The big deductions
These are the deductions that save landlords the most money:
- Mortgage interest: Deduct interest on loans used to acquire or improve rental properties.
- Depreciation: Deduct the cost of the building (not land) over 27.5 years for residential properties.
- Property taxes: Fully deductible as a rental expense.
- Insurance: Landlord insurance, liability coverage, and flood insurance are all deductible.
- Repairs and maintenance: Ordinary repairs are fully deductible in the year incurred.
- Property management fees: If you hire a manager, their fees are 100% deductible.
Commonly missed deductions
Landlords often forget these:
- Home office: If you manage rentals from a dedicated home office, deduct a percentage of home expenses.
- Travel: Mileage to and from rental properties, travel to inspect out-of-state properties, and meals during property-related travel.
- Legal and professional fees: Attorney fees, accountant fees, and eviction court costs.
- Advertising: Listing fees, signs, photography, and website costs.
- Education: Books, courses, and seminars related to real estate investing.
- Utilities: If you pay utilities during vacancy periods, they're deductible.
Repairs vs. improvements
This is the #1 audit trigger for landlords. Repairs (fixing what's broken) are deductible immediately. Improvements (adding value or extending useful life) must be depreciated over 27.5 years.
- Repair: Fixing a leaky roof, replacing a broken water heater, patching drywall.
- Improvement: New roof, kitchen remodel, adding a deck, replacing all windows.
- Gray area: If a repair is part of a larger improvement project, the IRS may classify the whole project as an improvement.
Documentation requirements
The IRS requires receipts for all deductions. Best practices:
- Use a dedicated business credit card for all rental expenses.
- Scan and upload receipts immediately — don't wait until tax season.
- Categorize expenses monthly, not annually.
- Keep a mileage log for all property-related driving.
- Save contractor invoices and W-9s for anyone paid $600+ in a year.
When to hire a CPA
If you own 1–3 units with simple finances, tax software (TurboTax, H&R Block) may suffice. If you have 4+ units, out-of-state properties, partnerships, or complex renovations, hire a CPA who specializes in real estate.
A good real estate CPA costs $500–$2,000/year but typically saves you 2–5x their fee in deductions you would have missed. They also represent you in an audit — worth the price alone.
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