Rental property tax deductions: what landlords can write off
Rental income is taxable, but landlords deduct the costs of earning it on Schedule E — and one of the biggest deductions, depreciation, isn't even cash out of your pocket. Here's what's deductible and the one distinction that trips people up.
Educational overview only — not tax advice. Tax rules change and depend on your situation. Confirm with a CPA or the current IRS instructions before filing.
The everyday deductions (Schedule E)
✓ Commonly deductible
- Mortgage interest (not principal)
- Property taxes
- Insurance
- Repairs & maintenance
- Property management fees
- Utilities you pay
- Advertising & tenant screening
- Legal & professional fees
- Travel to the property
- Supplies & HOA dues
✗ Not deductible (as expenses)
- Mortgage principal (it builds equity)
- The cost of improvements (you depreciate these)
- Your own labor
- Lost rent from vacancy
Depreciation: the big non-cash deduction
The IRS lets you deduct the wear-and-tear of the building (not the land) over 27.5 years for residential rental property. It's a paper expense — you didn't spend the money that year — yet it lowers taxable income.
A $250,000 property with $200,000 allocated to the building:
$200,000 ÷ 27.5 = ~$7,273/year in depreciation
Land isn't depreciable, so you split the purchase price between building and land (often using the tax assessor's ratio). Note: depreciation is "recaptured" (taxed) when you sell — a reason to plan with a CPA.
Repairs vs. improvements — the distinction that matters
A repair keeps the property in working order (fixing a leak, repainting) and is usually deductible this year. An improvement betters, restores, or adapts the property (a new roof, an addition) and must be capitalized and depreciated over years. Misclassifying improvements as repairs is a common audit flag.
A couple of bigger items to ask your CPA about
- QBI deduction: some rental activity that rises to a "trade or business" can qualify for the 20% qualified business income deduction.
- Passive loss rules: rental losses are generally passive, but actively-participating owners under certain income limits may offset some ordinary income.
The point: track everything by category
You can only deduct what you've recorded. Keeping income and every expense organized by Schedule E category all year turns tax time from a scramble into a hand-off. The same categories that drive your deductions also tell you whether the property actually cash-flows.
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