The Top 12 Rental Property Tax Deductions

There are a lot of expenses associated with owning a rental property, but fortunately, many of these expenses can be written off on your tax return to lower your tax bill. In this post, we’ll look at the top rental property tax deductions that can help you save money come tax time.

What Are Rental Property Write-Offs?

A tax write-off is an expense that can be claimed on your tax return to reduce your taxable income. This lowered taxable income is then used to calculate the amount of taxes you owe to the IRS.

If you own a rental property (or several), there are several write-offs that you can deduct to lower your tax bill. This includes everything from mortgage interest and homeowner’s insurance premiums to the money you pay toward utilities, repairs, and employee wages.

12 Tax Write-Offs For Rental Properties

Whether you own one rental property or have a full-fledged rental company, you can lower your federal income tax liability with these 12 deductions.

Depreciation

Depreciation allows you to spread the cost of your property — less the value of the land — over an extended period. This is 27.5 years for residential investment properties and 39 years for commercial properties.

You can get even more out of rental property depreciation with cost segregation. Through cost segregation, assets are identified, categorized, and depreciated over a shorter period of five to 15 years. Additionally, bonus depreciation may also be taken out in the first year assets are placed in service. This front-loaded depreciation can significantly decrease tax debt and may even result in a tax refund for some property owners.

Property Maintenance & Repairs

Per the IRS, materials, supplies, repairs, and maintenance required to keep the property in good operating condition are deductible.

It’s important to differentiate between property maintenance and improvements. While maintenance and repair costs can be written off, the costs of improvements are recaptured through depreciation.

Mortgage Interest

If you have a mortgage on your rental property, the interest on your loan is a deductible rental expense.

Property Taxes

Annual property taxes paid on your rental property are another deductible expense. However, the IRS limits the itemized tax deduction for state and local real and personal property taxes to $10,000 (or $5,000 if married filing separately).

Property Insurance

Insurance premiums for a rental property are deductible on a tax return. This includes premiums paid for homeowner’s insurance, as well as liability and specialty insurance policies such as flood insurance.

If your rental company has employees, premiums paid for employee health insurance and workman’s comp are also deductible expenses.

Casualty Losses

Casualty losses as a result of an unexpected event such as a hurricane, tornado, earthquake, flood, or fire may be deductible on your tax return. Losses fully covered by insurance can not be deducted, but any portion that isn’t covered may be deductible.

Utilities

If you pay utilities on your rental property, these expenses can be deducted. This may include electricity, water, sewage, trash removal, and natural gas. You can’t deduct utility expenses that are paid by your tenants.

Travel Expenses

Expenses incurred when you travel to your rental property or to conduct business related to your property may be written off on your tax return. If you use your vehicle, you can opt to deduct actual expenses or take the standard mileage deduction of 67 cents per mile in 2024. You may also deduct travel expenses like:

• Taxi & shuttle fares
• Car rental fees
• Airfare
• Bagging fees
• Lodging

Legal Fees

Fees paid to a lawyer to perform legal services for your property (such as drawing up rental paperwork) can be deducted on your tax return. Other legal fees — such as court fees paid to evict a non-paying tenant — are also deductible expenses.

Professional Services

Fees paid for certain professional services for your rental property are also deductible. This includes things like:

• Fees paid to an accountant or for accounting software
• Advertising expenses
• Fees paid to real estate agents who find tenants for your property

Employee & Contractor Wages

If you have a maintenance worker, property manager, or other employee on your payroll, their wages are deductible for rental property expenses.

Wages paid to independent contractors (like an electrician or plumber) are also deductible on your tax return.

Home Office Space

The expenses of your home office used to run your rental company can be written off on your taxes. This write-off can be calculated using the regular method that takes into account actual expenses or the simplified option that uses a standard deduction of $5/square foot up to 300 square feet.

How To Write Off Rental Property Expenses On Your Taxes

One important thing to remember before writing off rental property expenses on your taxes is to ensure you keep good records throughout the year. You will need to have documentation backing up the rental income and expenses reported on your taxes. Your records may include documents like receipts, mileage logs, payroll records, 1099s for contractors, and bank statements.

The forms used to write off rental property expenses vary based on your business’s legal structure. In most cases, rental property expenses and income are reported on a Schedule E attached to IRS Form 1040 or 1040-SR. If you have more than three properties, you will need to use multiple forms.

If you operate as a partnership or S-corporation, you will need to complete and file IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S-Corporation.

If you’re a new rental property owner and don’t have tax experience, we recommend consulting with a CPA or tax expert. Errors in reporting your rental income and expenses may result in expensive penalties and fees.

The Bottom Line On Rental Property Write-Offs

These twelve write-offs are a great place to start, but we recommend hiring an accountant or tax professional to ensure you get the most out of your tax return. At the very least, you should be using accounting and/or tax software to make sure you take advantage of all deductions and credits available to you. You may also consider choosing a reputable cost segregation company if you’re interested in accelerating depreciation on your rental property assets.