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ContinueUnderstanding rental property taxes and rental property tax deductions is essential if you want to operate a profitable rental portfolio.
Being a landlord comes with many advantages—one of the most significant being the ability to offset rental income with various deductible expenses. From property taxes to HOA and property management fees, understanding these deductions can help you reduce your taxable income and improve your bottom line.
To take full advantage of these tax benefits, though, landlords need to keep careful records of all their income and expenses (with supporting documentation) throughout the year.
In this article, we take a closer look at rental property taxes and how you can use software like Landlord Studio to stay organized for tax time so you can maximize your end-of-year deductions and overall ROI.
To operate a profitable rental property portfolio, you need to have a comprehensive understanding of the ins and outs of rental property taxes. This means:
Yes. Although all rental income is taxable, you can lower your taxable income by deducting expenses related to mortgage interest, maintenance, property management, and more. We dig into the different rental property tax deductions later in the article.
You must report your earnings and related expenses on IRS Schedule E (Form 1040). This form details supplemental income and losses for rental real estate, royalties, partnerships, and similar income sources.
According to the IRS, if you actively participate in managing your rental property, you may be eligible to deduct up to $25,000 of expenses each year.
The reason tax write-offs are limited is that rental income is deemed passive (unless you qualify for the Real Estate Professional Status) and is thus subject to passive activity loss limitation rules. As per the IRS Publication 925: Passive Activity and At-Risk Rules, passive losses can only be deducted against passive income and only up to the loss limit defined — $25,000 per year. Losses that exceed this limit, however, can be carried forward into future tax years.
Consider these scenarios:
If your property is used for rental purposes, the IRS considers HOA fees a regular business expense, and as such, the HOA fees are tax-deductible.
There are some exceptions to this rule, however. For example, if the HOA fee is for an assessment for an improvement, this HOA fee is not deductible. Instead, you’ll need to recoup your share of the costs of the improvement via depreciation.
A Homeowners Association (HOA) is a local governing body that sets specific rules and guidelines for the maintenance and presentation of a property in a condominium, gated community, apartment, or another type of planned development. By purchasing the property, you agree to abide by these rules and guidelines and to pay regular HOA fees. These fees are often used to pay for maintenance, landscaping, and general upkeep of the community and common areas.
Determining whether your HOA fees are tax-deductible depends on whether or not you live in the property.
Learn more about how to categorize and track rental property HOA fees here.
There are several tax benefits when investing in rentals. This includes things like 1031 exchanges that allow you to indefinitely defer capital gains tax, depreciation, which allows you to deduct the cost of the property against your income over 27.5 years, and a range of tax-deductible expenses.
We outline the main tax-deductible expenses below.
Interest is often a big deductible expense. For example:
These interest payments can quickly add up, which makes the ability to offset these payments against your taxes very valuable.
Landlords can depreciate the value of their investment properties (minus the value of the land) over what the IRS deems it’s ‘useful life’. For residential rentals, this is 27.5 years. For commercial properties, this is 39 years.
For example, if you purchased a residential rental property for $350,000 with a land value of $75,00, using the straight-line depreciation method, you would be able to claim a depreciation deduction of $10,000 per year.
(Purchase price - land value) / useful life = annual depreciation deduction
($350,000 - $75,000) / 27.5 = $10,000
Depreciation can be complicated, especially when factors such as capital improvements and cost segregation studies come into play. So, make sure to consult with your CPA to ensure you’ve calculated your cost basis and worked out your depreciation schedule correctly.
Note: Be aware that the IRS will claim a portion of the depreciated value back upon the sale of the property in a process called depreciation recapture.
Repairs and maintenance often come unexpectedly and can quickly add up, affecting the cash flow and overall profitability of your rentals. Thankfully, the cost of maintenance and repairs qualify as rental property tax deductions and can be fully reclaimed at the end of the tax year.
Repairs are defined as any effort to maintain the current condition of the property, and provided they are “reasonable, necessary, and ordinary,” they can be fully deducted in the year in which they occur.
Examples of repairs include:
Maintenance costs are a little different. These are necessary expenses related to maintaining the property’s current condition, not fixing things that are broken.
A few examples of claimable maintenance expenses:
The cost of personal property such as furnishings, appliances, or equipment used in a rental can usually be deducted in one year using the de minimis safe harbor deduction (for property costing up to $2,000).
Section 199a Qualified Business Income Deduction, otherwise known as the pass-through tax deduction lets U.S. taxpayers deduct as much as 20% of their business income that comes from “pass-through” entities such as:
This rental property tax deduction is scheduled to expire after the 2025 tax year.
Landlords are entitled to a rental property tax deduction for most of the driving and travel undertaken to manage and maintain their rentals. For example, you can deduct travel expenses when you drive to your rental building for a routine inspection or to deal with a tenant complaint, or when going to the store to purchase parts for necessary repairs.
If you drive between your rentals for business purposes, you can:
Note: To qualify for the standard mileage rate, you must use it in the first year you use a car for your rental activity.
If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses.
