10 Rental property tax deductions for landlords

If you are paying off a mortgage on your rental property, you can deduct the interest on that loan. This is often one of the biggest tax breaks a landlord gets to take on their rental properties. Typically your lender will send you a Form 1098 at the beginning of the year detailing the amount of interest you paid in the past tax year.

Repairs and maintenance work that is necessary to keep the home in good working order are tax deductible. Think: plumbing, painting, and even landscaping. But keep in mind—this is different from work done to improve the value of the property (capital improvements). For example, if you add a deck to the property, that would qualify under capital improvements rather than repairs. 

A home can lose a bit of value over time due to wear and tear. And you get to deduct a certain amount every year on your taxes to recoup that devaluation. (Note: You only get to deduct depreciation on the home structure, not the value of the land.) The factors that inform depreciation and the math involved can be a little tricky, so it’s important to learn everything you can about the formula and how it applies to your property, or consider hiring a tax professional who specializes in rental properties. 

Depreciation can also apply to items within the home that are considered the personal property of the landlord. This can include things like appliances, carpets, furniture, or even fences. The primary qualification is that they are expected to last more than a year and depreciate over time.

If you own property, you probably also have insurance on it. Insurance premiums—such as fire, hurricane, or personal liability insurance— are a qualified business expense and you can usually deduct them. If you have employees that have insurance through your rental property business, you can deduct that, too. 

If you hire people to help you run or maintain your rental property, you can deduct their wages from your rental property taxes. These include employees, such as a property manager who runs the day-to-day of your businesses, and independent contractors such as a landscaper or handyman. Other qualified expenses could include the money you spend on hiring carpenters, architects, or painters. 

If you enlist the help of a lawyer or other professionals to help you run your rental property business, that expense is deductible. That includes paying fees to a lawyer for advice or help with setting up the business entity (LLC) for your rental business, maintaining it, or even for help during any lawsuits that arise related to the rental property. 

The costs associated with eviction can usually be deducted, as well. If you hire an accountant or tax preparer to assist you with your financials (like figuring out that finicky depreciation), you can deduct that as well. And even if you use automated software to do your tax return, you can likely deduct any fees you pay for that service, too. 

Are you paying to have your property advertised online, in print, or on the radio? Most fees you pay to publicize your rental and try to find tenants fall within acceptable deductible expenses.

If you pay any utilities for the rental property you can deduct those expenses. Many landlords cover water and garbage, but you can deduct any utilities you pay for, including electric and gas.

There can be quite a bit of commuting involved in running a rental property, and you can often deduct travel expenses using the standard mileage rate deduction. These include travel to the rental property to respond to a tenant complaint, carry out repairs, and show the apartment to prospective tenants. You can also deduct travel made to carry out maintenance on the property, such as a trip to the hardware store to pick up a replacement part or a new smoke alarm. 

Known commonly as the “pass-through” deduction, the Qualified Business Income (QBI) tax break is for sole proprietors and those who have formed an LLC for rental property. Rather than taxing the owner on the income the business generates and then taxing them a second time on their personal tax returns, the income “passes through” to the owner, so they are only taxed once, on their personal tax return. The QBI allows such owners to deduct up to 20% percent of rental income after other deductions have been made.

It’s extremely important to keep careful, thorough documentation of all expenses related to the rental property so that you can accurately itemize deductions and offer proof that the deductions are valid, should you be asked to. The best way to understand what records should be kept is to familiarize yourself with IRS tax form 1040, Scheduled E, which is the form you will use to report your taxable income, expenses, and deductions at the end of the year. And if you need extra help, enlist a tax or legal professional to make sure everything is in order.

Tips for organizing documentation: 

• Keep your records in a central place.

• Organize them on an ongoing basis (not just at the end of the year!).

• Keep the finances of your rental property separate from your personal finances; i.e. open separate bank accounts and credit cards for your business.

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