Rental Property Tax Deductions: The 18 Main Write-Offs

The Formula

Rental income and expenses go on Schedule E:

Net Rental Income = Rent Received − Deductible Expenses − Depreciation

Rent received is what the tenants actually paid, so vacancy never shows up as income in the first place. Deductible expenses are the current-year operating costs. Depreciation is the slow deduction for the building and for anything capitalized into it.

The Duplex on Schedule E

I run the same $425,000 duplex across this site so the numbers agree everywhere. It rents for $3,800 a month, carries a $340,000 loan at 7% over 30 years, and the county assessor puts 20% of the value on the land.

Rent received:      $45,600 − 5% vacancy ($2,280)  = $43,320
Operating expenses:                                 −$17,100
Mortgage interest (year one):                       −$23,691
Depreciation:       ($425,000 − $85,000) ÷ 27.5    −$12,364
Net rental income:                                  −$9,835

The $17,100 is the operating expense line from the NOI guide: taxes, insurance, management, repairs, and owner-paid utilities, all deductible in the year paid. The loan payment is $27,144 a year, but only the $23,691 of interest is deductible. The $3,454 of principal is the owner paying down their own debt, and it never touches Schedule E.

Compare that to cash. The duplex's NOI of $26,220 against $27,144 of debt service leaves cash flow at −$924. Schedule E reports a $9,835 loss. The gap is depreciation, which costs no cash, partly offset by principal, which costs cash and isn't deductible. The depreciation figure is a full year; the first year is prorated under the mid-month convention covered in the depreciation guide.

The 18 Deductions

Mortgage interest. Interest on the loan used to buy or improve the rental is deductible; principal is not. On the duplex that is $23,691 in year one, and the interest share shrinks every year as the principal share grows.
Property taxes. Real estate taxes on a rental are a Schedule E expense, deducted in the year paid. The cap on state and local tax deductions applies to personal itemized deductions, not to taxes on property held for rent.
Depreciation. Residential buildings depreciate straight-line over 27.5 years, and land never depreciates. On the duplex, $340,000 of building basis ÷ 27.5 = $12,364 a year, and up to 25% of it comes back as recapture tax at sale.
Repairs and maintenance. Work that keeps the property in its existing condition is deducted in full the year you pay it: fixing a leak, patching drywall, replacing a broken window pane. The next section is about where repairs end.
Capital improvements, through depreciation. A new roof, a replaced HVAC system, or an addition is capitalized, added to basis, and depreciated. Pub 527 puts appliances, carpet, and furniture in residential rentals on a 5-year schedule; a roof or HVAC system is part of the building and goes on 27.5.
Property management fees. What a manager charges to run the property is deductible when paid. A self-managing owner can't deduct the value of their own time.
Insurance. Landlord, liability, and flood premiums on the rental are deductible. A premium paid in advance for more than one year is deducted year by year over the period it covers, not all at once.
Utilities. Water, sewer, trash, gas, and electric are deductible when the owner pays them. If a tenant reimburses the owner, the reimbursement is rental income, so the two cancel.
Legal and professional fees. Eviction attorneys, lease drafting, and the rental share of tax preparation are deductible. Legal and closing costs tied to buying the property go into basis instead.
Advertising. Listing fees, photos, and signs spent to fill a vacancy are deductible in the year paid.
Travel and mileage. Driving to collect rent, show a unit, or meet a contractor is deductible at either the IRS standard mileage rate for that year or actual vehicle costs, with a log to back either one. Pub 527 excludes travel whose main purpose is improving the property; that cost is recovered through the improvement's depreciation.
Home office. A space used regularly and exclusively for the rental activity can deduct its share of home costs, calculated as office square feet ÷ total square feet. The exclusive-use test is where most home office claims fail.
Education. Courses that improve how you run the rental you already own are deductible. A course on getting into real estate before you own anything is a different question, and it belongs to a CPA.
Software and screening. Property management and accounting subscriptions, and screening fees the landlord pays and doesn't pass through to applicants, are deductible operating costs.
HOA dues. Regular association dues on a rental condo or townhouse are deductible. A special assessment that pays for an improvement is capitalized and depreciated instead.
Landscaping, snow removal, and pest control. Routine yard work, plowing, and extermination are deductible maintenance. New landscaping, fences, or a driveway are land improvements, which depreciate on a 15-year schedule.
Furnishings. Furniture and appliances in a furnished rental are 5-year property. Items under the IRS de minimis safe harbor limit can be expensed immediately by election, and property acquired after January 19, 2025 qualifies for 100% bonus depreciation.
Bank and card fees. Fees on accounts used only for the rental are deductible, as is interest on a card balance that financed rental expenses. A separate account is what makes that interest traceable to the rental.

