The Most Overlooked Rental Property Tax Deductions

by Skylar St. Pierre

As a rental property owner, you’re entitled to a variety of tax deductions that can significantly reduce your taxable income. However, many landlords miss out on valuable deductions simply because they’re unaware of them. Here’s a guide to the most commonly overlooked rental property tax deductions and how they can save you money.

For a complete list of deductible expenses, download our Rental Property Tax Deduction Checklist here.

1. Mortgage Interest & Property Taxes

  • Why It Matters: Mortgage interest is often one of the largest deductions available to property owners. Additionally, property taxes paid on rental properties are fully deductible, reducing your tax liability.
  • How It Works: Deduct the interest you pay on your mortgage loan, along with any property taxes paid during the tax year. These two expenses can significantly lower your taxable income.
  • Pro Tip: Keep mortgage statements and property tax receipts organized throughout the year. Accurate documentation is essential for claiming these deductions during tax season.

2. Repairs & Maintenance Costs

  • Why It Matters: Routine repairs and maintenance keep your property in good condition and are fully deductible in the year they’re incurred. Many landlords overlook these costs, but they add up quickly and can provide substantial tax savings.
  • What Qualifies: Deductible repairs include tasks like fixing leaky faucets, patching holes in walls, repainting, replacing broken windows, and general upkeep that keeps the property habitable.
  • Pro Tip: Differentiate between repairs (which are immediately deductible) and improvements (which are capitalized and depreciated over time). Repairs restore the property to its original condition, while improvements add value or extend its life.

3. Property Management Fees

  • Why It Matters: If you hire a property management company to handle your rental property, their fees are fully deductible. These costs reduce your taxable income and can help justify the expense of professional management.
  • How It Works: Deduct any fees paid for property management services, including tenant placement fees, monthly management fees, and maintenance coordination charges. Property management fees directly reduce your rental income, lowering your overall tax bill.
  • Pro Tip: Ask your property management company for an annual statement summarizing all fees paid. This makes it easy to track and document these expenses for tax purposes.

4. Travel Expenses Related to Property Management

  • Why It Matters: If you travel to your rental property for inspections, repairs, or tenant meetings, you can deduct travel-related expenses. Many landlords miss this deduction, but it can make a noticeable impact on your tax savings.
  • What Qualifies: Deductible travel expenses include mileage for local trips, as well as airfare, lodging, and meals if you manage properties out of state. Local mileage is deductible at the standard IRS mileage rate, while overnight travel requires receipts.
  • Pro Tip: Keep a detailed log of mileage and travel expenses related to your rental property. Use an app like MileIQ to track your mileage automatically, and save receipts for any overnight trips.

5. Depreciation

  • Why It Matters: Depreciation is a non-cash deduction that allows you to recover the cost of the property over time. It’s a valuable deduction that reflects the wear and tear on your property, even if you’re not spending money directly.
  • How It Works: Residential rental properties are typically depreciated over 27.5 years. You can deduct a portion of the building’s value (excluding land) each year, which helps offset your rental income.
  • Pro Tip: Work with a tax professional to calculate depreciation accurately, especially if you’ve made improvements to the property. Depreciation can be complex, and getting it right ensures you’re maximizing your deductions.

6. Home Office Deduction (If Applicable)

  • Why It Matters: If you manage your rental properties from a home office, you may be eligible for a home office deduction. This deduction covers expenses related to the portion of your home used exclusively for business.
  • What Qualifies: Deduct a portion of your rent or mortgage, utilities, and insurance based on the percentage of your home used for property management tasks. The home office must be your principal place of business and used regularly for rental activities.
  • Pro Tip: The IRS offers a simplified home office deduction option, which allows you to claim $5 per square foot of office space, up to a maximum of 300 square feet. This option is easier to calculate but may yield a smaller deduction.

7. Legal and Professional Fees

  • Why It Matters: Fees paid for legal and professional services directly related to your rental property are deductible. This includes tax preparation fees, legal fees for lease agreements, and costs for financial planning related to your rental.
  • What Qualifies: Deduct expenses for services provided by attorneys, accountants, and property consultants. If you hire a CPA to handle your rental property taxes or an attorney to draft a lease agreement, these fees are fully deductible.
  • Pro Tip: Ask for itemized invoices from legal and financial professionals. This ensures that you’re only deducting expenses directly related to your rental property, keeping your tax filings accurate and compliant.

Call to Action

Maximizing your rental property tax deductions can significantly reduce your taxable income and improve your property’s profitability. Don’t miss out on valuable deductions! For a complete list of eligible deductions, download our Rental Property Tax Deduction Checklist here and make the most of your tax benefits.

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