Understanding Rental Property Tax Deductions

by Skylar St. Pierre

As a rental property owner, it’s essential to understand the tax deductions available to you. By taking advantage of these deductions, you can reduce your taxable income and maximize your rental property’s profitability. In this guide, we’ll cover the most common tax deductions landlords can claim and explain how they can benefit your bottom line.

Want a full list of eligible deductions? Download our Rental Property Tax Deduction Checklist here to make tax season easier!

1. Mortgage Interest and Property Taxes

Why It Matters: Mortgage interest is often one of the largest deductions available to landlords. 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 costs can add up significantly, especially in the early years of a mortgage when interest payments are highest.
Pro Tip: Make sure to keep all mortgage statements and tax receipts. The IRS may require documentation to validate these deductions if you’re audited.

2. Maintenance and Repair Costs

Why It Matters: Ordinary and necessary repairs that keep your property in good condition are tax-deductible. These expenses help maintain the value of your property while reducing your taxable income.
What Qualifies: Deductible repair costs include fixing leaks, repainting, servicing HVAC systems, replacing broken windows, and more. Keep in mind that these are considered repairs, not improvements.
Pro Tip: Differentiate between repairs (deductible in the current year) and improvements (deducted over time through depreciation). Repairs restore a 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 manager, their fees are fully tax-deductible. This deduction helps offset the cost of professional management services, making it easier to manage your property passively.
How It Works: Deduct all fees paid to property management companies, including tenant placement fees, monthly management fees, and any additional services provided by the manager.
Pro Tip: Request an annual statement from your property management company that summarizes fees paid. This document makes it easy to track and document these expenses at tax time.

4. Depreciation

Why It Matters: Depreciation allows you to recover the cost of your property over time by deducting a portion of its value each year. It’s a valuable deduction that reflects the wear and tear on the property.
How It Works: Depreciation is typically spread over 27.5 years for residential rental properties. You can deduct a portion of the building’s value (not including the land) each year.
Pro Tip: Work with a tax professional to calculate your annual depreciation accurately. They can help ensure you’re maximizing this deduction without running into issues with the IRS.

5. Utilities Paid by the Landlord

Why It Matters: If you pay for utilities such as water, gas, electricity, or trash removal for your rental property, these costs are fully deductible. Covering utilities is common for multi-family properties or properties in certain areas.
How It Works: Keep track of all utility bills that you pay directly and deduct these costs on your tax return. Only utilities paid by you, not by tenants, are eligible for deduction.
Pro Tip: If you include utilities in the rent, make sure to separate the utility costs in your accounting records to simplify tax reporting.

6. Insurance Premiums

Why It Matters: Insurance premiums paid on rental property insurance policies are tax-deductible. This includes homeowners insurance, liability insurance, and any other insurance related to the rental.
How It Works: Deduct the full amount of your insurance premiums as a rental expense. If you have additional coverage, such as flood insurance or an umbrella policy, those premiums are also deductible.
Pro Tip: Review your insurance coverage annually to ensure you’re adequately protected. Premium adjustments can affect your deductions, so keep updated records for tax purposes.

7. Travel Expenses

Why It Matters: If you travel to your rental property for maintenance, inspections, or tenant meetings, you may be able to deduct travel-related expenses. This is especially useful for landlords who manage properties from a distance.
What Qualifies: Deductible travel expenses include mileage, lodging, and meals, if the trip is primarily for business purposes. For local travel, you can deduct mileage at the IRS standard rate.
Pro Tip: Keep a detailed log of all business-related travel, including dates, purposes, and mileage. Apps like MileIQ can help you track mileage accurately for tax deductions.

8. Professional and Legal Fees

Why It Matters: Fees paid to lawyers, accountants, and other professionals for services related to your rental property are deductible. These expenses can reduce your taxable income and help you manage your property more effectively.
How It Works: Deduct fees for legal advice, tax preparation, lease drafting, and any other professional services directly related to the management of your rental property.
Pro Tip: Use a separate bank account for your rental property expenses. This makes it easier to track professional fees and other deductions, simplifying your tax reporting.

Call to Action

Understanding and utilizing rental property tax deductions can significantly boost your profitability as a landlord. Don’t leave money on the table! For a full list of eligible deductions, download our Rental Property Tax Deduction Checklist here to ensure you’re making the most of your tax benefits.