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Running a rental business comes with its own set of challenges, but one benefit is that nearly all rental activities related to purchasing, maintaining, and operating rental properties are handled by Tax deductible. We’ll walk you through the checklist so you don’t forget to keep track of your actual expenses and get the most tax benefits.
In the end, the logic is that you only need to pay tax on your rental income after all expenses have been deducted.that is the number that will be entered Schedule E when filing taxes.
General tax relief for real estate investors
For many real estate investors, Housing loan We will play an important role in making that dream a reality. When seeking tax deductions, mortgage interest emerges as a valuable tax benefit. If the security is a mortgage, the interest on the mortgage is deductible and is distinct from where a personal loan is involved. This secured debt allows your home to act as collateral for repayment.
To qualify for the tax deduction, your property must be your primary or secondary residence, or it may be a rental property with a mortgage. However, there are exceptions, such as if a married person files jointly, her interest deduction is capped at $750,000, and if she files separately, she is limited to $375,000. To claim a deduction, it’s important to meet certain conditions, including submitting the proper documentation, itemizing your deductions, and verifying that the mortgage is a secured debt tied to your home. Please consult your mortgage company. usually, IRS Form 1098 Details of interest paid in a particular year.
Fixed asset tax
Property taxes, which are often a significant expense, can be offset by deductions on your personal income tax return. The Tax Cuts and Jobs Act of 2017 limits state and local tax deductions to $10,000 for her ($5,000 for married couples filing separately). This deduction also applies to various real estate-related expenses, such as city-imposed hospitality and lodging taxes. short term rental Properties like those listed on platforms like Airbnb and VRBO.
To determine which property taxes are eligible for deduction, identify eligible real estate properties, such as a home or vacation home, and any unpaid taxes, taxes on rental or commercial property, capital transfer taxes, expenses related to home improvements, utilities, etc. Includes distinguishing between non-deductible payments. The choice between the standard deduction and itemized deductions depends on your individual circumstances. We recommend choosing the option that offers the greatest tax benefit.
asset depreciation
Business expenses are usually deductible in the year they are incurred, but for long-term assets, depreciation expense The schedule will be kept. An overview of the categories and service life is as follows: IRS Publication 946 and 527.
Depreciation is applied to items such as appliances, furniture, vehicles, and buildings. Landlords may find the depreciation rules inconvenient, but understanding these rules can help avoid surprises when claiming deductions.
Insurance fee
Insurance premiums such as mortgage insurance are often overlooked as deductions. Landlords can deduct the entire amount of insurance premiums on rental properties, whether privately owned or LLC-owned. This deduction applies to umbrella insurance policies, flood insurance, and even pro-rata homeowners insurance on a principal residence with tenants.
repair
Unlike long-term assets, which are subject to depreciation, repairs are fully tax deductible. The distinction lies in whether the expense constitutes an improvement to the property. Regular repairs such as painting, basic landscaping, and equipment replacement do not raise depreciation concerns. However, large-scale renovations aimed at increasing asset value are classified as “improvements.”
cleaning and maintenance
Operating expenses related to employee and contractor wages, as well as materials needed for cleaning and maintenance, are fully deductible for landlords.
public works
Utility costs are deductible if not reimbursed by the tenant. Landlords may be responsible for some utility costs, but they are deductible only for the costs actually incurred, excluding amounts reimbursed by the tenant.
real estate manager
Fees paid to a property manager, whether a full-time professional or a part-time assistant, are tax deductible. Outsourcing your property management tasks offers both convenience and financial benefits.
legal and professional fees
Fees paid to tax professionals, legal services related to contract reviews, and members of professional organizations are deductible if used for legitimate business purposes.
advertisement
Fees associated with advertising, such as posting on platforms like Craigslist or Zillow, are deductible.
Commissions and referrals
You can deduct expenses related to your business, such as referral fees for finding tenants and fees paid to current tenants.
travel and transportation
Landlords can deduct travel expenses using either the standard mileage rate or actual expenses. To maximize your deductions, it’s important to accurately record the distance traveled and related costs. Deductible expenses may include meals, taxis, airfare, hotels, etc.
Administrative expenses
For those claiming home office deductions, maintaining proper documentation and justifying business use is essential. Renting outside office space simplifies this deduction process.
Rental income and expense reporting
Landlords can use Form 1040 or 1040-SR Schedule E, Part 1 reports rental income and expenses. If you have three or more rental properties, you must include a separate Schedule E for each property.
final thoughts
Rental property owners can benefit from a variety of tax credits, but it’s important to be mindful of documentation and timing. You should always review your tax strategy and documentation with your accountant to ensure you are complying with tax laws.
Accurate record-keeping, including receipts, invoices, and checks, is essential to substantiate rental income and expense claims. Filing on time ensures consistency with the current legal framework, and choosing between the standard deduction and itemized deductions depends on your individual circumstances. Understanding and taking advantage of these tax benefits allows property owners to maximize their economic benefits within applicable regulations.
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