In 2025, landlords can significantly reduce their taxable rental income by leveraging these eight key tax deductions:
- Mortgage Interest: Deduct interest on loans tied to rental properties, including points and origination fees.
- Property Taxes: Deduct state and local property taxes without the $10,000 SALT cap for personal taxes.
- Repairs & Maintenance: Deduct costs for routine repairs like plumbing, painting, or HVAC servicing.
- Depreciation: Recover property costs over time – 3.636% annually for residential properties (27.5 years).
- Insurance Costs: Deduct premiums for liability, fire, flood, and other rental-related insurance.
- Professional Fees: Claim deductions for legal, accounting, and property management services.
- Travel Expenses: Deduct vehicle mileage (67¢ per mile for 2024) or actual travel costs for property-related activities.
- Home Office: Deduct expenses for a home office used exclusively for rental management.
Quick Tip: Keep detailed records of expenses, receipts, and documentation to stay compliant with IRS rules. Consulting a tax professional can help you maximize savings while avoiding errors.
Maximize Your Rental Property Returns: 8 Overlooked Tax …
1. Mortgage Interest
Mortgage interest is one of the primary tax deductions available to landlords. Unlike the standard Home Mortgage Interest Deduction (HMID), this deduction is claimed on Schedule E, not Schedule A, which means itemizing isn’t necessary. Here’s what you need to know to qualify and calculate your deduction.
Eligibility Requirements
To deduct mortgage interest on your rental property, make sure you meet these conditions:
- The mortgage must be tied to rental business purposes.
- Interest can only be deducted for the time the property is rented out.
- The loan must be secured by the rental property.
- The interest must have been paid during the current tax year.
How to Calculate the Deduction
The amount you can deduct depends on how the property is used:
| Property Usage | Deductible Interest |
|---|---|
| 100% Rental | Full mortgage interest |
| Mixed-Use | Prorated based on rental square footage |
| Partial Year Rental | Prorated for the time the property was available for rent |
For mixed-use or partial-year rentals, prorate the deduction based on the rental use of the property.
Documentation You’ll Need
To claim this deduction, keep these records handy:
- Form 1098 from your lender, showing the annual mortgage interest paid.
- Documentation of rental periods and property availability.
- Square footage calculations for mixed-use properties.
- Proof of payment, such as canceled checks or bank statements.
Important Limits and Restrictions
Keep these restrictions in mind:
- You can’t deduct interest related to the personal use portion of the property.
- Second homes used for personal purposes don’t qualify.
- Personal loans or credit card interest unrelated to rental activities aren’t deductible.
- If your average gross receipts exceed $26 million over three years, your deduction may be capped at 30% of adjusted taxable income. However, you can opt for alternative depreciation schedules to deduct the full amount.
2. Property Taxes
In 2025, state and local property taxes remain a key deductible expense for rental property owners, helping to lower overall tax obligations. Here’s how to calculate your deduction correctly.
Eligibility Requirements
To qualify for this deduction, you need accurate records of property ownership and tax payments:
- You must be the direct owner of the property.
- Taxes must be paid within the tax year.
- The property must be used specifically for rental purposes.
- Taxes must be assessed by state or local governments.
Both residential and commercial property taxes qualify. Additionally, taxes like hospitality or occupancy charges on short-term rentals can also be deducted.
How to Calculate the Deduction
The deductible amount depends on how the property is used:
| Property Usage | Deductible Amount |
|---|---|
| Full-time rental | 100% of property taxes |
| Mixed personal/rental use | Prorated based on rental usage |
| Short-term rental | Includes hospitality/occupancy taxes |
| Investment property | Full amount of property taxes |
Documentation and Compliance
Keep these records to ensure compliance:
- Annual property tax statements.
- Proof of payment, such as canceled checks or electronic receipts.
- Mortgage statements if taxes are paid through escrow accounts.
- Records of special assessments or additional tax payments.
- Documentation showing the percentage of the property used for rental purposes.
Limits and Restrictions
There are important limits to keep in mind:
- The Tax Cuts and Jobs Act caps state and local tax (SALT) deductions at $10,000 ($5,000 for married individuals filing separately).
- The following are not deductible:
- Unpaid property taxes.
- Transfer taxes during property sales.
- Taxes on properties you don’t directly own.
- Utility charges like water or trash collection.
- Assessments for home improvements.
3. Repairs and Maintenance Costs
Keeping up with regular repairs can help reduce your taxable income – as long as you document them properly. Knowing which expenses qualify and tracking them carefully can lead to significant tax savings.
Eligibility Requirements
The IRS allows deductions for expenses that are considered ordinary and necessary for maintaining rental properties. To qualify, these costs must meet the following criteria:
- Be commonly accepted in the rental industry
- Serve a purpose that benefits your rental business
- Directly relate to property maintenance
- Be clearly separated from personal expenses, especially for mixed-use properties
Here are some examples of qualifying expenses:
| Type of Expense | Examples |
|---|---|
| Regular Maintenance | HVAC servicing, pest control, lawn care |
| Emergency Repairs | Plumbing fixes, electrical work, roof repairs |
| Property Updates | Painting, carpet cleaning, appliance repairs |
| Safety Measures | Replacing smoke detectors, lock maintenance |
Once you’ve identified eligible expenses, you’ll need to calculate the deductible portion based on how the property is used.
