Maximize Your Tax Deductions for Your Rental Property

Creating a new stream of income with a rental property is an exciting venture, but you may be concerned about owing taxes on what you’re bringing in.

Fortunately, there is a way you can lower your tax bill–claiming tax deductions for your rental property expenses. From business mileage to repair costs and improvements, there are several expenses you can write-off as a rental property owner.

If you’re new to sharing your home with tenants or vacationers, you might not be sure which rental property tax deductions you’re eligible for. Let’s take a closer look at how you can lower your tax bill.

Key takeaways

• Short-term rental properties are subject to the 14-day rental rule.
• Deductible rental expenses can include depreciation, property taxes, repairs, business mileage, and professional services.
• Some expenses aren’t deductible, including personal expenses, fines, and costs incurred during vacancy.
• Some rental properties, like condominiums and cooperatives, have special tax rules.

What qualifies as a rental property for taxes?

Your property has to qualify as a rental property according to IRS guidelines in order to claim rental property tax deductions. The tax benefits you’re eligible for can vary based on how many days you use your home and how many days you rent it.

If you use your home for more than the greater of 14 days or 10% of the total days (at a fair rental price) that your property was rented, it’s considered a personal residence by the IRS. While there is a special rule that if you rent it for fewer than 15 days, you don’t report any of that rental income but you also can’t deduct any expenses as rental expenses.

The IRS does consider your home a rental property if it was rented for more than 15 days (at a fair rental price) and personal use was limited to fewer than 14 days. In this case, you must report any rental income on your tax return and you may be eligible to deduct some rental expenses.

When you purchase a second home, it’s important to understand how that property will be treated for tax purposes. If you’re unsure if your property qualifies as a rental property or personal residence, consult a tax professional.

6 Rental property deductions

Whether you’re renting your home as an Airbnb or leasing to long-term tenants, you may be eligible for rental property tax write-offs. We’ve outlined some of the deductions you may be eligible for, including some commonly overlooked tax write-offs. 

Depreciation

You may be eligible to deduct rental property depreciation on your tax return, but your property has to meet specific criteria to be eligible. Here are the requirements:

• You own the property.
• You use your property for business or to generate income.
• Your rental property has a determinable useful life.
• Your property is expected to last more than a year.
• You didn’t stop using your rental property for business or dispose of it during the year.

If your rental property meets these requirements, you can claim a tax deduction for rental property depreciation. The depreciation will be spread out across 27.5 years using the General Depreciation System (GDS).

One thing to note is that land doesn’t depreciate. You can only claim a deduction for rental property depreciation on buildings, not the land they’re built on or the cost of preparing that land.

Property taxes

Property taxes are one of the biggest rental property expenses. You have to pay property taxes on each of your rental properties yearly, which is why they’re usually spread out over the year.

While property taxes are a significant expense for rental property owners, you can deduct them. 

The amount of property taxes you’re able to deduct varies depending on your use of the property. Real estate taxes paid in a business are not limited to the state and local tax (SALT) deduction. The SALT deduction limit applies to non-business property. Under the SALT deduction you can deduct up to $10,000 (married filing jointly). 

Home improvements and repairs

Upkeep is a regular part of owning a rental property. Fortunately, you can claim a deduction for certain home improvements and repairs. Let’s take a closer look at how these deductions work.

You can’t just claim any home improvement and repair costs on your tax return. Repairs must be a necessary part of keeping your rental property in good condition, and repairs from previous years aren’t deductible – you must deduct it in the year you paid for it.

If you recently painted your rental home or replaced a broken plumbing fixture, you may be able to write that off on your next tax return. Time is of the essence, though. If you don’t deduct these repairs on your next tax return, they can’t be deducted in future years.

Home improvements–from green home improvements to adding a deck or patio–aren’t typically deductible. Instead, they usually need to be depreciated over several years.

Travel expenses

While there are rules and limits, you can deduct certain travel expenses to reduce your rental property tax liability.

If you paid travel expenses to collect rental payments or make repairs to your rental property, you can deduct those travel expenses when you file your taxes. Travel expenses that are related to personal home improvements can’t be deducted in the same way.

You have two options when it comes to travel write-offs. You can write off your exact travel expenses–for example, if you have to come from out of state–or you can use the standard mileage rate to calculate your deduction based on the distance you drove. The standard mileage deduction for 2024 is $0.67 per mile for driving for business use 

Professional services

There are various professional services you can deduct as rental property expenses if used in connection with your business. Some of these expenses include:

• Advertising costs
• Accountants
• Attorneys
• Lawn care costs
• Property management
• Tax preparation

If these services play a key role in managing and maintaining your rental property, you may be able to deduct them on your taxes.

QBI

In some cases, you may be able to claim the QBI deduction for your rental property. The QBI (qualified business income) deduction may be available if your rental qualifies as a trade or business under IRC § 162.44.

If you’re unsure whether your expenses fall into these categories, you may want to consult a tax expert to help you determine if you’re eligible.

Which rental property expenses are not deductible

When it comes to rental property tax write-offs, it’s just as important to understand what you can’t deduct, which may include:

Personal expenses

Any personal expenses that have nothing to do with your rental property aren’t deductible. Whether you’re spending money to stay at a rental property or investing in personal expenses like food and travel, you can’t write-off these expenses.

Fines

If you have to pay a fine or penalty because you’re not following local laws or HOA rules, you can’t deduct that fine or penalty on your taxes.

Vacancy costs

When your rental property isn’t currently generating income, you may not be able to deduct certain expenses. 

Cash basis taxpayers also can’t deduct rent payments that haven’t been collected.

Are there any types of rental properties that have special rules?

While most rental properties have similar rules when it comes to tax deductions and write-offs, there are exceptions. Condominiums and cooperatives have special rules when it comes to writing off rental expenses.

For condominiums, you can deduct common expenses like repairs and interest. You can’t deduct money you spend on capital improvements, but you can depreciate your share of the cost to save on taxes.

Expenses for cooperatives are deductible, and include maintenance fees. You still can’t deduct or depreciate home improvement costs, but alternatively, you can use the cost of home improvements to reduce your capital gain when you sell.

How to claim tax deductions for your rental property

If you plan on claiming tax deductions for your rental property, you’ll need to complete Schedule E or Schedule C (depending on your type of rental activity) and attach it to your tax return. On these forms  you can claim various deductions for rental expenses.

Record-keeping is essential if you plan on claiming rental property tax deductions. This may include:

• Invoices or receipts
• Canceled checks
• Bills
• Mileage data 

Using a tracking system consistently–whether it be a spreadsheet or software–can be a good place to start when it comes to good record-keeping.

Save on your taxes by claiming eligible rental property deductions

Investing in rental property can be an excellent way to generate passive income. But as an investor, you also want to maintain the best possible margin on how much you’re earning from your rental property.

Planning ahead is one of the best ways to maximize your savings when it comes time to file. Make sure you’re claiming every write-off you’re eligible for, and understand which expenses are deductible and which aren’t.

Not sure where to start? You can talk to a tax expert to learn more about deductions for rental properties and get other helpful tax tips for landlords.