Tax Deduction Quick Reference

The main rental property tax deductions, explained

Most ordinary and necessary costs of owning and running a rental are deductible on Schedule E in the year you pay them, while improvements and the building itself are recovered through depreciation over 27.5 years. The two rules that trip landlords up most are the line between repairs and improvements, and the passive activity loss limits that can stop a rental loss from offsetting your wages. This guide walks through each deduction on the card above with citations to the IRS source, a worked example, and what happens to depreciation when you sell.

Figures below were checked against IRS.gov in October 2026 for the 2026 tax year. The current IRS publications at that time were the 2025 editions; tax law changes, so confirm against the latest version of each publication when you file.

Everyday operating deductions

IRS Publication 527, Residential Rental Property, lists the most common rental expenses: advertising, auto and travel, cleaning and maintenance, commissions, depreciation, insurance, other interest, legal and other professional fees, local transportation, management fees, mortgage interest, points, rental payments, repairs, taxes and utilities. You generally deduct them in the year you pay them if you use the cash method.

Mortgage interest

Interest on a loan used to buy or improve the rental is deductible on Schedule E. Two limits from Pub 527 matter: if you refinance for more than the old balance and use the extra cash for something unrelated to the rental (a car, say), the interest on that extra portion generally is not a rental expense. And certain costs of getting the mortgage, such as appraisal fees required by the lender and credit report fees, cannot be deducted as interest; they are added to basis or recovered over the loan term as Pub 527 explains. Principal payments are never deductible.

Property tax

Real estate taxes on the rental are a deductible expense. One trap at purchase: if you pay property taxes the seller owed and the seller does not reimburse you, Pub 527 says those taxes become part of your basis and cannot be deducted as taxes. Special assessments for local benefits that increase the property’s value, such as new sidewalks or sewer lines, generally are not deductible either; they are added to the basis of the property.

Insurance

Landlord, liability, flood and similar policies on the rental are deductible. If you prepay a premium for more than one year, Pub 527 says you deduct only the part that applies to each year of coverage, not the whole amount when paid.

Legal and professional fees

Fees for attorneys, accountants, and property managers related to the rental are deductible. Pub 527 specifically allows the cost of preparing Part I of Schedule E (for example, fees paid in 2026 to prepare the rental part of your 2025 return), and expenses (other than federal taxes and penalties) to resolve a tax underpayment related to the rental. Legal fees to acquire the property or defend title are part of basis instead.

Travel and local transportation

Local trips to collect rent, show the unit, or manage and maintain the property are deductible using actual vehicle costs or the IRS standard mileage rate (Pub 527 lists 70 cents a mile for 2025; check IRS.gov for the 2026 rate). Pub 527 warns that driving between your home and a rental is generally nondeductible commuting unless your home is your principal place of business.

Overnight travel away from home is deductible if the primary purpose of the trip is to collect rent or to manage, conserve or maintain the property, with costs allocated between rental and personal activities. You cannot deduct travel whose primary purpose is to improve the property; that cost is recovered through depreciation. Keep records that meet the rules in Pub 463.

Home office

A home office deduction is narrower than many landlords assume. Publication 587, Business Use of Your Home, requires the space to be used exclusively and regularly, and in connection with a trade or business. Pub 587 states that if you use your home for a profit-seeking activity that is not a trade or business, you cannot take the deduction. Whether a particular rental operation rises to the level of a trade or business depends on the facts (number of properties, how actively you manage them, and so on), so this is a question to take to your tax adviser. If you do qualify, Pub 587 offers a simplified method of $5 per square foot for up to 300 square feet, or the actual-expense method.

Repairs versus improvements

Pub 527 says you may deduct an expense for repairing or maintaining your rental if you are not required to capitalize it, and you must capitalize any expense that improves the property. An expense is an improvement if it results in a betterment (fixing a pre-existing defect, enlarging the property, or increasing its capacity, strength or quality), a restoration (replacing a substantial structural part, or rebuilding to like-new condition), or an adaptation to a new or different use. Pub 527’s Table 1-1 lists examples of improvements, including additions, a new roof and central air conditioning. Improvements are depreciated over the same recovery period as the property they improve.

