7 Tips For Landlord Tax Deductions

Updated February 2024

If you’re navigating the complexities of rental income tax deductions and seeking some answers, you’ve landed in the right place.

The current tax system can be advantageous for landlords because it allows them to deduct expenses from their income, reducing their overall tax bill.

Yet, taxes can be a maze. Landlords, regardless of their experience level, often face a common challenge: They may either overclaim, potentially landing themselves and their business in hot water, or play it safe by not claiming enough deductions, ultimately reducing their potential income.

Recognizing this challenge, we’ve compiled seven top tips to help clear up some of that confusion. It’s about knowing what is deductible, what is not, where to tread carefully, and where the real gains are. Whether you’re new to rental property investment or a seasoned pro, these tips will guide you through some of the ins and outs of landlord tax deductions.

Let’s get into the nitty-gritty of understanding what you can currently claim and the areas you should pay the most attention to for the best financial gains.

Table Of Contents: 7 Landlord Tax Deduction Tips

Here are our seven top tips and answers to frequently asked questions on how to claim tax deductions for your rental properties and maximize your income.

1. Reduce Taxable Income With Timely Repairs

Reduce Taxable Income With Timely RepairsAny repairs you make to your property to ensure it’s in good, safe condition and habitable for tenants are tax deductible.

So, if you’re on the cusp between two tax brackets and want to bring down your income to reduce your overall tax liability, you can make any needed repairs before the end of the tax year and then deduct those expenses.

Remember that you need documentation for any work that’s done, and if you can, tie the repairs directly to tenant reports or requests. This record-keeping helps you demonstrate that these were repairs rather than improvements.

Also, if you have multiple rental properties, you’ll need to be able to allocate each expense to a specific property.

To be clear, you can make deductions for repairs but not improvements, except under certain circumstances, such as restoring a rental property or adapting it for a different use.

2. Leverage Legal Expertise

When dealing with issues like unpaid rent, improper care of a property, or eviction, the cost of hiring an attorney can make it tempting for landlords to take on these legal challenges on their own. But did you know that legal services rendered by an attorney are tax deductible?

If you’re slow to take legal action or make mistakes in handling a case, you could find yourself with unwanted tenants or vacant property that isn’t earning you any income. This can cost much more than the fee for an experienced real estate lawyer.

So, rather than avoiding the cost, consider hiring a good attorney and keep those invoices to add to your deductions on your next tax return.

3. Make Use Of Other Professional Services

Just like legal services, many other professional services are tax-deductible. This includes plumbers, pest control agents, surveyors, and more. Even your accountant’s services can be tax deductible.

Especially if you have multiple properties and complex taxes, hiring an accountant to help you minimize your tax bill can be beneficial. They will know to include their services in your deductions, as well.

If you choose to handle any maintenance or repairs yourself, such as landscaping or painting, you may be able to assess a reasonable cost for your services. It’s important to note that you cannot deduct that cost directly from your income.

However, any materials or supplies you need to purchase for these services are deductible. Be aware that if you pass these costs on to your tenant, the money they pay for the service becomes part of your rental income.

As always, it’s best to consult with a tax professional to ensure you’re following applicable tax laws and regulations correctly.

4. Consider Your Mortgage Interest

Consider Your Mortgage InterestJust as you may be able to deduct the mortgage interest you pay on your primary residence from your taxable income, the same rule can apply to a second home that you purchase as a rental. In this situation, one of the following conditions must be met:

  • You spend at least 14 days a year or 10% of total occupied days in the second home, or
  • You secured the loan for the second home using your primary home as collateral.

However, this mortgage interest deduction only applies to debt up to $1 million for properties purchased before December 1, 2017, and $750,000 for properties purchased after that date.

Remember that any expenses you incur when obtaining a mortgage, including the cost of any financial advice, are also tax deductible.

5. Charge Your Travel Expenses

When you need to travel to your rental property to meet with potential tenants, perform inspections, complete repairs, or do anything else related to your rental business, the costs you incur for that travel are also tax deductible.

