Real Estate Tax Calc
Operating deductions
Common deductible expenses include mortgage interest, property taxes, insurance, property management, repairs and maintenance, utilities you pay, HOA dues, and advertising for tenants.
Depreciation
You also deduct depreciation each year on the building — a non-cash deduction that often shelters much of the cash flow. See the rental depreciation calculator.
Repairs vs. improvements
Repairs are deducted now; improvements must be capitalized and depreciated. Knowing the difference protects your deductions in an audit.
Where landlord deductions are reported
Almost every rental expense is reported on Schedule E (Supplemental Income and Loss), which nets your rental income against your deductions to produce the profit or loss that flows to your Form 1040. Schedule E has pre-printed lines for the most common categories — advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest paid to banks, other interest, repairs, supplies, taxes, utilities, and depreciation — plus an 'other' line for anything that doesn't fit. Depreciation is computed on Form 4562 and carried to Schedule E. Getting the category right matters less than making sure every legitimate expense lands somewhere on the return, because an unclaimed deduction is money left on the table.
The most commonly missed deductions
Landlords routinely overlook deductions that are fully allowed. Travel to and from the property for management, maintenance, or showings is deductible — either actual costs or the IRS standard mileage rate, with a log to back it up. Home office expenses can be deductible if you use part of your home regularly and exclusively to manage your rentals and the activity rises to a trade or business. Professional fees — your CPA's charge to prepare Schedule E, attorney fees for leases or evictions, bookkeeping software — are deductible. So are bank fees on a dedicated rental account, continuing education tied to your existing rental business, and the portion of your phone and internet used for the rentals. Individually small, these add up to real money over a year.
A worked example: what a year of deductions looks like
Consider a single rental that collects $24,000 in rent for the year. The owner's deductible expenses might include $7,200 mortgage interest, $3,600 property taxes, $1,400 insurance, $1,920 in management fees (8%), $1,500 repairs, $600 in utilities the landlord covers, $400 HOA dues, and $250 for travel and supplies — about $16,870 of cash operating deductions. On top of that, depreciation on a $220,000 building basis adds roughly $8,000 a year (a non-cash deduction). Total deductions of about $24,870 exceed the $24,000 of rent, producing a small paper loss even though the property generated positive cash. That is the everyday tax magic of rental real estate: depreciation frequently turns a cash-flow-positive property into a break-even or loss position on paper.
Mortgage interest, points, and the business-interest rules
Interest is usually a landlord's single largest deduction. You can deduct interest on a loan used to acquire or improve the rental, and — importantly — interest tracing follows the use of the money, not the collateral. Points paid to obtain a rental mortgage are generally amortized and deducted over the life of the loan, not all at once (unlike points on a primary residence). Interest on a cash-out refinance is deductible only to the extent the new proceeds are used for the rental; money you pull out for personal use is not deductible against the rental. Most small landlords are exempt from the business-interest limitation of Section 163(j), but larger operations should check whether they must elect out (which affects depreciation).
The QBI deduction can add another 20%
Beyond the line-item expenses, many landlords qualify for the qualified business income (QBI) deduction under Section 199A, worth up to 20% of net rental income. Whether a rental qualifies turns on whether it rises to the level of a trade or business; the IRS offers a safe harbor (Rev. Proc. 2019-38) requiring at least 250 hours of rental services per year and contemporaneous records. This deduction doesn't appear on Schedule E — it's calculated on Form 8995 or 8995-A and taken on the 1040 — but it's one of the most valuable breaks available to a profitable landlord, so it's worth structuring your recordkeeping to claim it.
Passive loss limits: deductions you can claim vs. deductions you can use
Claiming a deduction and using it this year are two different things. Rental losses are generally passive under Section 469, meaning they can only offset other passive income — not your W-2 wages or business profits. Two escape hatches exist. The $25,000 active-participation allowance lets many owners deduct up to $25,000 of rental losses against ordinary income, but it phases out between $100,000 and $150,000 of modified AGI. And qualifying as a real estate professional makes rental losses non-passive entirely. If neither applies, your excess deductions aren't lost — they become suspended passive losses carried forward, and they free up when you have passive income or when you sell the property in a fully taxable disposition.
