What Rental Expenses Can You Deduct as a Landlord?

You can deduct the ordinary and necessary costs of owning and running a rental, including mortgage interest, property taxes, insurance, repairs, management fees, utilities you pay, and travel to manage the property, from your rental income on Schedule E (Form 1040). The cost of the building and of improvements is not deducted in the year you pay it; you recover it through depreciation, over 27.5 years for a residential building. If your expenses exceed your rent, the passive activity rules or your own personal use of the property can limit how much of the loss you can use this year.

How is rental income taxed?

Rental income is taxed as ordinary income. You report each property's rent and expenses in Part I of Schedule E, and the net profit or loss carries to your Form 1040. Rental real estate income generally is not subject to self-employment tax. If you provide substantial services for the tenant's convenience, such as regular cleaning or linen changes, the IRS treats the rental as a business reported on Schedule C, and self-employment tax can apply.

Most individual landlords use the cash method: you report rent in the year you receive it and deduct expenses in the year you pay them. Under IRS Publication 527, rental income includes more than monthly rent:

What are the three types of rental expenses?

The IRS sorts what you spend into three groups, and the group decides when the deduction happens. To count at all, a cost must be ordinary (common and accepted for rental owners) and necessary (helpful and appropriate for the rental), as Publication 334 defines those terms.

Operating expenses are the recurring costs of keeping the property rented and in working order. They include travel to collect rent or manage the property. For 2026, the IRS standard mileage rate is 72.5 cents a mile for driving from January 1 through June 30 and 76 cents a mile from July 1 through December 31, plus parking and tolls. Meals on overnight trips are 50% deductible. Business gifts are capped at $25 per person per year. See the full list of rental operating expense deductions for each item's rules.

Start-up expenses are costs you pay before the rental business begins. Under 26 U.S.C. section 195, you can deduct up to $5,000 in the year the business starts. That $5,000 shrinks dollar for dollar once total start-up costs pass $50,000, and whatever you cannot deduct right away is amortized in equal amounts over 180 months. Once a property is available for rent, ongoing costs to manage, conserve, or maintain it are operating expenses instead. See examples of start-up expenses below $5,000.

Capital expenses buy or improve something that lasts beyond the year. An improvement is a cost that betters the property (fixes a pre-existing defect, enlarges it, or adds capacity or quality), restores it (replaces a major component such as a whole roof), or adapts it to a new use. A repair, such as fixing a broken lock or painting a room, keeps it in working condition and is an operating expense. See how capital expenses are treated for the line between the two.

Depreciation is how you deduct capital costs. Residential rental buildings and their structural improvements are depreciated over 27.5 years starting when the property is ready and available for rent. Appliances, carpeting, and furniture used in the rental are depreciated over 5 years, and fences over 15 years. For those shorter-lived items acquired and placed in service after January 19, 2025, 100% bonus depreciation lets you deduct the full cost in the first year unless you elect out; it does not apply to the building or its structural improvements. Land is never depreciated, so you must split the purchase price between land and building. See how to depreciate a rental property.

Example: one rental house for a full year

You collect $24,000 in rent. You pay $9,000 in mortgage interest, $3,000 in property taxes, $1,500 in insurance, $1,200 in repairs, and $2,400 in management fees, for $17,100 of operating expenses. The building portion of your cost basis is $220,000, so a full year of depreciation is about $8,000 ($220,000 ÷ 27.5). Total deductions are $25,100, which gives a $1,100 rental loss on Schedule E. Whether you can use that loss this year depends on the rules in the next section.

What can't you deduct?

