Rental property tax deductions: the list, and the three that get audited
What you can deduct on a rental, what you must capitalise instead, and the three deductions that draw the most scrutiny. Written for small landlords filing Schedule E.
The short version
- Repairs are deducted this year; improvements must be capitalised and depreciated over years.
- Depreciation is not optional — the IRS recaptures it on sale whether or not you claimed it.
- Mileage, the home office, and the repair/improvement line are where most errors and scrutiny land.
- Travel to your own property is deductible only for genuine rental activity, not for driving past.
- Records are the deduction. A category total with no receipts is not a defensible position.
Rental income is reported on Schedule E, and the deductions available to a small landlord are broad. The costly mistakes are rarely about missing an obscure line — they come from three places: treating an improvement as a repair, skipping depreciation, and claiming vehicle or home-office expenses without the records to support them.
The ordinary deductions
| Category | Examples | Notes |
|---|---|---|
| Mortgage interest | Interest portion of the payment | Principal is never deductible |
| Property tax | County and municipal | Watch state-level caps on your personal return |
| Insurance | Landlord policy, umbrella, flood | Prepaid multi-year premiums are prorated |
| Repairs | Fixing a leak, patching drywall, servicing HVAC | Deducted in the year paid |
| Management | Property manager, leasing fees | Includes tenant placement fees |
| Professional fees | CPA, attorney, eviction filing | Related to the rental activity |
| Utilities | Any you pay rather than the tenant | Common in small multifamily |
| Advertising | Listings, photos, signage | Includes listing site fees |
| Supplies | Filters, light bulbs, cleaning | Ordinary operating consumables |
| Travel | Mileage to the property for rental work | Log it contemporaneously |
| Depreciation | The building, not the land | 27.5 years, residential |
Repair or improvement — the distinction that matters most
A repair keeps the property in its existing operating condition and is deducted in full this year. An improvement betters it, restores it, or adapts it to a new use, and must be capitalised and depreciated. Same dollar, radically different timing.
| Work done | Usually a repair | Usually an improvement |
|---|---|---|
| Roof | Patching a leak | Full replacement |
| Flooring | Repairing a damaged section | Replacing throughout |
| HVAC | Service call, replacing a part | New system |
| Painting | Repainting a wall or unit | Part of a larger remodel |
| Plumbing | Fixing a leak, replacing a fixture | Repiping the building |
| Kitchen | Replacing a broken appliance | New cabinets, counters, layout |
Depreciation is not optional
Residential rental buildings are depreciated over 27.5 years, straight line. Land is not depreciated, so the purchase price must be allocated between land and building — commonly using the assessor's ratio.
The part landlords miss: on sale, the IRS recaptures depreciation based on the amount allowable, not the amount you actually claimed. Skipping depreciation does not preserve basis — it means paying recapture tax on deductions you never took. If you have been filing without it, that is a conversation to have with a professional promptly rather than at your next sale.
The three that draw scrutiny
Vehicle and mileage
Deductible for genuine rental activity: showings, repairs, supply runs, meeting a contractor. Not for driving past to look at it. A contemporaneous log with date, destination, purpose and miles is what makes it stand; a year-end estimate is what makes it fall.
Home office
Requires space used regularly and exclusively for the rental business. Exclusively is the word that decides it — a desk in a room the family also uses does not qualify, however much work happens there.
Repairs that were improvements
The single most common adjustment. A large 'repair' number relative to the property's value is a natural thing to examine, and a full roof deducted in one year is the classic example.
What actually keeps deductions
In an examination, the question is never whether the expense sounds plausible. It is whether you can produce, per line: what was bought, when, from whom, for which property, and why it was for the rental.
- Expenses tagged to a specific property, not a portfolio-wide pile.
- Receipts and invoices attached to the entry, not filed in a shoebox by year.
- A repair-versus-improvement decision recorded at the time, while you remember the scope.
- A mileage log written when the trip happened.
- A separate bank account for the rental. Commingling makes every line arguable.
This is squarely what TenantsRent is for: expenses are recorded against a property and category as they happen, receipts attach to the entry, recurring costs post on schedule, and a year-end statement per property is what your CPA actually wants to receive.
Before you file
- 1.Reconcile every expense to a property and a category.
- 2.Split the year's capital work out of repairs, and ask your CPA about the safe harbours.
- 3.Confirm depreciation is running, including for improvements placed in service this year.
- 4.Total mileage from the log, not from memory.
- 5.Produce a per-property income and expense statement rather than one combined figure.
Common questions
- Can I deduct my own labour on a rental?
- No. The value of your own time is not deductible, even where hiring someone would have been. You can deduct materials, and you can deduct amounts actually paid to others.
- Is a new roof deductible?
- A full replacement is normally an improvement — capitalised and depreciated rather than deducted in one year. Patching a leak is normally a repair. This is the most commonly adjusted item on a rental return.
- What if I never claimed depreciation?
- It generally still gets recaptured on sale, because recapture is based on depreciation allowable rather than claimed. There are procedures for correcting missed depreciation; raise it with a CPA rather than simply starting to claim it going forward.
- Can I deduct a loss against my regular income?
- Sometimes, subject to passive activity loss rules. There is an allowance for actively participating landlords that phases out above certain income levels, and different treatment for real estate professionals. This is fact-specific and worth a professional's view.
Stop doing this by hand
TenantsRent automates rent collection, late fees, reminders, and maintenance tickets — and keeps the timestamped record that makes all of the above hold up. $5 per unit per month.
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