What Expenses Can Be Deducted From Rental Income?

Landlords can deduct the ordinary and necessary costs of owning and running a rental property from the rent it brings in, so income tax applies to profit rather than gross rent. The expenses that can be deducted from rental income include mortgage interest, property taxes, repairs, insurance, utilities you pay, depreciation of the building, professional and management fees, travel to the property, a home office used for the rental business, and administrative costs like software and supplies. Federal tax law allows a write-off when the expense is common in the rental business and helpful in running it.

Repairs and Everyday Operating Costs

Money you spend keeping the property in working order is deductible in the year you pay it. Fixing a leaky faucet, patching drywall, replacing a broken window, repainting between tenants, and servicing appliances all qualify. The line to watch is whether the work restores the property to its prior condition or substantially betters it. A repair is currently deductible; an improvement that adds value or extends useful life, like a full roof replacement or a new HVAC system, is a capital expenditure that has to be depreciated instead.¹

Beyond repairs, recurring operating costs are deductible when the landlord bears them:

Utilities you pay directly, including water, sewer, gas, electricity, and trash removal.
Insurance premiums for fire, theft, flood, and landlord liability coverage on the rental.
Cleaning, landscaping, snow removal, pest control, and turnover cleaning between tenants.
Advertising to fill vacancies, including listing fees and signage.
Condo or co-op dues and assessments for maintenance of common areas.²

De Minimis Safe Harbor for Small Purchases

When a purchase could go either way between a current expense and a capital asset, the de minimis safe harbor lets you deduct items costing up to $2,500 per invoice or per item in the year you buy them, without depreciating. The threshold rises to $5,000 per item if you have applicable audited financial statements. The election is made annually by attaching a statement to your return, and it covers everyday items like a replacement garbage disposal, a ceiling fan, or window blinds.³

Mortgage Interest, Points, and Prepaid Interest

Interest on a loan used to buy, build, or improve the rental is usually the single largest deduction. Only the interest portion of the monthly payment counts; principal repayment does not. Your lender’s Form 1098 in January shows the annual interest figure to report.⁴ The dollar caps that apply to interest on a personal residence do not apply here. Interest on a home equity loan or line of credit is also deductible if the borrowed money went into the rental.

Points paid to take out or refinance a loan on a rental are not deductible all at once. They are spread evenly over the life of the loan, so $3,000 in points on a 30-year mortgage produces a $100 deduction per year. That treatment differs from a primary residence, where points on a purchase loan can sometimes come off in full the year they are paid.⁵

Prepaid interest follows the period it covers, not the year you write the check. Interest prepaid in December 2026 that applies to January 2027 belongs on the 2027 return.²

Property Taxes and Local Assessments

State and local property taxes on the rental are fully deductible against rental income. The $10,000 SALT cap that limits personal returns does not apply when property taxes are a business expense on Schedule E.⁶

Local assessments for maintenance work like sidewalk repair, street lighting upkeep, or public sewer line repair are also deductible. Assessments that add value, such as a newly installed sidewalk or a water main extended to your lot, generally have to be added to the property’s cost basis instead.²

Depreciation of the Building

Depreciation is a non-cash deduction that recovers the cost of the building over time. Residential rental property is depreciated over 27.5 years, straight-line, so you deduct an equal fraction each year.⁷ Land is never depreciable. Buy a property for $350,000 with $75,000 of that in the land, and the depreciable basis is $275,000, producing roughly $10,000 a year. Depreciation starts when the property is placed in service, meaning available for rent, not necessarily when the first tenant moves in.

Capital Improvements

Upgrades that add value or extend useful life, like a new roof, central air, a kitchen remodel, or an added deck, are capitalized and depreciated rather than deducted right away. Structural improvements to a residential rental usually follow the same 27.5-year life as the building. Non-structural items such as appliances, carpeting, and fencing may qualify for shorter 5, 7, or 15-year lives, which pulls the deduction forward.

Bonus Depreciation for Shorter-Lived Assets

Under the One Big Beautiful Bill Act, 100 percent bonus depreciation applies to qualifying business property placed in service after January 19, 2025, letting landlords deduct the full cost of eligible assets in year one.⁸ The bonus covers tangible property with a recovery period of 20 years or less: appliances, carpeting, certain fixtures, and land improvements like driveways and fences. It does not cover the residential building itself. A cost segregation study performed by a qualified professional can identify components with shorter recovery periods that then become eligible for the bonus.

Professional Fees, Contractors, and Payroll

Fees paid to the people who help you run the rental come off in the year you pay them:

Property management company fees for tenant screening, rent collection, and maintenance coordination.
Attorney fees for lease drafting, evictions, and tenant disputes.
Accounting fees for preparing the Schedule E portion of your return and for tax advice on the rental.
Payments to plumbers, electricians, handypeople, and other independent contractors.⁹

If you employ an on-site manager rather than hiring a contractor, wages and the employer share of Social Security, Medicare, and unemployment taxes are also deductible.