Records that protect every deduction
The deductions are only as good as the proof behind them. Keep a dedicated bank account and credit card for the rental so business and personal spending never mix. Retain receipts and invoices, the closing statement (it establishes basis and prepaid items), a mileage log for travel, and before-and-after documentation for anything you're treating as a repair rather than an improvement. The IRS can generally audit three years back (six if income is substantially understated), so keep records at least that long — and keep depreciation and improvement records for the entire holding period plus three years after sale, because they determine your basis and gain when you sell.
Start-up costs before the first tenant
Money you spend getting into the rental business before the property is available to rent is treated differently from ongoing operating costs. Start-up expenditures — market research, travel to scout properties, education about the business, LLC formation — fall under Section 195: you may deduct up to $5,000 in the first year the activity begins (phased out if total start-up costs exceed $50,000), and the rest is amortized over 15 years. Costs to improve the property or get a specific unit rent-ready are different again: repairs made before the property is placed in service are generally added to basis and depreciated, not deducted immediately. The key date is when the unit is advertised and ready to rent — that is when ordinary operating deductions begin.
The repair safe harbors that protect current deductions
Because repairs are deducted now and improvements must be capitalized over years, the tangible property regulations give landlords three safe harbors that let more costs be expensed. The de minimis safe harbor lets you deduct items costing up to $2,500 per invoice or item (with a written policy in place) rather than capitalizing them. The small taxpayer safe harbor lets owners with average gross receipts under $10 million deduct repairs, maintenance, and improvements on a building with unadjusted basis under $1 million, up to the lesser of $10,000 or 2% of the building's basis per year. And the routine maintenance safe harbor covers recurring upkeep you expect to perform more than once over the property's life. Adopting these on your return, with the required elections, is one of the simplest ways to protect deductions from being reclassified as capital improvements.
Utilities, HOA dues, and shared or partial-use costs
Any operating cost you pay as landlord is deductible — utilities (water, sewer, gas, electric, trash) when they're in your name, HOA or condo dues, landscaping, pest control, and snow removal. Where an expense is partly personal, deduct only the rental share: if you rent out part of a duplex you also live in, allocate shared costs (roof, exterior, shared utilities) between the rental and personal portions on a reasonable basis such as square footage. The same allocation logic applies to a property used part of the year personally and part as a rental — the vacation-home rules limit deductions to the rental-use fraction and can cap them at rental income.
Vehicle and travel deductions in detail
Local travel to manage a rental — trips to collect rent, meet contractors, show units, or buy supplies — is deductible using one of two methods. The standard mileage rate multiplies business miles by the IRS per-mile rate (adjusted annually) and is simplest; the actual expense method deducts the rental-use percentage of gas, insurance, repairs, and depreciation on the vehicle. You generally must choose the standard mileage method in the first year a vehicle is used for the business if you want the option to switch later. Overnight travel to a distant rental — airfare, lodging, and 50% of meals — is deductible when the trip's primary purpose is the rental business, but the IRS scrutinizes travel that mixes vacation with property visits, so keep an itinerary and a log showing the business purpose of each day.
Frequently asked questions
Can landlords deduct mortgage interest?
Yes, mortgage interest on a rental is deductible, along with taxes, insurance, repairs, management, and depreciation.
Is depreciation a landlord deduction?
Yes — it's one of the largest, and it's non-cash.
Where do landlords report rental expenses?
On Schedule E (Supplemental Income and Loss), which nets rental income against deductions. Depreciation is computed on Form 4562 and carried to Schedule E.
Can landlords deduct travel to the property?
Yes — travel for management, maintenance, or showings is deductible using either actual costs or the standard mileage rate, provided you keep a log. Commuting-style personal trips don't count.
Do landlords get the 20% QBI deduction?
Often, yes. If the rental rises to the level of a trade or business — the Rev. Proc. 2019-38 safe harbor asks for 250+ hours of services a year with records — up to 20% of net rental income can be deducted under Section 199A.
What if my deductions exceed my rental income?
You have a rental loss. You may be able to deduct up to $25,000 against ordinary income if you actively participate and your income is under the phase-out, or fully if you're a real estate professional. Otherwise the loss is suspended and carried forward until you have passive income or sell the property.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.