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ContinueThis rental property tax deductions checklist outlines 21 deductible rental expenses that landlords need to track.
As a landlord, it's important to keep track of every one of your rental property tax deductions. These expenses, which can range from marketing the property to covering legal fees and maintenance costs, can add up quickly and amount to thousands of dollars.
Tracking these deductible rental expense accurately will allow you identify areas of overspending, opportunities for increasing cash flow, and most importantly reduce your tax liability. But only if you maintain accurate and up-to-date records.
Our rental property tax deductions checklist highlights 21 landlord tax deductions that every real estate investor needs to be tracking and claiming at the end of the year on their Schedule E form 1040 .
Plus, we explore how you can use software like Landlord Studio for digital record keeping to make tracking theses rental property deductions easy, so you can streamline your rental accounting and ultimately increase your ROI.
Rental property owners have a federal obligation to report all income and expenses related to their property. Not doing so might lead to overpayment of taxes or trigger an audit. The IRS allows you to deduct a wide range of expenses, including:
When calculating taxable income, subtract your total deductible expenses from your total rental income. The result is the amount you must report—and by taking full advantage of these deductions, you could significantly reduce your tax burden.
Every expense—from marketing your property to paying for repairs—can significantly affect your taxable income. Maintaining a detailed rental property deductions checklist not only helps you claim all eligible expenses on your Schedule E but also provides insight into areas where you might be overspending. With accurate records, you can strategically manage your landlord tax deductions and increase your overall cash flow.
Landlords and real estate investors will need to calculate and declare all of the income collected from their rental properties over the course of the year in their tax return. This obviously includes all of the rents received, but also any other income received from tenants. For example, if as the landlord you are responsible for paying utilities and you are reimbursed by your tenants, you would declare that utility payment as income but then treat the utility payment you made as a deductible expense.
Landlords are responsible for tracking and declaring all of their deductible expenses such as operating expenses, any owner expenses, including things like mileage and as mentioned above, depreciation. To calculate your depreciation, you need to first work out the cost basis of the property minus the land and you can depreciate it over a period of 27.5 years.
To calculate the total amount of taxable income in a given year you need to subtract the sum of all of the expenses detailed in this rental property deductions checklist from the sum of the income received. From this calculation, you’ll get the total amount of income that you need to report on your schedule E.
Rental income is taxed as ordinary income. Meaning if you’re in the 22% marginal tax bracket, you get taxed 22% on that rental income.
Below is an enhanced checklist of 21 essential rental property tax deductions that every landlord should track. This comprehensive guide ensures you don’t miss any deductible rental expenses throughout the year:
The costs associated with advertising your rental to fill your vacancies. These could include costs for rental listing sites such as Zillow, for rent signs, as well as professional photography and video, etc.
If you choose to outsource the finding of new tenants the leasing commission that you pay to an agent to fill your vacant property is also deductible. Generally, these expenses equal about one month’s rent.
Related: How To Advertise Your Property For Rent In 7 Steps
Interest, mortgage points, and real estate taxes can be deducted the year they are incurred. Other real estate closing costs such as recording fees, transfer taxes, and title insurance must be added to the cost basis of the residential property and depreciated over 27.5 years.
Expenses for books, webinars, seminars, and courses related to real estate investment or property management is tax-deductible.
A quick word on depreciation: When you sell your property you will have to pay depreciation recapture on depreciation allowed (even if you didn’t claim it). You can learn more about depreciation recapture on the sale of your rental property here.
Paid subscriptions to real estate publications and reports and dues to a real estate club are tax-deductible.
You may be able to take advantage of a home office deduction if you have a home office in which you do work relating to your real estate business. The IRS offers a simplified home office deduction that is easy to calculate and expense from rental property income.
Landlords should have a quality landlord insurance policy to protect their assets in case of disaster and against potential liability issues. Thankfully, these insurance premiums are fully tax-deductible.
While the mortgage principal is not deductible, the interest on the loan is. At the end of each year, the lender will send a statement itemizing annual interest expense to make booking the deduction easier.
Additionally, interest on business credit cards used to purchase services or materials for your rental property business is deductible too!
Any expenses incurred for recurring expenses related to the external property upkeep such as lawn mowing, hedge trimming are fully deductible, as well as one-off seasonal costs like gutter cleaning and snow removal.
Sales and tax licenses, local business licenses, and annual fees related to running your business as an LLC (limited liability company) are counted as operating expenses and are deductible.
Any routine maintenance such as changing the air-conditioning filters as well as regular repairs such as air-conditioning repair, repainting, or plumbing repairs are fully deductible in the year in which they are incurred.
