Are Rental Property Taxes Deductible and How to Claim Them

Yes, rental property taxes are deductible in full as a business expense on Schedule E, and the $10,000-turned-$40,000 state and local tax cap that limits homeowners on Schedule A does not apply. The one complication: if your rental runs at a loss, the passive activity loss rules can push some of that deduction into future years.

What Counts as a Deductible Property Tax

Any annual tax based on the assessed value of the land or building you rent out qualifies. Federal law allows the deduction for state and local real property taxes paid on income-producing property, and the IRS treats a rental as exactly that.¹ You deduct the full amount in the year you pay it, regardless of the tax period it covers.

Personal property taxes on items used in the rental operation also count. If your state or county levies an annual tax on the appliances, furniture, or equipment you provide to tenants, that cost is deductible as long as the tax is based on the item’s value and charged on a recurring basis.²

Charges That Look Like Taxes But Aren’t

Not every bill from local government is a deductible “tax.” Three categories trip up rental owners most often.

Special assessments for local improvements. Charges for new sidewalks, street paving, or sewer lines are not deductible as an expense because they increase your property’s value. Add them to your cost basis instead, which reduces the taxable gain when you sell.³
Service charges. Fees for water, sewer, and trash collection are payments for specific services, not taxes. You can still deduct them on Schedule E, but they belong under utilities or other expenses, not on the taxes line.⁴
Transfer taxes at purchase. Real estate transfer or stamp taxes paid when buying a rental are not deductible. They get folded into your cost basis.⁵

Classification matters. A special assessment added to basis lowers the taxable gain when you eventually sell, but gives you no immediate write-off. Deducting it as a current expense can prompt an IRS notice.

Why the SALT Cap Doesn’t Apply to Your Rental

The One Big Beautiful Bill Act raised the state and local tax deduction cap from $10,000 to $40,000 starting in 2025, rising by 1% a year (the 2026 cap is $40,400, or $20,200 for married filing separately).² That cap governs itemized deductions on Schedule A.

Rental property taxes are business expenses reported on Schedule E, not itemized deductions. The SALT cap doesn’t touch them. Deduct the full amount even if the bill exceeds $40,400.¹ The cap only re-enters the picture for the personal-use portion of a mixed-use property, which lands on Schedule A.

Mixed-Use Properties: Splitting the Bill

Live in part of a property and rent the rest, and you split the tax bill proportionally. Occupy one unit of a duplex and rent the other, and roughly half the tax is a Schedule E rental expense while the other half is a personal itemized deduction on Schedule A (subject to the SALT cap). The IRS expects a reasonable allocation method, usually square footage or the number of units.

The 14-Day and 15-Day Thresholds for a Second Home

If you also use the property as a home, a special classification test kicks in. The IRS treats it as a personal residence if you use it more than the greater of 14 days or 10% of the days it’s rented at fair market value.⁶ Once you’re over that line, deductible rental expenses on that property cannot exceed rental income.

At the opposite end, if you rent a property you also use as a home for fewer than 15 days in the year, the rental income isn’t taxable and none of the expenses count as rental deductions. Property taxes then move to Schedule A as a personal itemized deduction.⁷

For any property with mixed use, log every day you use it personally and every day it’s rented. Personal use includes days family members use it (even free of charge), days you swap it with another owner, and days you’re there for maintenance that takes less than a full working day. That log is your first line of defense if the IRS questions your split.

When Passive Loss Rules Delay the Deduction

The deduction is simple when your rental turns a profit. It gets complicated when property taxes and other expenses combine to produce a net loss. Rental activities are generally passive, so losses can only offset other passive income, not wages or investment gains.⁸

Congress made an exception for smaller, hands-on landlords. If you actively participate in the rental, you can deduct up to $25,000 in net rental losses against non-passive income each year.⁹ Active participation is a lower bar than it sounds: approving tenants, setting rental terms, and signing off on repairs all qualify.¹⁰

The $25,000 allowance shrinks by $1 for every $2 your modified adjusted gross income exceeds $100,000 and disappears entirely at $150,000. Those thresholds aren’t adjusted for inflation.⁹

Losses you can’t use this year aren’t lost. They carry forward to offset rental income in later years, or you can deduct the entire accumulated suspended loss when you sell the property in a fully taxable transaction.⁸

Prorating Taxes When You Buy or Sell Mid-Year

Property taxes for the year a rental changes hands get split between buyer and seller based on days of ownership, regardless of who actually cuts the check to the county. Buy a rental on April 1 and you can deduct roughly 75% of that year’s tax; the seller deducts the first 25%.¹

Your closing statement will show how the taxes were prorated. If the seller already paid the full year, you’ll see a credit to the seller and a charge to you for your share. If taxes weren’t yet paid at closing, the seller is still responsible for their share and you handle yours. Either way, keep the closing statement. It’s the best documentation for the split.

How to Report It on Your Return

Rental property taxes go on Schedule E (Form 1040), Line 16, labeled “Taxes,” for each property listed. Your net rental income or loss then flows from Schedule E to Form 1040.¹¹

If the rental shows a net loss and passive activity rules apply, you may also need Form 8582 to figure out how much of that loss is currently deductible. You can skip Form 8582 only if you actively participate, your total rental loss is $25,000 or less, your modified AGI is under $100,000, and you have no suspended losses from prior years.¹² Miss any of those conditions and you need to file it. Skipping it when required is one of the more common audit triggers on rental returns.

Records to Keep

The property tax bill from the county or municipality is the most direct proof of what you owe. If you pay through a mortgage escrow, your lender may report the amount in Box 10 of Form 1098, though lenders aren’t required to include that detail.¹³ Cross-check the 1098 against the actual bill, because your escrow payments to the lender and the amounts remitted to the taxing authority can fall in different calendar years.

For properties bought or sold during the year, the closing statement documents the proration. Beyond that, hold on to canceled checks, bank statements, or online payment confirmations showing the date and amount of each payment. The IRS can audit rental returns for up to three years after filing, or six years if income is substantially understated, so keep the records at least that long.

1
Office of the Law Revision Counsel. 26 USC 164 – Taxes
2
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
3
Internal Revenue Service. Publication 527 (2025), Residential Rental Property – Section: Local Benefit Taxes
4
Internal Revenue Service. Topic No. 503, Deductible Taxes – Section: Nondeductible Taxes
5
Internal Revenue Service. Publication 530, Tax Information for Homeowners
6
Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property
7
Internal Revenue Service. Publication 527 (2025), Residential Rental Property – Section: Personal Use of Dwelling Unit
8
Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits
9
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
10
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
11
Internal Revenue Service. 2025 Schedule E (Form 1040)
12
Internal Revenue Service. 2025 Instructions for Form 8582 – Passive Activity Loss Limitations
13
Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026) – Section: Box 10. Other