The Repair vs Improvement Line

This is the line that moves the most money, because the same dollar is either a full deduction this year or a 27.5-year deduction.

The IRS test under the tangible property regulations asks three questions about the work. Did it make the property better than it was (a betterment)? Did it put the property to a new use (an adaptation)? Did it replace a major component or return something worn out to like-new condition (a restoration)? A yes to any of the three makes it an improvement.

On the duplex, patching a section of roof after a storm is a repair. Replacing the whole roof is a restoration. Repainting a unit between tenants is maintenance; repainting as part of a gut renovation gets capitalized with the renovation.

The two mistakes run in opposite directions. Expensing a roof overstates this year's deduction and invites an adjustment. Capitalizing routine repairs understates it and defers money for decades. The regulations also include a de minimis election and a routine maintenance safe harbor that move some borderline costs back to the repair side. Which of those apply to a given return is CPA territory.

The Trap: A Deduction Isn't the Same as a Tax Saving

The duplex's $9,835 loss looks like a tax cut. Whether it is one depends on the passive activity rules in Pub 925.

Rental income and losses are passive by default. A passive loss can only offset passive income, unless an exception applies. The common one: an owner who actively participates, meaning they approve tenants, set rents, and sign off on repairs, can deduct up to $25,000 of rental losses against wages and other income. That allowance phases out as modified AGI rises above $100,000. Losses that can't be used this year aren't lost. They carry forward and typically free up when the property is sold.

Two other routes are narrower. Real estate professional status, which Pub 925 defines as more than 750 hours a year in real property businesses and more than half of your working time, plus material participation in the rentals, takes the rental out of the passive rules. And a rental with an average guest stay of seven days or less isn't treated as a rental activity under those rules, so an owner who materially participates in it can use its losses. Both depend on hour logs the IRS can audit.

Depreciation carries its own trap. Basis drops by the depreciation allowable each year whether or not you claimed it, and recapture at sale taxes the full amount. Skipping it leaves the bill without the benefit. The same basis records, purchase documents plus every capitalized improvement, have to survive for as long as you own the property and past the return that reports the sale.

The deduction list is the easy part. The duplex loses $924 in cash and $9,835 on paper, and the passive loss rules decide whether that paper loss is worth anything this year or only at sale.

FAQ

Can I deduct my mortgage payment on a rental?

Only the interest part. On the duplex, the $27,144 annual payment splits into $23,691 of year-one interest, which is deductible, and $3,454 of principal, which isn't.

Is a new roof a repair or an improvement?

A full replacement is an improvement. It restores a major component, so it's capitalized and depreciated over 27.5 years. Patching part of the roof is a repair and is deducted the year it's paid.

Can rental losses offset my W-2 income?

Sometimes. With active participation, up to $25,000 of losses can offset other income, phasing out above $100,000 of modified AGI. Above that, losses usually carry forward until you have passive income or sell. Real estate professional status and the short-stay rule are the exceptions, and both are CPA territory.

Where do rental deductions get reported?

On Schedule E, one column per property, with depreciation calculated on Form 4562.

Do I have to take depreciation?

Effectively yes. Recapture applies to depreciation allowed or allowable, so you're taxed at sale as if you took it. The full reasoning is in the depreciation guide.

ROI CalculatorAdd the depreciation and interest deductions to cash flow, appreciation, and principal paydown to see the duplex's total return.15.8%on the $425,000 exampleOpen with your numbers

Rental Property Tax Deductions: 18 Expenses Landlords Can Write Off