under the "Other" section. 

If you have any uncertainties about rental property tax deductions or how to categorize an expense seek advice from a qualified tax professional.

About the Home Office Deduction

If you utilize a designated area in your home for rental business activities, it qualifies as a deductible expense, even if it doesn't constitute an entire room. The deductible space must be exclusively used for rental activity and serve as the primary meeting place for clients and customers.

Balance underscores the importance of ensuring that any equipment in the home office is used solely for business purposes. For example, your work computer should not be utilized for gaming or other personal reasons.

To determine the largest deduction, there are various methods to calculate the business portion of your home.

1. Calculate your space's square footage divided by the total square footage of your entire house.
2. If all rooms in your house are similar in size, divide the number of rooms your business space encompasses by the total number of rooms in the house.
3. Use a prescribed rate multiplied by the allowable square footage used in the home. As of 2022, the prescribed rate is $5 per square foot, with a maximum of 300 square feet, according to the IRS.

It's essential to note that you can deduct a portion of home repairs if they partially impact your office, and the entire repair cost if it exclusively affects your office. However, these deductions cannot be claimed if you have an external office or if you're renting the space to your employer.

How to Report and Claim Rental Property Tax Deductions

The combination of quality real estate accounting software like Landlord Studio and diligent record-keeping is essential for efficiently managing rental property finances, maximizing tax deductions, and ensuring compliance with tax regulations.

Generally, filing rental property tax deductions involves using a Schedule E form in the same year you incur the expenses. Keeping meticulous records of income and costs related to the property is crucial for a smooth filing process. Detailed documentation becomes particularly vital if you face an audit, as you'll need to substantiate every deduction claimed.

When the rental property is used as your primary residence during any part of the tax year, the filing process becomes more intricate. The Schedule E form (download the from the IRS here) for each year specifies the number of days the property is used personally and the percentage of days it can be rented out at fair market value before any adjustments.

Final Thoughts

To make the most out of the rental property tax deductions for landlords and take full advantage of the annual deductible allowance of $25,000 you need to carefully and accurately track all of your income and expenses. The most efficient way to manage this is to use a designated software such as Landlord Studio.

Landlord Studio property management and accounting software allows you to track your income and expenses at an organization, property, and unit level. On top of this, connect your bank accounts and use our smart scan feature to quickly enter receipt details using your camera.

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