Rental Property Tax Deductions
Use this page to see exactly how much you'll save with rental property tax deductions.
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Depreciation – The "Phantom" Deduction
Here's the weird thing about rental property: even though your building isn't actually falling apart, the IRS pretends it is. Every year, you get to write off a chunk of your building's value as if it's wearing out, even though it's probably appreciating.
For residential rentals, you can deduct 3.636% of the building's value each year for 27.5 years. The land doesn't count (land doesn't depreciate), just the building itself.
Real example
You buy a $300k duplex. The land is worth about $60k, so your building value is $240k. That first year, you get to deduct $8,727 as depreciation—money you never actually spent, but you still get the tax break. Pretty sweet, right?
The cost segregation trick
Here's where it gets interesting. You can pay someone $1,000-$2,000 to do a "cost segregation study." They'll break down your property into pieces—carpeting, appliances, fixtures, etc.—and figure out how much should be depreciated faster. The result? Instead of spreading your deductions over 27.5 years, you might get 30-40% of it in the first five years. More deductions now means less taxes now, which means more money in your pocket today.
Mortgage-Interest Write-Off
Every dollar you pay in mortgage interest on your rental property is a dollar you don't pay taxes on. It's that simple. For properties bought after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt. If you bought before that date, you get to use the old $1 million limit.
This goes on Schedule E when you file your taxes. No itemizing required—it's separate from the mortgage interest deduction on your personal home.
A sneaky strategy for 2025
Here's something most people don't think about: if you're in a high tax bracket now but expect to be in a lower one later, consider refinancing to a 15-year mortgage. You'll pay more interest upfront (which means bigger deductions now when they're worth more), and less interest later when you're in a lower bracket. It's like front-loading your tax savings.
Property-Tax & Insurance Deductions
Property taxes and insurance premiums—you pay them anyway, but the good news is you get to write off every penny. These go straight on Schedule E, and unlike some other deductions, there's no cap. Pay $5,000 in property taxes? Deduct $5,000. Pay $15,000? Deduct $15,000.
Insurance counts too—fire, liability, flood, whatever policies you're carrying on the rental property.
Watch out for this
If your mortgage company holds your property taxes in escrow and they over-collected during the year, that extra money you get back is basically a bonus deduction. You already deducted the full amount when it went into escrow, so getting some back feels like found money. Just make sure you're tracking what actually got paid to the county, not just what got pulled from your escrow account.
Operating Expenses – Literally Everything
This is where being a landlord gets fun. Pretty much anything you spend money on for the rental property can become a deduction. We're talking about everything.
- •Repairs and maintenance – That $200 you dropped at Home Depot to fix the sink? Deductible. Paint, light bulbs, cleaning supplies, lawn care—all of it.
- •Meals – Take your property manager out to discuss business? 50% of that meal is deductible. Just make sure you're actually talking about the property, and keep the receipt.
- •Mileage – Every trip to the property, to Home Depot, to meet with tenants or contractors. In 2025, you get to deduct 67 cents per mile. Drive 1,000 miles for rental business? That's $670 off your taxes.
- •Home office – If you use part of your home exclusively for managing your rentals (like a desk where you do the books), you can deduct that percentage of your home expenses. Just be careful—the IRS is picky about the "exclusive use" rule.
- •Utilities, management fees, advertising – Property manager taking 10%? Deduct it. Running ads to find tenants? Deduct it. Everything that keeps the property running.
Don't leave money on the table
The biggest mistake landlords make? Not tracking the little stuff. Download a mileage tracking app like MileIQ (about $9/month) or use Expensify to snap photos of receipts. When tax time rolls around, you'll thank yourself. Those $20 trips to the hardware store add up fast, and every one of them is money back in your pocket.
Passive-Loss Carry-Forward (The $25k Secret)
Here's the deal: rental property is considered "passive" income by the IRS, which normally means you can't use rental losses to offset your regular job income. But there's a special exception that most people don't know about.
If your modified adjusted gross income (MAGI) is under $100,000, you can deduct up to $25,000 of rental losses against your W-2 income. Yes, that means if your rental lost $20,000 this year (maybe you had a big repair or a few months of vacancy), you can use that loss to reduce the taxes you pay on your day job. Pretty powerful stuff.
Under $100k MAGI
You get the full $25,000 deduction. Your rental losses can directly reduce how much tax you pay on your salary.
$100k - $150k MAGI
The deduction slowly disappears as your income goes up. At $125k, you might only get $12,500. By $150k, it's gone completely.
Over $150k MAGI
Your losses get "suspended"—they don't disappear, they just wait. You can use them to offset future rental profits, or they'll come in handy when you eventually sell the property.
This is why having a rental property when you're early in your career or have moderate income can be such a huge win. Those losses that look bad on paper are actually saving you thousands in taxes.
1031 Exchange – Tax-Free Musical Chairs
So you bought a rental property for $200,000, it's now worth $400,000, and you want to sell. Normally, you'd owe capital gains tax on that $200,000 profit, plus you'd have to pay back all those depreciation deductions you've been taking (that's called "depreciation recapture").
Enter the 1031 exchange—it's like playing musical chairs with your properties, but the tax man has to wait outside. Sell your rental and buy a "like-kind" property (basically any other investment real estate) within 180 days, and you can defer ALL those taxes. Forever. Literally, you can keep doing this until you die, and then your heirs get a stepped-up basis and never pay the taxes.
The rules are strict—you need to identify the new property within 45 days, close within 180 days, use a qualified intermediary to hold the money, and the new property needs to be worth at least as much as the old one. But if you can make it work, you're basically deferring taxes indefinitely.
The retirement play
Here's a strategy some investors use: 1031 exchange your long-term rental into a short-term rental (Airbnb) in a hot market. Then, when you're ready to truly step back, do another 1031 exchange into a Delaware Statutory Trust (DST). DSTs are like REITs but structured so you can 1031 into them. You become a passive investor, collect monthly distributions, and never touch the tax-deferred gains. It's a way to turn active landlording into passive income without triggering a tax bill.
Short-Term-Rental "Super Deduction" (Airbnb Loophole)
Here's where Airbnb and short-term rentals get interesting. If the average stay at your rental is 7 days or less, the IRS treats it differently than a traditional long-term rental. Suddenly, it's not "passive" income anymore—it becomes an active business.
This changes everything. No more $25,000 limit. No more income phase-outs. Your losses can offset ANY income—your salary, stock dividends, crypto gains, everything.
What this means for you:
- •No $25k cap – Remember that $25,000 passive loss limit we talked about earlier? It doesn't apply here. If you lose $50,000 on your short-term rental and you're making $200k at your job, you can deduct all $50,000 against your W-2 income. No phase-out, no limits.
- •Losses offset everything – Unlike passive losses that can only offset passive income, these losses can offset your regular job income, investment income, side hustle income—literally everything on your tax return.
- •The QBI bonus – On top of all that, if you actually make a profit (after all your deductions), you get to take another 20% off. This is the Qualified Business Income deduction. So if your Airbnb nets $20,000 after expenses, you get to deduct another $4,000. It's a deduction on a deduction.
This is why short-term rentals have become so popular with high earners. The tax benefits are legitimately insane if you structure it right and keep your average stay under 7 days.
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