Tax Deductions for Landlord Responsibilities

Besides providing a tenant with habitable premises, a landlord must also meet financial responsibilities. Like any other self-employed business, renting a property requires a landlord to pay taxes on the yearly rental income. A landlord can reduce income tax responsibilities by taking deductions for the cost of doing business. The IRS allows a landlord to deduct operating expenses from their Schedule E reported income. An operating expense qualifies under the tax code if:

• The expense is ordinary and necessary to the operation of the rental property
• It is a current operating expense
• The expense relates directly to the operation of the rental
• The amount of the expense is reasonable

The following list contains the most typical types of rental property tax deductions for landlords.

Interest Deduction

A landlord may deduct interest on the money borrowed for the rental real estate investment. The most common type of deductible interest is mortgage interest from a bank loan received for the purchase of the property or for improvements made to the rental real estate. Other types of allowable interest include those arising from business expenses related to the rental property, including:

• Interest on credit cards
• Interest on loans

Repairs

Because landlord responsibilities include fixing items in need of repair in a rental, repair expenses are usually a significant operating expense. A landlord can receive the full deduction for the repair during the tax year it was made if it:

• Does not materially add value or usefulness to the rental property
• Does not substantially prolong the useful life of the rental property

Repairs that typically qualify include:

• Repainting
• Fixing a leak in the roof
• Fixing portions of a damaged floor

To qualify for a deduction, a repair should only restore the property to the original condition it was in before the need for restoration. A property expense that improves the investment property is written off of taxable income in a different manner.

Improvements

An improvement will:

• Add value
• Prolong the life of a property
• Make it more useful than it was before the improvement

Unlike a repair, an improvement is ineligible for a full deduction in a single year. Instead, the cost of making the improvement to the residential rental property is usually depreciated over 27.5 years. For example, a new roof or landscaping capital improvements might allow taxpayers to write off the renovations over time.

Transportation Expenses

Transportation expenses from local trips related to rental business activity are deductible during the same year incurred. This includes trips that involve driving to the rental property, to the store for supplies, and to the bank.

When making a deduction for miles driven for rental activity, a landlord can use the standard mileage rate or the actual expense method. The standard method calculates the deduction by multiplying the miles traveled for rental business and the IRS' rate, which changes yearly (67 cents as of the first half of 2024).

To qualify for the standard method, a landlord must use it during the first year that the vehicle was used in rental business activity. The actual expense method allows a landlord to deduct the actual vehicle expenses plus depreciation.

Travel Expenses

A landlord can deduct the expenses incurred for long-distance travel away from home on overnight rental-related business. Expenses are deductible if:

• The long-distance travel is away from the city or the area of the principal place of the rental business
• The trip was primarily for conducting rental business, such as showing the rental to prospective tenants, taking care of maintenance requests, and attending trade shows

Deductible expenses typically include the costs for transportation, meals, and lodging.

Insurance Premiums

Premiums paid for insurance on rental property are deductible. A landlord may deduct liability insurance, as well as insurance for:

• Earthquake
• Fire
• Theft
• Flood

A landlord may also be able to deduct insurance paid on a home office and a vehicle.

Casualty and Theft Losses

The destruction or damage to a rental property from a sudden or unexpected event can lower your tax bill. Eligible events include:

• Fire
• Earthquake
• Flood
• Vandalism
• Theft

The entire cost of the loss, however, is not typically deductible. The amount eligible for deduction depends on several factors, such as:

• The amount of the insurance proceeds
• Whether the property was partially or completely destroyed

Property Taxes

A landlord may deduct state and local real estate taxes paid on a rental for the current year. Prepaid taxes are only deductible in the year in which they are due.

Employees and Contractors

A landlord can deduct wages and compensation paid to independent contractors and employees to perform services related to the rental business. This includes:

• Payments made to property management companies
• Contractors hired to perform maintenance work

Expenses related to free lodging provided to on-site resident managers may also qualify.

Professional Services Fees

Rental property owners can deduct professional fees. That includes fees for eviction attorneys, CPAs, accountants (tax professionals), and real estate agents. These are deductible when related to the rental business.

Home Office

A landlord may qualify for a deduction for a home office at their primary residence. In general, the home office must meet any of the following IRS requirements:

• The home office is used exclusively and regularly as the principal place of the rental business
• The home office is used exclusively and regularly to meet with renters or rental-related visitors
• A separate structure on the property is used exclusively and regularly in connection with the rental business

Learn More About Tax Deductions for Landlords: Get a Free Legal Evaluation

Real estate investing is expensive. People who rent their property and become landlords should take advantage of tax benefits. Come tax time, you can minimize tax liability for expenses related to improvements, repairs, and the home office. A tax attorney can help you get the most out of any available tax return deductions, tax breaks, and tax cuts.