Travel and Vehicle Costs

Driving to the property for inspections, repairs, tenant meetings, or hardware store runs is deductible. You pick one of two methods for each vehicle:

The standard mileage rate, set at 72.5 cents per mile for business use for the 2026 tax year.¹⁰
Actual expenses, tracking gas, insurance, maintenance, depreciation, and other vehicle costs, then deducting the business-use percentage.

Either way, keep a log of date, destination, purpose, and miles.

Airfare, lodging, and meals for longer trips are deductible when the primary purpose is managing or maintaining the rental. Mixing in personal activities means only the business-related portion comes off. Travel tied to improving the property, rather than maintaining it, is added to the improvement’s basis and depreciated instead of deducted currently.²

Home Office and Administrative Costs

A dedicated space in your home used exclusively and regularly to manage the rental can qualify for the home office deduction. It has to be the principal place of business for that rental management activity, and it cannot double as a guest room or personal workspace. The deduction covers a proportional share of your home’s rent or mortgage interest, utilities, insurance, and maintenance based on the office’s square footage relative to the whole home.¹¹

Ordinary administrative costs are deductible on their own: property management software, office supplies, printer ink, postage, and the rental-related share of phone and internet service. Keep the receipts.

The 20% Qualified Business Income Deduction

Eligible landlords may take a qualified business income deduction of up to 20 percent of net rental income, applied on the personal return before calculating income tax. The One Big Beautiful Bill Act made this deduction permanent and raised it to 23 percent. It does not reduce self-employment tax; it simply lowers taxable income.¹²

The rental has to rise to the level of a trade or business. An IRS safe harbor treats it as one if you (or your employees, agents, or contractors) perform at least 250 hours of rental services per year and keep contemporaneous records such as time logs. Triple-net leases, where the tenant handles almost all property management, are excluded from the safe harbor.¹³

What Counts as Rental Income

Deductions are applied against rental income, so it matters what goes into that figure. Beyond monthly rent, report advance rent in the year received (regardless of the period it covers), lease cancellation fees, and expenses a tenant pays on your behalf, such as a repair bill. Services provided by a tenant in place of rent, like painting or landscaping, are reported at fair market value.⁹

Security deposits are not income when received, as long as you may have to return the money at the end of the lease. Amounts you later keep for damage or an early lease break become income in the year you keep them. A deposit designated as the tenant’s final month’s rent is treated as advance rent and taxed on receipt.⁹

Limits That Can Shrink or Defer Your Deductions

Passive Activity Loss Rules

Rental real estate is generally a passive activity, so rental losses normally offset only other passive income, not wages or other active income. The main exception: if you actively participate in the property, you can deduct up to $25,000 of rental losses against non-passive income each year.¹⁴ Active participation means making management decisions like approving tenants, setting rent, and authorizing repairs, and you must own at least 10 percent of the property by value.

The $25,000 allowance phases out as modified adjusted gross income rises above $100,000, dropping by $1 for every $2 over that line, and disappears entirely at $150,000. Married taxpayers filing separately who lived with a spouse at any time during the year get no allowance at all.¹⁵

Real Estate Professional Status

Qualifying as a real estate professional takes rentals out of the automatic passive category. You have to spend more than 750 hours during the year in real property businesses where you materially participate, and more than half of all personal services you perform during the year have to be in those real property businesses. Meeting both tests lets you deduct rental losses without the $25,000 cap or the income phaseout. Losses you cannot use in the current year carry forward.¹⁵

Personal Use of the Property

Using the property for personal purposes beyond a threshold caps your rental deductions. The threshold is the greater of 14 days or 10 percent of the days rented at fair market value. Above that, the property is treated as a personal residence and rental deductions cannot exceed gross rental income, meaning no net loss is allowed.¹¹ Expenses also have to be allocated between rental and personal days, with the disallowed amount carrying forward under the same income cap. Vacation properties are where this most often bites.

Reporting and Records

Rental income and expenses go on Schedule E of Form 1040. Payments of $600 or more during the year to any individual contractor, whether a plumber, painter, or property manager, generally require you to file Form 1099-NEC and send a copy to the contractor.¹⁶ Missing that filing carries escalating penalties, so track contractor payments through the year rather than reconstructing them in April.¹⁷

Keep receipts, bank statements, invoices, mileage logs, and leases organized by tax year. Three years is the general retention floor, but depreciation records should be kept for the full life of the property, because the IRS can review the full depreciation history when you sell.

1
eCFR. 26 CFR 1.162-4 – Repairs
2
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
3
Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
4
Office of the Law Revision Counsel. 26 USC 163 – Interest
5
Internal Revenue Service. Topic No. 504, Home Mortgage Points
6
Internal Revenue Service. Tips on Rental Real Estate Income, Deductions and Recordkeeping
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Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
8
Internal Revenue Service. One, Big, Beautiful Bill Provisions
9
Internal Revenue Service. Topic No. 414, Rental Income and Expenses
10
Internal Revenue Service. 2026 Standard Mileage Rates, Notice 26-10
11
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home
12
Internal Revenue Service. Qualified Business Income Deduction
13
Internal Revenue Service. IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for Qualified Business Income Deduction
14
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
15
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
16
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
17
Internal Revenue Service. Information Return Penalties