Calculation Method
For properties rented out full-time, you can deduct 100% of the eligible expenses. If the property is mixed-use or a vacation rental, you’ll need to prorate the deductions based on the number of rental days compared to total days of use.
Documentation and Compliance
To back up your deductions, keep detailed records. This includes receipts, service invoices, payment confirmations, and maintenance logs. Accurate documentation is key to staying compliant with IRS rules.
Limits and Restrictions
Only deduct expenses that are reasonable and directly related to the rental property. For mixed-use properties, personal-use portions of the expenses cannot be deducted. Always ensure your records clearly separate business and personal costs.
4. Property Depreciation
Property depreciation allows landlords to gradually recover the cost of a rental property over time, excluding land. This applies because buildings and improvements lose value through regular use.
Eligibility Requirements
To claim property depreciation, your rental property must meet these conditions:
- You must legally own the property.
- The property must generate rental income.
- It must have a useful life that can be determined and exceeds one year.
- The property must be actively used in your rental business.
Keep in mind, land cannot be depreciated – only the building and qualifying improvements are eligible. Properties held for less than a year are not eligible for depreciation.
Once eligibility is confirmed, calculate the depreciable amount using the IRS MACRS guidelines.
Calculation Method
To calculate depreciation:
- Determine your cost basis (purchase price plus related expenses).
- Subtract the land value to find the depreciable basis.
Example: For a $300,000 property with $75,000 attributed to land, the depreciable basis is $225,000. - Apply the MACRS depreciation rate:
- Residential rental property: 3.636% annually over 27.5 years.
- Commercial property: 2.56% annually over 39 years.
| Property Type | Depreciation Period | Annual Rate |
|---|---|---|
| Residential Rental | 27.5 years | 3.636% |
| Commercial Property | 39 years | 2.56% |
Documentation and Compliance
To stay compliant, keep detailed records, including:
- Purchase documents for the property.
- Evidence of any improvements made.
- Proof that the property has been placed in service.
- IRS Form 4562, used to report depreciation.
Limits and Restrictions
- Depreciation starts when the property is placed in service for rental use.
- You can continue claiming depreciation during temporary vacancies.
- Depreciation ends once the cost basis is fully recovered or the property is retired from service.
- In specific cases, the Alternative Depreciation System (ADS) may be required, which uses a 30-year depreciation period for residential properties.
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5. Insurance Costs
Insurance premiums for rental properties can reduce your taxable rental income, making them a useful tax deduction for landlords. Here’s a look at the types of insurance that qualify and how to manage these deductions.
Types of Eligible Insurance
- Rental Property Insurance: Covers property damage, theft, vandalism, and includes liability protection.
- Umbrella Insurance: Offers additional liability coverage beyond standard policies.
- Mortgage Insurance: Often required by lenders if your down payment falls below a certain threshold.
- Flood Insurance: Provides protection specifically for flood-related damages.
Keeping Records and Staying Compliant
It’s essential to keep detailed records of your insurance expenses. Save digital or physical copies of premium payments, policy documents, receipts, and invoices. Track insurance costs separately for each property to simplify reporting.
When filing taxes, report these expenses on Line 9 of Schedule E (Form 1040 or 1040-SR). To keep personal and business finances separate, consider using a dedicated bank account for your rental property transactions.
How to Calculate Deductions
For properties used solely as rentals, you can deduct the entire insurance premium. For mixed-use properties, calculate the deductible portion using this formula:
| Component | Calculation |
|---|---|
| Rental Portion | (Rented Square Footage ÷ Total Square Footage) × 100 |
| Deductible Amount | Total Insurance Premium × Rental Portion Percentage |
Rules and Restrictions
While insurance deductions are generally straightforward, a few rules apply:
- The insurance must directly relate to your rental property business.
- Premiums must have been paid during the tax year you’re claiming the deduction for.
- Personal insurance isn’t deductible unless it’s allocated for rental use.
- Expenses must be considered ordinary and necessary for running your rental business.
6. Legal and Professional Fees
After accounting for insurance costs, legal and professional fees can also lower your taxable rental income. These expenses must be directly connected to your rental activities to qualify.
What Fees Can You Deduct?
You can deduct fees that are both ordinary and necessary for managing your rental property. Examples include:
- Bookkeeping and accounting services
- Tax preparation fees
- Legal advice for lease agreements
- Property management consultations
- Financial planning tailored to rental properties
- Tax software purchases
- Tenant screening services by professionals
Keeping Proper Records
Keep detailed records of these expenses to ensure compliance. This includes:
- Invoices and receipts
- Bank statements
- Service contracts
- Logs of consultations
Separate these costs from other expenses to maintain clear and accurate records.
Are There Any Limits?
