Top 9 Tax Deductions for Landlords

I love real estate as an investment because it allows me to earn money on my investment each year in the form of rent while (hopefully), the property appreciates in value at the same time. Another reason I like real estate investing is it allows me to take some nice tax deductions, even if the property management side of being a real estate investor is generally considered passive income unless you spend all your waking hours devoted to it.  That said, there are a few deductions that real estate investors can use on their tax returns to offset rents received during the year.

• Insurance. As a landlord, you need to pay for a property insurance on the home. Those policy premiums can be deducted from the gross rents you receive.
• Mortgage interest. If you have a mortgage on your property, the monthly interest you pay on the note is deductible. Just the interest though; the principle cannot be deducted.
• Repairs. Your expenses to repair the home can also be deducted. However, it’s important to note that there is a difference between repairs and improvements — and the IRS treats the two differently so it’s important to know the difference. In general, repairs are something that you do to keep the property in good working order. Examples of repairs are things like fixing a broken dishwasher, painting the exterior, or tightening a leaky faucet — basically anything you do to to maintain the property in its current state. Repairs can be deducted against the rental income the year you incur the expense.
• Improvements. Meanwhile, improvements are anything you do that extends the life of your rental. Examples of improvements would be replacing a roof or adding a fence. (The IRS has a whole list if you’re curious). These expenses are still tax deductible against your gross rental income. However, improvements are instead depreciated and the loss is taken over several years instead of all at once. Check with your accountant (or TurboTax) about what you’re depreciating though as depreciation times vary by improvement. For example, improvements like dishwashers and carpet are depreciated over 5 years while other improvements like fences and roofs are depreciated over 15 years.
• Property Depreciation. Another key deduction for landlords is the depreciation on the home itself. While you cannot depreciate land, you can deduct the purchase price (also called cost basis) of the home or any other buildings on the property. Typically, residential real estate depreciates at a rate or 3.636% a year, meaning it takes 27.5 years to depreciate the full value of a home. Your local tax agency usually breaks down the value of the land vs the value of the buildings if you aren’t sure.
• Property Tax. While your mortgage itself cannot be deducted, you can write off property taxes that you pay to state and local governments.
• Utilities. If you provide utilities for your tenants, those expenses can also be deducted. I usually ask my tenants to put all the utilities in their name when they move in to avoid any unpleasant surprise bills when someone moves out. That said, I often continue to pay the water bill. In Texas, water is provided by the municipality and often includes fees for other services, like trash removal or sewer services. I have also discovered that changing the name on the water bill triggers municipalities to insist on a rental inspection. We firmly believe in keeping all our properties up to code and more than livable. However, several of the city inspectors I have worked with have been very capricious in their requests. In one property, the inspector wrote that we needed a kitchen backsplash even though there was nothing in the written code that said a backsplash was a necessary item. Because of this, I now try to avoid them if at all possible.
• Transportation Expenses. Miles accrued in your personal vehicle to work on your rental properties is also tax deductible. For 2023, the reimbursement rate is $.56 per mile. That means if you drove 1,000 miles for your business, your deduction would be $560. The key to deducting transportation expenses is to keep good records of exactly where you went, why you went there, and how many miles it was. There are fortunately plenty of phone apps that make this tracking easy for you.
• Professional Fees. Money you spend with professionals to operate your business can also be deducted, like the cost of hiring an accountant to make sure your taxes are filed appropriately. Examples of other professional services would include legal fees when evicting a tenant, professional photography to make your listing look better, or realtor commissions paid to obtain your next occupants.

  

  As you can see, your rental empire has the potential to save you some money come tax time. Just be sure to check in with the professionals to make sure you’re doing it correctly.