The IRS’s tangible property regulations FAQ also describes three simplifying options: the de minimis safe harbor (below), a safe harbor for routine maintenance, and a safe harbor election for small taxpayers. The small taxpayer election lets you deduct repairs, maintenance and improvements on a building if your average annual gross receipts are $10 million or less, the building’s unadjusted basis is $1 million or less, and the year’s total spending on that building does not exceed the lesser of 2% of its unadjusted basis or $10,000. It is made annually by statement attached to your return.

The de minimis safe harbor election ($2,500 per invoice)

Under Treas. Reg. § 1.263(a)-1(f), a taxpayer without an applicable financial statement (most small landlords) can elect to deduct amounts paid for tangible property that do not exceed a set amount per invoice, or per item as substantiated by the invoice. The regulation text says $500, “or other amount as identified in published guidance”; the IRS raised that figure to $2,500 in Notice 2015-82 for tax years beginning on or after January 1, 2016, as confirmed on the IRS tangible property regulations page. Taxpayers with an applicable financial statement can use $5,000.

• Accounting procedures: you must have, at the beginning of the year, accounting procedures that treat such amounts as expenses for non-tax purposes, and you must actually expense them in your books.
• How to elect: attach a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” to your timely filed original return (including extensions) for the year, with your name, address and taxpayer identification number. The election applies to all qualifying amounts that year.
• Where it goes: Pub 527 says these amounts are deducted as rental expenses on line 19 of Schedule E.

Example: a $1,100 refrigerator and a $1,900 dishwasher bought on separate invoices for a unit can each be deducted under the election rather than depreciated. A single $3,000 appliance cannot use the $2,500 threshold. The IRS notes these limits only decide which items qualify for the safe harbor; they are not a ceiling on otherwise deductible repair expenses.

Depreciation over 27.5 years (land excluded)

Pub 527’s Table 2-1 assigns residential rental buildings and their structural components a 27.5-year recovery period under the General Depreciation System (30 years under ADS). Key rules from Pub 527 and Publication 946, How To Depreciate Property:

• Land is never depreciated. Land does not wear out, and clearing, grading, planting and landscaping costs are usually part of the land.
• Split the purchase price. Allocate cost between land and building by their fair market values at purchase. If you are not certain of those values, Pub 527 allows using the ratio from the real estate tax assessment.
• Start date. Depreciation begins when the property is ready and available for rent, and continues while it is temporarily vacant between tenants.
• Mid-month convention. Residential rental property is treated as placed in service (or disposed of) in the middle of the month, so the first and last years are partial. Pub 527’s Table 2-2d gives the percentages.
• Converted homes. If you rent out a former residence, the depreciable basis is the lower of your adjusted basis or fair market value on the date of conversion.

Worked example: one year of deductions on a rental

Example (hypothetical): a single landlord buys a duplex for $360,000. The county assessment values the land at 20% of the total, so $72,000 goes to land and $288,000 to the building. A full year of straight-line depreciation is $288,000 ÷ 27.5 = $10,472.73 (the first year is smaller because of the mid-month convention).

The property produced positive cash before depreciation (rent minus cash expenses is $6,857), yet shows a tax loss of $3,616 because depreciation is a non-cash deduction. Whether that loss can reduce the owner’s other income depends on the passive activity rules below.

Passive activity loss rules and the $25,000 allowance

Pub 527 says that in most cases all rental real estate activities are passive, except for certain real estate professionals. Passive losses generally can only offset passive income. The main exception for small landlords is the special allowance in Publication 925 and Pub 527:

• Up to $25,000 of rental loss can offset nonpassive income (such as wages) if you or your spouse actively participated. Pub 925 describes active participation as making management decisions in a significant and bona fide sense, such as approving tenants, setting rental terms and approving expenses. You must own at least 10% (by value) of the activity throughout the year.
• Phase-out: if your modified adjusted gross income is $100,000 or less, the full allowance is available. Above $100,000, the allowance is limited to 50% of the difference between $150,000 and your MAGI, so it is generally gone at $150,000.
• Married filing separately: $12,500 if you lived apart from your spouse all year, phasing out between $50,000 and $75,000 of MAGI.
• Carryforward: disallowed losses carry forward to later years. Pub 925 says unused passive losses are generally allowed in full when you dispose of your entire interest in a fully taxable transaction to an unrelated person.
• Real estate professionals: Pub 925 requires more than half of your personal services in all trades or businesses to be in real property trades or businesses in which you materially participate, and more than 750 hours of such services in the year. Qualifying owners who also materially participate in their rentals are not limited by the passive rules in the same way.