However, rather than calculating exactly how much you spend to drive to your property, you can use the IRS’s standard mileage cost for business, which at the time of this writing is $0.67 per mile.

If you need to travel outside the area where you live and work and are considered a tax resident, the cost of staying overnight where your rental property is located is also tax deductible. So is a reasonable amount for meals, as long as you have receipts to support those expenses. This can be a gray area, so it’s worth consulting a tax professional to get it right.

6. Invest In Good Insurance

While paying insurance premiums may sometimes feel like an unnecessary expense, you’ll be thankful for the safety net if the unexpected happens and you’re facing significant costs.

Landlord’s insurance typically provides coverage for property damage and liability for incidents that occur on the property, such as injuries. You can also consider additional insurance that covers costs associated with unforeseen vacancies.

Just like many other business expenses, insurance premiums are tax deductible, too. This includes not only landlord’s insurance but also mortgage insurance premiums.

7. Include Utilities For Your Properties

Including utilities such as water and electricity in the rent can help attract prospective tenants, giving you a competitive edge when you need to fill a vacancy.

As these types of expenses are part of managing your rental property, they are also tax deductible. But only if you’re charging your tenants a flat rental rate that includes utilities and not if you pass on the specific cost of utilities.

So, deciding how much to charge for utilities is a bit of a gamble. Ideally, for the convenience of including utilities, you want to charge your tenants a little more than the actual costs they incur but not so much more that you raise the rent to a point where the property is no longer competitive in the local market.

This often works well for multiple units where it’s easier for you to set up utilities for the entire property. It’s less desirable for single-family homes, which might be rented by a family of five running the utilities for most of the day.

Rental Income Tax Deductions FAQs

Below are answers to some of the most frequently asked questions by landlords about tax deductions for rental property.

What are the most common tax deductions available for landlords?

In general, landlords can deduct any expenses related to doing business, which means managing their rental properties. This includes costs associated with marketing, screening potential tenants, and getting them into the property. It also includes repairs and maintenance.

You can deduct the cost of professional services that you use, such as lawyers and accountants, and the premiums you pay to insure your property.

You can also deduct depreciation on your property and, in some cases, the interest you pay on your mortgage.

How can landlords maximize their tax deductions?

Maximizing tax deductions is all about keeping meticulous records of what you spend to manage your rental business. This includes everything from mileage to visit your property to your accountant’s bill.

What matters most is that you have records and evidence to justify everything you claim. If your income varies from year to year due to issues such as vacant properties, for example, choosing which tax year to undertake certain activities can help reduce your overall tax bill.

Can landlords deduct property maintenance and repair costs?

Routine maintenance and repair costs are tax deductible for landlords as they are considered part of the cost of doing business.

However, improvements to your property are usually not tax deductible unless they are done to restore it or to repurpose it for a different use.

How does rental income affect a landlord’s tax bracket?

In most cases, rental income is treated as passive income and is therefore taxed the same way that stocks and dividends are: at the marginal rate. This means it’s added to your other income, such as your salary and any dividends you earn, and your total income determines your tax bracket. This is why deductions are so important, as they can move you into a lower tax bracket.

Read our complete guide to how rental income is taxed here.

What are the implications of not claiming tax deductions as a landlord?

Deductions offset your rental income and help lower your tax liability. If you don’t claim a valid deduction, you’re essentially paying higher taxes than you need to.

It is not cheating the system to take valid and reasonable deductions. Rules for deductions exist to help offset the cost of doing business.

Get Your Paperwork In Order

The key to making good use of tax deductions is to have all of your documentation and records in order. Anything spent as part of doing the business of managing your rental property can be deducted from your income as long as you can prove that you spent the amount you deducted on what you claimed.

The best approach is to keep all receipts and invoices and record all expenses as you go. Don’t rely on your memory to try and recall what you spent on repairs and pest control almost a year ago. While going through your bank records can help, ensuring you assign accurate expenses to the right property can be challenging. Save yourself headaches by recording them as you go.

For more tips on managing your rental business, from tenant screening to rental income taxes, sign up to receive more free landlord resources from RentPrep.

Note: RentPrep does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, or accounting advisors.