Top 10 Rental Property Deductions for Landlords (2026)

Real estate is the only investment where you can make profit but show a “loss” to the IRS. How? By using legal deductions. Here is the cheat sheet to ensure you keep your rental income, instead of giving it to the government.

BMT Tax Research Team BMT Tax Research Team · 📅 Jan 2026 · ⏱️ 5 min read · TAX TIPS › INVESTING
#1 Item
Depreciation
Phantom ExpenseBig
Interest
100%
DeductibleSave
QBI
20%
Bonus DeductionCheck

1. Depreciation: The King of Deductions

This is why rich people love real estate. The IRS assumes your building is “wearing out” and lets you deduct a portion of its value every year.

Rental Income Expenses Taxable Profit
$20,000 / yr -$8,000 (Tax/Ins) $12,000 (Cash)
Minus Depreciation -$10,000 (Paper)
IRS Sees: $2,000 Only
The 27.5 Year Rule
Residential buildings are depreciated over 27.5 years.
Formula: (Building Value ÷ 27.5) = Annual Deduction.
Note: Land cannot be depreciated. Only the structure.
Deductible vs Non-Deductible
Mortgage Interest YES
Fully deductible.
Mortgage Principal NO
Paying debt is not an expense.
Your Own Labor NO
You can’t bill yourself.

The Other 9 Deductions

2. Mortgage Interest

Usually your biggest expense. The bank sends you Form 1098. Copy that number.

3. Property Taxes

Fully deductible against rental income (Not subject to the $10k SALT cap!).

4. Repairs (The “Safe Harbor” Rule)

Fixing a leak? Painting a wall? Deduct 100% this year.
Pro Tip: Anything under $2,500 per invoice can usually be expensed immediately under the “De Minimis Safe Harbor” election.

5. Insurance

Landlord policies, flood insurance, liability coverage.

6. Professional Fees

Lawyer for evictions, CPA for taxes, Property Management fees (8-10%).

7. Travel (Careful)

Driving to inspect the property? You can deduct mileage (Standard Rate). But don’t try to deduct a “vacation” just because you checked your email there.

8. Utilities

If you pay for water, trash, or gas, deduct it. (If the tenant pays, you deduct nothing).

9. Home Office

If you manage the properties from a dedicated room in your house, you can take the Home Office Deduction.

10. QBI (Qualified Business Income)

The cherry on top. If your rental activity qualifies as a “business” (safe harbor rules apply), you can deduct 20% of your net rental income tax-free.

Pro Tip: Repair vs. Improvement

This is where audits happen. Know the difference.

The “BAR” Test

Does the work:
1. Better the property? (New addition)
2. Adapt it to new use? (Converting attic to bedroom)
3. Restore it? (Replacing entire roof)
If YES, it is an IMPROVEMENT. You must depreciate it over 27.5 years.
If NO (just patching holes), it is a REPAIR. Deduct it all now.

Frequently Asked Questions

Can I deduct the cost of buying the house?
No. Closing costs and the purchase price are added to your “Cost Basis” and depreciated over 27.5 years. You don’t get a huge deduction in Year 1.
What if I have a loss?
If expenses > income, you have a “Passive Loss.” If you make under $100k/year, you can deduct up to $25k of this loss against your job income. If you make >$150k, the loss is “suspended” until you sell the property.