As a landlord with over a decade of experience managing rental properties, I’ve seen firsthand how rental property tax deductions can make or break your profitability. Whether you’re renting out a single-family home or a multi-unit apartment complex, understanding tax rules isn’t just helpful—it’s essential.
The IRS allows landlords to deduct dozens of expenses, but many property owners miss out simply because they don’t know the rules. For example, a client of mine once overlooked depreciation on rental property for three years, costing them over $15,000 in missed savings. Stories like this motivated me to write this guide: to help you avoid costly mistakes and maximize your returns.
This article isn’t a surface-level list of deductions. Instead, I’ll dive deep into IRS guidelines, share lesser-known strategies, and clarify recent tax law changes for 2025. My goal? To give you actionable, expert-backed advice that turns tax season into an opportunity—not a headache.
1. What Rental Property Tax Deductions Can Landlords Claim in 2025?
The IRS permits landlords to deduct “ordinary and necessary” expenses tied to managing, conserving, or maintaining a rental property (IRS Publication 527). These fall into three categories:
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Operating Expenses: Repairs, utilities, insurance, property taxes.
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Ownership Costs: Mortgage interest, depreciation, HOA fees.
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Professional Services: Legal fees, property management, accountant fees.
For example, if you spend $1,200 annually on landscaping, that’s fully deductible. But capital improvements (like a new roof) must be depreciated over 27.5 years for residential properties.
Quick Tip: Always separate repairs (deductible now) from improvements (depreciated over time). Replacing a broken window pane is a repair; installing energy-efficient windows is an improvement.
2. How Depreciation on Rental Property Works (With Examples)
Depreciation lets you deduct the cost of buying or improving a rental property over its “useful life.” Here’s how it works:
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Determine your property’s “basis” (purchase price + closing costs – land value).
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Divide the basis by 27.5 (residential) or 39 (commercial) years.
Example: You buy a duplex for 300,000,withlandvaluedat50,000.
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Basis = 300,000−50,000 = $250,000
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Annual depreciation = 250,000/27.5=∗∗9,090/year**
This $9,090 reduces your taxable income yearly, even though it’s not an actual cash expense.
Pro Tip: Use the IRS’s Modified Accelerated Cost Recovery System (MACRS) to calculate depreciation correctly.
3. IRS Rental Property Rules: What’s New in 2025?
The 2025 tax year brings two key updates:
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Energy Efficiency Credits: Landlords can claim a 30% tax credit for installing solar panels or geothermal systems (Energy.gov).
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Short-Term Rental Reporting: Platforms like Airbnb must issue Form 1099-K for rentals exceeding 600annually,upfrom20,000 previously (IRS Announcement).
Note: The “passive activity loss” rule still applies. If your adjusted gross income (AGI) exceeds $150,000, rental losses may be limited unless you’re a “real estate professional.”
4. Overlooked Landlord Tax Write-Offs (You’re Probably Missing These)
Beyond mortgage interest and repairs, consider these underused deductions:
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Travel Expenses: Mileage for property visits (67 cents/mile in 2025).
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Home Office: $5/square foot (up to 300 sq. ft.) if you manage rentals remotely.
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Education: Courses or books about property management or tax law.
Case Study: A landlord in Austin deducted 2,300inmileagelastyear,loweringtheirtaxbillby700.
Pro Tip: Track every expense with apps like QuickBooks or Stessa. The IRS requires receipts for deductions over $75.
5. How to Report Deductions Correctly Using Schedule E
Schedule E (Form 1040) is where you’ll report rental income and deductions. Here’s a simplified breakdown:
| Line Item | What to Include |
|---|---|
| Line 3 (Rents Received) | Total rental income (minus vacancies). |
| Line 5 (Advertising) | Costs to advertise vacancies. |
| Line 9 (Repairs) | Repairs (e.g., fixing a leaky faucet). |
Common Mistake: Mixing personal and rental expenses. If you use a property part-time (e.g., a vacation home), deductions are prorated based on rental days.
6. Audit-Proofing Your Rental Property Deductions
The IRS audits 1.2% of landlords earning $200K+ annually (Treasury Department Data). Protect yourself by:
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Keeping records for 7 years (the IRS can audit returns up to 6 years old).
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Using separate bank accounts for rental income/expenses.
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Documenting repairs with before/after photos and invoices.
Quick Tip: If audited, the IRS will ask for a “tax nexus” linking expenses to your rental. Always note the purpose of each cost (e.g., “Plumber invoice for Tenant B’s clogged sink”).
7. When to Hire a Pro: CPA vs. DIY Tax Software
While software like TurboTax works for simple returns, hire a CPA if:
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You own multiple properties.
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You’ve done a 1031 exchange.
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You’re deducting home office or vehicle use.
Example: A CPA helped a client in Florida restructure their LLCs, saving $12,000 in state taxes.
Pro Tip: Look for CPAs with the Accredited in Business Valuation (ABV) credential—they’re experts in real estate valuations.
Final Thoughts
Mastering rental property tax deductions isn’t just about saving money—it’s about building long-term wealth. By leveraging depreciation, staying updated on IRS rules, and documenting every expense, you’ll keep more of your hard-earned rental income.
Have questions? Share them in the comments below—I’ll personally respond to every one. And if you’re new to landlording, start small: focus on tracking expenses monthly, and consider a CPA for your first tax filing. Remember, taxes aren’t just a once-a-year task; they’re a year-round strategy.