• Loan principal. Only interest is deductible. Principal repays the loan, and the property's cost is recovered through depreciation.
• Improvements in the year paid. They are depreciated, unless a safe harbor covered below applies.
• Land and local benefit assessments. Charges for new streets, sidewalks, or sewer lines are added to the land's basis and are not deductible or depreciable. Assessments for maintaining or repairing those items are deductible.
• Lost rent. You cannot deduct rent you did not collect if you use the cash method, or the rent a vacant unit could have earned. Expenses for a vacant unit held out for rent remain deductible.
• Your own labor. Only amounts you actually pay count. Your time spent on repairs or improvements is not an expense.
• Personal costs. Commuting from home to the rental is not deductible unless your home is your principal place of business for the rental. The personal share of any mixed-use cost, such as a car or a property you also live in, is not deductible.
• Entertainment. Tickets, club dues, and similar entertainment costs are not deductible, even when you discuss rental matters.
• Federal income tax and penalties.

What rules can limit your deductions?

Passive activity loss limits

Rental real estate is a passive activity for most owners, so a rental loss can generally offset only other passive income. The main exception is a special allowance of up to $25,000 a year of rental losses against wages and other income if you actively participate. Active participation means you own at least 10% of the property and make management decisions, such as approving tenants, setting rent, or approving repairs, even if a property manager handles daily work.

The allowance is reduced by 50% of your modified adjusted gross income (MAGI) above $100,000 and disappears at $150,000. If you are married filing separately and lived with your spouse at any time during the year, you get no special allowance. If you lived apart all year, you may qualify for up to $12,500, reduced by 50% of MAGI above $50,000 and eliminated at $75,000. Losses you cannot use are not lost: they carry forward on Form 8582 and can be used against future passive income or in full when you sell the property in a taxable sale. Material participation means meeting an IRS test for your work in an activity, such as working more than 500 hours in it during the year. Owners who qualify as real estate professionals (more than 750 hours a year and more than half of their working time in real estate businesses in which they materially participate) are not limited by these rules for rentals they materially participate in. See what to do when rental expenses exceed income.

Personal use of the property

If you or your family use the property, you must divide expenses between rental and personal use, usually by days. The limits get tighter once personal use passes the greater of 14 days or 10% of the days rented at a fair price. At that point the property counts as your home, rental expenses can be deducted only up to rental income, and the excess carries forward to the next year. If you rent your home for fewer than 15 days in the year, you do not report the rent and cannot deduct rental expenses. If you rent part of your home, such as a basement unit, you deduct the share of shared costs that applies to the rented area, often figured by square footage.

How do you make sure you claim every deduction?

1. Use a separate bank account and card for each rental activity. It makes expenses easy to total by Schedule E line. It also supports your interest deduction, because the IRS allocates interest by tracing how loan money was spent, and the Schedule E instructions note that keeping loan proceeds separate is the easiest way to trace them.
2. Keep receipts and a mileage log as you go. Car and travel deductions require records that meet Publication 463 rules: the date, the miles or cost, where you went, and the rental purpose. See what records to keep for rental expenses.
3. Elect the de minimis safe harbor each year if you qualify. You must record the costs as expenses in your books under a consistent accounting procedure or policy in place at the start of the tax year. The policy need not be written if you lack an applicable financial statement, such as a CPA-audited statement. If you meet those conditions, attach a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to your timely filed original return to deduct items costing up to $2,500 per invoice or item instead of depreciating them. If your building's unadjusted basis (generally its cost plus capital improvements, excluding land, before subtracting depreciation) is under $1 million and your average gross receipts are $10 million or less, a separate annual election, the small taxpayer safe harbor, lets you deduct all of the year's repair, maintenance, and improvement costs for that building, as long as their total is no more than the lesser of $10,000 or 2% of its unadjusted basis.
4. Claim depreciation every year. When you sell, the IRS reduces your basis by the depreciation you were allowed to take, even if you never claimed it. Skipping it costs you the deduction and does not lower the tax on the sale.
5. Look for the less obvious items. These include the part of your tax-prep fee for Schedule E, condo or HOA dues for common-area upkeep, points on a rental loan (deducted over the loan's life), and any remaining points when you refinance with a different lender or pay the loan off.
6. Report tenant-paid bills on both sides. When a tenant pays a repair bill and deducts it from rent, record the full rent as income and the repair as an expense, so your Schedule E matches your lease and your receipts.