Key takeaways
- Rental income can be offset with deductible expenses.
- You can depreciate the building over 27.5 years.
- Repairs and operating costs may lower your tax bill.
The first time rent hit my account, I felt like a real estate mogul.
The first time I thought about rental property taxes? Slightly less glamorous.
I knew rental income was taxable. What I didn’t realize was how many deductions come with owning a rental. Once I started tracking expenses, depreciation, and day-to-day costs, taxes felt a lot more manageable.
Here are the three biggest rental tax breaks that can make a real difference when you file.
1. Depreciation
Depreciation is often the most surprising deduction for new landlords.
When you buy residential rental property, you can deduct the cost of the building (not the land) over 27.5 years. You’ll need to allocate your purchase price between land and structure using a tax assessment or an appraisal.
For example, if you buy a rental property for $300,000 and determine $60,000 is land value, you can depreciate the remaining $240,000 over 27.5 years — roughly $8,700 per year.
That’s a deduction you may be able to claim even though you didn’t spend that amount in cash during the year.
You can also depreciate certain improvements. Major upgrades like a new roof or HVAC system generally follow the building’s schedule, while appliances or carpeting may qualify for a shorter recovery period.
2. Repairs and maintenance
Things break when you own a rental property and many of those costs are tax-deductible.
Repairs and maintenance expenses that keep your property in ordinary condition are generally deductible in the year you pay them. Fixing a leaky faucet, patching drywall, repainting, or servicing the HVAC system can reduce your taxable rental income.
The key difference is between repairs and improvements.
Repairs maintain the property’s current condition. Improvements add value or extend its useful life — such as remodeling a room or replacing the entire roof. Improvements typically must be depreciated over time instead of deducted all at once.
Keep clear records of what you did and why to support your deductions at tax time.
3. Operating expenses
In addition to repairs, you can deduct most of the operating expenses for rental property..
Common deductible rental expenses include:
- Mortgage interest (not principal)
- Property taxes
- Insurance premiums
- Property management fees
- Utilities
- Advertising for tenants
- Mileage for rental-related travel
- Legal and professional fees
- Cleaning between tenants
- Lawn maintenance
In many cases, you can deduct these expenses even while actively seeking a tenant.
What about limits on rental deductions?
By default, the IRS treats rental activity as passive. That means rental losses generally offset other passive income — not wages from a W-2 job or income from an active business.
There are exceptions. For example, you may be able to deduct up to $25,000 in rental losses if your modified adjusted gross income (MAGI) is below $150,000 and you actively participate in the rental activity.
If you don’t qualify, unused losses typically carry forward to future years or can offset gains when you sell your rental property. You can use our Capital Gains Calculator to estimate what you may owe.
What owning a rental means at tax time
Your net rental income is your rent collected minus allowable deductions, including depreciation, repairs, and operating expenses. Tracking those costs throughout the year can help you avoid overstating income and paying more tax than necessary.
Are you a rental property owner? TurboTax Premium guides you through rental income, expenses, and depreciation step by step — helping you claim the deductions you’re entitled to with confidence.
