What tax deductions for rental property can I take?

The video below shares a list of deductible items for Schedule E (Rental Property).

Generally, the largest tax deductions for rental property are:

•       Mortgage Interest

•       Real Estate Taxes

•       Homeowner’s Insurance

•       Cleaning and Maintenance

•       Repairs

•       Management Fees

•       Depreciation

Mortgage Interest

•       You cannot deduct mortgage payments (you must depreciate instead). However, you do get to deduct mortgage interest, real estate taxes, and homeowners insurance, which together normally make up a large part of the mortgage payments.

•       Mortgage Interest and Real Estate Taxes are normally found on Form 1098 sent out by the Mortgage company in January.  

•       Homeowner’s insurance is deductible for rental properties (unlike your personal residence).   Note: Sometimes, the mortgage company will include the cost of homeowners insurance paid on form 1098, but they are not required to.  If it is not included, you may have to check with your insurance company to find out the amount.

Depreciation

•       You depreciate the property rather than deducting principal payments

•       Residential rental property is depreciated over 27.5 years.  Some items, such as appliances, can be depreciated over a shorter time period.

•       Your cost basis is the full amount you paid for the property, plus any improvements you made to it prior to renting

•       Note: you should take allowable depreciation. When you sell, the IRS reduces the basis by the amount you could have taken, whether you take it or not!

Cleaning and Maintenance

•       Any maintenance fees paid by owner

•     Yard care, etc.

Repairs

• As many have found out the hard way, this can be a huge rental expense.

If you use a management company and they take it out of your rent, they will normally include it on the year-end statement.

Cleaning and Maintenance

 

• Many homeowners use a rental management company that charges monthly fees (often 10% of the rent)
• These management fees are deductible

Limits on losses

• You can generally deduct up to 25,000 in losses per year
• MFJ taxpayers making over 100,000 have additional limits on what they can deduct.
• MFJ taxpayers making over 150,000 cannot deduct losses in current year.
• NOTE: You do not lose these losses. They carry over until you can deduct them! Either in a future year or the year you dispose of the property.

Other possible deductions:

• Legal Fees
• Mileage or Travel Expenses (Standard mileage rate is 67 cents per mile for 2024)
• Supplies (if not included in repairs)
• (Homeowner Association) HOA fees
• Utilities – if paid by owner
• Any other expenses paid by owner associated with rental property

For More Information

• Contact Derland Bahr CPA at 254-432-5724 or visit DerlandBahrCPA.com to learn more about tax deductions for rental property.