Phase-out arithmetic

Using the $3,616 loss above: if the owner’s MAGI is $90,000, the whole loss is within the $25,000 allowance and can offset wages. At $120,000 of MAGI, the allowance is 50% × ($150,000 − $120,000) = $15,000, which still covers the $3,616 loss. At $145,000, the allowance is 50% × $5,000 = $2,500, so $2,500 is usable this year and $1,116 carries forward. At $150,000 or more, the full $3,616 carries forward (unless the owner has other passive income to absorb it).

Reporting on Schedule E

Pub 527 says that if you rent buildings, rooms or apartments and provide basic services such as heat, light and trash collection, you normally report rental income and expenses on Schedule E (Form 1040), Part I, listing income, expenses and depreciation for each property and the number of fair rental and personal use days. Depreciation for property placed in service that year is figured on Form 4562. A loss may also require Form 8582 for the passive limits and Form 6198 for the at-risk rules. If you provide substantial services for the convenience of tenants, such as regular cleaning or meals, Pub 527 directs you to Schedule C instead.

Depreciation recapture when you sell

Depreciation lowers your taxes while you hold the property, but it is partly paid back when you sell. Pub 946 says you must reduce your basis by the depreciation allowed or allowable, whichever is greater. If you never claimed depreciation you were entitled to, your basis is still reduced as if you had.

The part of your gain attributable to depreciation on the building is called unrecaptured section 1250 gain, and IRS Topic 409 confirms it is taxed at a maximum federal rate of 25%. The rest of a long-term gain is taxed at the regular long-term capital gains rates. The net investment income tax of 3.8% may also apply if your modified adjusted gross income exceeds $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately).

Example: our duplex owner sells after ten full years of depreciation, about $10,472.73 × 10 = $104,727. If the total gain exceeds that amount, up to $104,727 is unrecaptured section 1250 gain, and at the 25% maximum rate that portion alone could cost up to $26,182 in federal tax, before state tax and before any NIIT. Any passive losses carried forward are generally released in the year of a fully taxable sale, which can offset part of the gain.

Because recapture, capital gains, NIIT and suspended losses all interact, the sale price alone tells you little about what you keep. Run your numbers through the keep-or-sell rental property calculator to compare after-tax proceeds from selling with the value of continuing to hold, and see the 1031 exchange calculator if you plan to buy replacement property and defer the tax.

Record keeping that holds up

The IRS page on how long to keep records says to keep records for 3 years in the general case, with longer periods in specific situations, and to keep records relating to property until the period of limitations expires for the year in which you dispose of the property. For a rental, that means your closing statement, land and building allocation, improvement receipts and depreciation schedules should be kept for as long as you own the property and for several years after you sell. Use a separate bank account for the rental and keep a mileage log. The expense tracking template can help.

Common mistakes to avoid

• Depreciating the land or using the full purchase price as the depreciable basis.
• Not claiming depreciation at all. Your basis is reduced by the allowable amount anyway, so you pay recapture on deductions you never took.
• Expensing a new roof, HVAC system or full remodel as a repair.
• Forgetting the de minimis statement. The election is made each year by attaching the statement to a timely filed return.
• Assuming a rental loss always offsets wages. Above $100,000 of MAGI the allowance shrinks, and at $150,000 it is generally gone.
• Deducting the drive from home to the rental when your home is not your principal place of business.
• Deducting seller-owed property taxes you paid at closing; they belong in basis.

Related resources

• Rental tax deduction checklist
• Rental property tax strategy guide
• Rental tax optimizer
• Property management tax deductions guide
• Rental bookkeeping basics
• ROI formulas cheat sheet

This page is general information, not tax or legal advice. Tax rules change and your situation may differ. Consult a CPA or licensed tax professional before filing or making decisions about buying, holding or selling a rental property.