To stay within the law (and avoid unwanted attention from the IRS), make sure you properly document all of your travel expenses.
The wages of anyone hired to assist you in the management and running of your rental property are counted as a business expense and are also an allowable rental property tax deduction.
This is for independent contractors, full-time employees, and part-time employees.
Are property management fees tax-deductible? Yes. Fees paid to management companies or for landlord software are deductible as operating expenses.
Other tax-deductible rental property expenses in line with this include rental listing fees and other costs associated with securing new tenants.
You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.
Related: Should you Form an LLC for your Rentals
The final item on this list is the fees you pay to accountants, attorneys, advisors, or other professionals who help you in the running and management of your real estate business.
You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity. Visit the IRS Website for more information.
To claim your rental property deductions, you'll need to file IRS Schedule E. This form is essential for reporting:
Using tools like Landlord Studio can simplify tracking expenses and generating accurate Schedule E reports, ensuring you maximize your tax deductions for rental properties.
Related: A Breakdown of Your Schedule E Expense Categories
Along with HOA fees, are property management fees tax-deductible?
Absolutely. Any fees paid for managing your rental property—including software subscriptions and listing fees—are considered legitimate business expenses. Keeping track of all such expenses is critical to ensuring you do not miss out on valuable rental property deductions.
Moreover, understanding what counts as a business expense versus a capital expense (which must be depreciated) is vital. For instance:
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Managing a rental property involves numerous expenses, but with a keen understanding of tax deductions for rental property and careful record keeping, you can significantly reduce your taxable income. Taking advantage of these rental property tax deductions can make the difference between a break-even property and a highly profitable investment.
For best results, always:
By leveraging modern property management and accounting software like Landlord Studio and staying informed about the latest tax regulations, you'll be well on your way to maximizing your rental property deductions and boosting your ROI.
Create your free Landlord Studio account today to start streamlining your rental property accounting, for a more profitable rental portfolio.
What Counts As Rental Income?
Rental income isn’t just your monthly rent payments. It includes advance rent, lease cancellation fees, tenant-paid expenses, and any non-monetary compensation received in exchange for use of the property. Always report the actual amount you receive—even if it’s not cash—as part of your taxable income.
What Are the Rental Income Tax Rates?
Rental income is taxed as ordinary income, meaning it’s subject to your personal income tax rate. This rate can vary based on your overall taxable income and filing status. It’s important to consult current IRS tax brackets or a tax professional for your specific situation.
Is Rent Tax Deductible?
While the rent you receive from tenants is taxable income, you can reduce your overall tax burden by deducting eligible expenses related to managing and maintaining your rental property. In essence, is rent tax-deductible is more about offsetting rental income with rental property deductions such as mortgage interest, repairs, and property management fees.
What Are the Rental Property Write-Off Limits?
For active landlords, the IRS generally allows up to $25,000 in rental loss deductions per year if you actively participate in managing the property. Losses beyond this threshold may be carried forward to future years. The specific limits may vary based on your income and involvement, so it’s advisable to check current IRS guidelines.
How Does the IRS Know I Have Rental Income?
The IRS tracks rental income through various reporting mechanisms, including Schedule E (Form 1040), where you report all rental earnings and expenses. Additionally, bank statements, 1099 forms, and other financial records help the IRS verify the income declared by landlords.
When Do I Owe Taxes on Rental Income?
Taxes on rental income are owed in the year you receive the payment. This includes payments received early or via constructive receipt—when the funds are made available to you, even if you haven’t physically deposited them.
What Homeowners' Expenses Are Tax-Deductible?
For rental properties, deductible expenses include mortgage interest, property taxes, insurance premiums, repairs, and maintenance. However, if you live in the property part-time, only the rental portion of the expenses (e.g., HOA fees) is deductible. Personal expenses not related to the rental business generally aren’t deductible.
Can You Write Off HOA Special Assessments on Taxes?
Generally, standard HOA fees for maintenance and management are tax-deductible if the property is rented out. However, special assessments for capital improvements typically aren’t immediately deductible. Instead, these costs are added to your property’s basis and depreciated over time.
What Expenses Are Tax-Deductible for Rental Property?
Deductible expenses include:
How Can I Maximize My Tax Return on a Rental Property?
To maximize your return:
Can I Write Off My Phone Bill for Rental Property?
If your phone is used solely for managing your rental property, such as coordinating repairs, tenant communications, or scheduling property viewings, you can deduct a portion or the entire expense. If the phone is also used for personal purposes, only the business-use percentage is deductible.
What Is the IRS Rule on Rental Property Losses?
The IRS allows rental property losses to offset other income up to $25,000 per year for active participants. Losses exceeding this limit may be carried forward to subsequent years under passive activity loss rules. It’s essential to understand these limits to plan your tax strategy effectively.
Is Homeowners' Insurance Tax Deductible?
For a property used exclusively as a rental, homeowners' insurance is a deductible expense. However, if you use the property partly for personal use, only the insurance costs attributable to the rental portion can be deducted.
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