Rental property owners may be able to deduct many of the ordinary and necessary costs associated with operating their investments. However, mortgage principal, personal expenses, and the cost of land are generally not deductible. Major improvements may also need to be capitalized and depreciated rather than deducted immediately.
Below are ten common categories of rental property deductions. Tax treatment varies by property, expense, and ownership structure, so investors should consult a qualified tax professional.
Interest paid on a loan used to acquire, improve, or refinance a rental property may generally be deductible. Interest on credit cards or other financing may also qualify when the funds are used for the rental activity.
Mortgage principal is not deductible, and certain loan costs may need to be deducted over the loan term.
The cost of a rental building is generally recovered over time through depreciation once the property is placed in service and available for rent.
Land cannot be depreciated. Appliances, furniture, equipment, and property improvements may also have different depreciation schedules from the building itself.
Ordinary repairs and maintenance may generally be deducted in the year they are incurred. Examples include:
Investors should distinguish repairs from improvements. Work that adds value, extends the property’s useful life, or restores a major component may need to be capitalized and depreciated.
State and local property taxes assessed on a rental property may generally be deductible.
Special assessments for improvements, such as new sidewalks or sewer systems, may need to be added to the property’s basis rather than deducted immediately.
Premiums for insurance related to the rental activity may generally be deductible. This can include:
Premiums covering more than one tax year may need to be allocated across the applicable coverage periods.
Landlord-paid utilities and services may generally be deductible, including:
The lease should clearly identify which expenses are paid by the landlord and which are the tenant’s responsibility.
Costs paid to property managers, employees, and independent contractors may be deductible when their services relate to the rental activity.
Potential deductions include management fees, leasing fees, maintenance labor, bookkeeping services, payroll taxes, and eligible employee benefits.
Fees paid to attorneys, accountants, and other professionals may be deductible when the work relates to operating the rental property.
Examples include lease preparation, eviction proceedings, bookkeeping, tax preparation, and routine compliance services. Fees associated with acquiring the property or completing major improvements may receive different treatment.
Reasonable costs incurred to market a property and secure tenants may generally be deductible. These can include:
Security deposits intended to be returned are generally not treated as rental income. Amounts retained for unpaid rent or tenant-caused damage may be treated differently.
Travel may be deductible when it is primarily related to the rental activity, such as visiting the property, meeting a contractor, or purchasing repair materials. Investors should maintain records of the date, mileage, destination, and business purpose.
A landlord may also qualify for a home-office deduction if the space is used regularly and exclusively for eligible business activities.
Rental losses may be limited by passive-activity, at-risk, excess-business-loss, or personal-use rules. Some investors may also qualify for deductions related to personal property, qualified business income, or other tax provisions.
A deductible expense does not always produce an immediately usable deduction. Additional guidance is available through IRS Publication 527 and IRS Topic No. 414.
Landlords should retain receipts, invoices, loan statements, mileage logs, tax bills, insurance documents, management agreements, and depreciation schedules. Keeping rental and personal expenses separate can make tax preparation easier and help support claimed deductions.
Rental property owners may be able to deduct many costs associated with operating their investments. The timing of those deductions depends largely on whether a cost is classified as an operating expense, financing expense, repair, or capital improvement.
CoreVest provides business-purpose financing for residential real estate investors, including long-term rental loans evaluated primarily using property cash flow. Learn more about CoreVest’s 30-Year DSCR Loan, or contact our team to discuss an eligible rental property.
This article is provided for informational purposes only and does not constitute legal, tax, accounting, investment, financial, real estate, or lending advice. Tax laws and their application vary and may change over time. Consult a qualified tax professional regarding your circumstances. All loans are subject to underwriting, credit approval, eligibility requirements, and applicable terms and conditions.
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