It’s important to note that any more extensive work that adds value to the property may not be immediately deductible, but instead count as capital improvement and will need to be depreciated. Find out more about capital improvements vs repairs.
Legal forms such as lease documents, pens, paper, or other office supplies are tax-deductible.
Professional fees include things like fees for your CPA or tax advisor or fees to an attorney and are deductible.
Many costs associated with the management of your rental are normally deductible. For example, if you hire a property management company – or if you use a landlord software like Landlord Studio to help with tasks such as tenant communication and rent collection.
Property taxes can vary broadly by state and size of the property ranging from a few hundred dollars to several thousand. Fortunately, these property taxes can be fully deducted from income generated by a rental property.
The pass-through tax deduction allows qualifying rental property owners to deduct 20% of the rental business income from the overall taxable business income. This can be complicated and it’s advised to seek guidance from a professional tax advisor or CPA.
Learn more about IRS safe harbors.
In some locations and municipalities, there will be a sales or use tax on the rental income that is collected.
The use of your phone for your rental business is deductible.
Many rental property owners purchase a cell phone specifically for business use and pay for the monthly service using business credit or debit cards.
Most landlords get the tenant to pay for the tenant screening report, but not all. Additionally, fees associated with screening an applicant outside of the screening report can also be deducted at the end of the year.
All auto costs associated with traveling to or from your rental or travel undertaken for business purposes such as meeting with a contractor or picking up supplies can be deducted using the standard mileage deduction rate.
For longer distance travel where you are visiting another city or state, the associated travel costs can often also be deducted. However, in order to claim these travel deductions, you will want to keep a careful record of all travel, including distance traveled (if you’re driving) as well as the date and the purpose of the travel. Expenses must also be reasonable.
You can use Landlord Studio’s inbuilt mileage tracker to keep a detailed travel log.
Landlords that pay for the utilities for their property can include the cost in the tenant’s monthly rent and then deduct the expense of the utilities as an operating expense.
Tax law in the US is incredibly friendly to rental property owners. Most expenses related to the operation and management of your rental property are deductible as an expense against your income.
However, because rental income is generally deemed passive, your real estate losses can only be deducted against your real estate income (under what is known as passive activity loss limits), unless you qualify for Real Estate Professional Status (REPS). Find out more about how to qualify as a real estate professional here.
Taking advantage of landlord tax deductions requires landlords to keep up to date and accurate records of all of their expenses throughout the tax year. You not doing so could cost you $1,000’s in overpaid taxes or trigger an IRS audits.
To fully benefit from these deductible rental expenses, consider the following strategies:
Using a tool like Landlord Studio allows you to scale your business without increasing the time requirements to do so and without becoming overwhelmed by the volume and complexity of your accounting system.
Finally, with this real-time data, you can get nuanced insights into your portfolio financials and develop unique strategies that work for you, allowing you to optimize cash flow profitability and scale your business.
Even experienced landlords can fall into pitfalls. Here are a few to watch out for:
Related: A Landlord's Guide To Rental Property Bookkeeping
A robust rental property deductions checklist is more than just a list—it’s a strategic tool that can significantly reduce your tax liability while providing clear insights into your property’s financial health. By diligently tracking deductible rental expenses and taking full advantage of available landlord tax deductions, you can optimize your cash flow and improve your overall investment performance.
Implement these best practices and leverage modern property management and accounting tools to ensure that every eligible expense is accounted for. With the right strategy and record keeping, your rental property can operate more efficiently, ultimately leading to increased profitability and long-term success.
Create your free account with Landlord Studio today to streamline your rental property accounting and ensure you never miss rental property tax deductions again.
IRS regulations prohibit deductions for certain expenses, including:
Yes, with some limitations:
The IRS requires supporting documentation for deductions, which you must keep for at least 3 years. You should keep records such as:
Rental income, expenses, and depreciation should be reported on Schedule E of Form 1040 or 1040-SR. If you own more than three rental properties, you must use multiple copies of Schedule E.
Rental property owners can deduct:
Additionally, some landlords may qualify for the Qualified Business Income (QBI) deduction, allowing them to deduct 20% of their rental income if the property qualifies as a trade or business under Section 162 of the Internal Revenue Code.
A 1031 exchange allows real estate investors to defer capital gains and depreciation recapture taxes by swapping one investment property for another. The IRS requires that exchanged properties be “like-kind”, meaning they must be of the same nature or character, even if they differ in quality or grade.
Yes, rental income is generally taxed as ordinary income if you rent the property for more than 14 days per year. If you rent it out for 14 days or fewer, you are not required to report the income or pay taxes on it.
For further details, refer to IRS Topic No. 415: Renting Residential and Vacation Property.
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