Not all fees are treated the same. Here’s a quick breakdown:
| Type of Fee | Deductibility Status |
|---|---|
| Regular Property Management | Fully deductible in the year paid |
| Capital Improvement Related | Must be capitalized and depreciated |
| Personal Tax Advice | Only the portion related to your rental business |
"The Tax Cuts and Jobs Act, unless extended, will expire in 2025, potentially impacting the deductibility of personal tax preparation fees".
For fees tied to property improvements, you can’t deduct them immediately. Instead, they need to be added to your property’s value and recovered through depreciation over time.
Up next, we’ll cover how travel expenses related to your rental activities can further reduce your costs.
7. Property-Related Travel Expenses
If you’re a rental property owner, travel expenses can reduce your taxable income – provided you carefully document qualifying trips.
Eligibility Requirements for the Deduction
To qualify, travel expenses must be both ordinary (common in your line of work) and necessary (helpful for managing your rental properties). Examples of qualifying activities include:
- Visiting properties for maintenance or inspections
- Meeting with tenants, contractors, or property managers
- Attending real estate seminars or conventions
- Showing properties to prospective tenants
"You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property." – IRS Publication 527
Good documentation is essential to support these deductions.
Calculation Method for the Deduction
When calculating vehicle-related expenses, you have two options:
| Method | Description | Best For |
|---|---|---|
| Standard Mileage Rate | 67¢ per mile (2024 rate) | Simpler tracking, newer vehicles |
| Actual Expense Method | Includes gas, maintenance, insurance, and other costs | Higher-cost vehicles or frequent business use |
For non-vehicle travel expenses, you can deduct:
- 100% of lodging costs
- 50% of meal and beverage expenses
- Transportation (airfare, train, bus)
- Car rentals and parking fees
- Business-related internet and phone expenses
Documentation and Compliance Requirements
To claim these deductions, you’ll need to maintain detailed records. Key documentation includes:
-
Mileage Logs
- Date and purpose of the trip
- Starting and ending locations
- Total miles traveled
-
Receipts
- Keep receipts for transportation, lodging, meals, parking, tolls, and any other relevant expenses.
Accurate and thorough records are your best defense in case of an audit.
Limits or Restrictions on the Deduction
There are a few restrictions to keep in mind:
- Travel related to property improvements must be capitalized and depreciated instead of deducted immediately.
- For trips that mix personal and business activities, you can only deduct the portion of expenses tied to business activities.
- Meal deductions are capped at 50% of the cost.
- Local transportation between your home and rental properties is only deductible if you have a designated home office.
Using tracking apps can simplify recordkeeping and help ensure compliance with these rules.
Up next: Learn how home office expenses can further reduce your rental property taxes.
8. Home Office Expenses
You can claim a home office deduction to offset part of your home expenses if the space is used solely for rental business activities. To make the most of this deduction, keep accurate records and follow IRS guidelines.
Eligibility Requirements for the Deduction
There are two main criteria to qualify:
-
Business Use Requirement
- Your rental activities must be part of a continuous trade or business, supported by regular involvement and proper documentation.
- Activities performed by you, your agents, or property managers can help meet this requirement.
-
Exclusive Use Requirement
- The space must be used only for rental business purposes.
- It should serve as your primary location for rental operations.
- Regular use for administrative or management tasks is also necessary.
"To claim the deduction, you must designate a space in your home exclusively and regularly used as the principal place of business for your rental activities." – Landlord Studio
Calculation Method for the Deduction
You can choose between two calculation methods depending on your preferences and expense levels:
| Method | Description | Deduction Cap | Best For |
|---|---|---|---|
| Simplified Method | $5 per square foot | $1,500 (300 sq ft max) | Small spaces, minimal paperwork |
| Regular Method | Actual expenses based on home usage | No fixed limit | Larger spaces, higher expenses |
The regular method includes a depreciation deduction but requires recapture when selling your home. The simplified method skips depreciation but has a cap on the deduction.
Documentation and Compliance Requirements
To stay compliant, keep the following records:
- Utility bills, mortgage statements, and insurance documents
- Proof of business activities conducted in the designated space
If you use the regular method, you’ll need to file Form 8829 (Expenses for Business Use of Your Home) with your tax return.
Other Restrictions
- The deduction cannot exceed your rental income after subtracting business expenses.
- The simplified method does not allow carrying over unused deductions to future years.
Conclusion
Now that we’ve covered these eight deductions, let’s look at how you can make the most of them to boost your rental property profits in 2025.
Financial Impact
One of the most impactful deductions is property depreciation, which provides steady tax savings over time. Additionally, the IRS mileage rate – set at 65.5 cents per mile for property-related travel – can further reduce your tax burden. Together, these deductions can significantly improve your rental income.
Staying Organized and Seeking Expert Advice
To claim these deductions successfully, maintaining detailed records is key. Keep track of ownership documents, financial transactions, and all business-related activities. Since tax laws can change, it’s important to review your deductions with a tax professional and stay organized throughout the year.
Here’s why this approach matters:
- Helps you claim all eligible deductions
- Keeps you updated on any tax law changes
- Ensures proper documentation for every claim
- Improves your rental property’s cash flow
A tax professional can customize strategies to fit your unique situation. This personalized guidance ensures you take full advantage of available deductions while staying compliant with IRS regulations.