As an investor, you probably know there are a number of tax benefits of owning rental property. But what are these rental property tax benefits? We’ve rounded up the top ten benefits every investor needs to know.
10 Rental Property Tax Benefits & Deductions
Real estate investors can write off large chunks of their monthly tax bill. This is one reason why the average landlord’s income is 2.3% higher than the median U.S. household income.
However, many landlords fail to take advantage of the tax benefits of owning rental property and thus lose a significant amount of their yearly income to taxes.
#1 Deductible Operating Expenses
Operating expenses are the recurring costs of running a business. They include the costs associated with operating and general maintenance of a rental property.
You can deduct expenses related to managing and maintaining a rental property. According to the Internal Revenue Service, these expenses are considered ordinary and necessary for conserving and maintaining the property. These expenses are broker fees, utilities, advertising, maintenance, property management, lawn care, service, and taxes.
#2 Depreciation Deduction
Depreciation is the reduction in the value of property due to wear and tear over time. According to the IRS, Depreciation is an annual income tax deduction that allows you to recover the cost basis of a property over time.
This depreciation expense is not deducted at once but over a period of time. This period amounts to 39 years for commercial real estate and 27.5 years for residential rental properties.
Since land doesn’t depreciate, the depreciation expense only includes the cost of the house and improvements in the home that can be affected by wear and tear. This includes roofing, fencing, home additions, HVAC systems, and other similar items. For example, if you purchase a property for $500,000 and the lot is valued at $80,000, the property’s cost basis, adjusted for depreciation, is $420,000. Assuming you added a garage at an expense of $30,000 and installed a brand-new roof for $15,000. Your property’s cost basis would be adjusted for those improvements, bringing the total to $465,000. That would yield an annual depreciation expense of about $16,900 (over 27.5 years).
IRS rules for rental property state that the cost of a replacement roof depreciates over the same period as the property, while appliances depreciate over 5 years. Depreciation begins for a property as soon as it is either placed in service or ready for rent.
#3 Mortgage Interest Deduction
This is likely one of the most significant tax benefits of owning rental property—the mortgage interest deduction. According to the Tax Cuts and Jobs Act (TCJA) of 2017, homeowners can now claim a tax deduction for mortgage interest on home loans up to $750,000 (previously $1 million).
The interest on home equity loans is deductible as long as the borrowed funds are used to buy or improve your home. Landlords can also deduct credit card interest on goods or services used in running their business, as this qualifies as “business credit.” For this reason, investors should have a separate business credit card.
When a property owner refinances a property for more than it is currently worth, they can deduct the interest. This is if the revised terms are intended for the improvement or maintenance of the property.
#4 Deductible Travel Fees
Travel expenses are another deduction to which real estate investors are entitled. You can deduct most travel expenses, including vehicle, airfare, lodging, and meals. However, they must meet the guidelines laid out in IRS Publication 463:
- According to the IRS, travel expenses are costs incurred while away from your tax home. Your tax home is defined as the regular office where you work most of the time.
- The trip must be for business reasons. It may have a secondary personal purpose, but it should mainly be for business.
- Meals that aren’t considered lavish are deductible travel expenses.
- To qualify for the deduction, a business expense must be deemed ordinary and necessary (O & NE)
For meals, you can deduct a standard meal allowance instead of the actual cost of the daily meals. This allowance tends to vary from state to state. You can check the IRS website for the standard rates.
You may also be able to deduct vehicle expenses for operating and maintaining your car while traveling to the property. For instance, driving to the rental property to collect rent or repair an appliance is considered a deductible travel expense.
There are two ways you can deduct travel expenses. You can deduct the actual expenses if you recorded them or the standard mileage rate, parking fees, and tolls. For 2026, the standard business mileage rate is 76 cents per mile.
You are allowed to use the standard mileage rate if you drive less than five cars for your business operations. You apply it in the first year of using a car for your real estate business.
#5 20% Pass-Through Income Deduction
Investors who own pass-through businesses and have positive taxable income are eligible for up to a 20% pass-through deduction (qualified business deduction) on their tax returns.
Pass-through, in this sense, means that the profits and losses incurred in the operation of the business are distributed to the individual owners of the businesses, who then pay taxes at individual tax rates. Pass-through businesses include sole proprietorships, partnerships, LLCs, and S Corporations.
For instance, an investor who owns several condos in a business he runs alone. If he turns in $100,000 every year, he will be able to write off 20% of that income, i.e., $20,000, on his tax return as a pass-through deduction.
Under the Tax Cuts and Jobs Act (TCJA), which took effect in 2018, owners of pass-through businesses who qualify can deduct up to 20% of their total business income from their income taxes. Investors must own a pass-through business and have qualified business income (QBI) to qualify for the deduction.
QBI represents the net profit earned by a pass-through business. However, QBI excludes capital gains, dividends, and interest.
#6 No FICA Taxes
Federal Insurance Contributions Act (FICA) taxes, also called payroll taxes, are United States payroll taxes deducted from both employees’ and employers’ pay to fund the Social Security and Medicare programs. Self-employed taxpayers are usually required to pay both the employer and the employee portion of the FICA tax, which is about 15.3%. For 2026, Social Security taxes are paid on up to $184,500 of your total earned income, while Medicare taxes are paid on all of your combined earnings.
However, rental income is not subject to FICA tax since it is not legally classified as earned income. For example, if Jane runs a freelance business and earns $120,000 annually, she would be required to pay a payroll tax of 15.3% (calculated on 92.35% of her net earnings, resulting in roughly $16,955). However, if that income was received from a rental business, she would not be liable for a payroll tax.
#7 Deductible Legal Fees
In the event of evictions or legal disputes, you can also deduct legal fees such as payments to real estate attorneys and court fees. These fees are considered operating expenses and can be deducted as long as they are related to your real estate business.
These can be classified as facilitative costs (that is, amounts paid to facilitate the acquisition of real property or a business) or investigatory costs (paid in the course of performing due diligence on the property). These costs can also include appraisal fees, title fees, and the cost of obtaining regulatory approval as long as they are directly related to your real estate business operations.
#8 Home Office Deduction
If you run your business from home, you might qualify for a deduction due to what the IRS calls “business use of your home.” Also, according to the IRS, the term “home” may be a house, boat, apartment, condo, or similar property as long as it provides basic living accommodations.
There are three requirements you need to meet before you can be considered for a home office deduction:
- Regular Use. You must have a designated area in your home to conduct business.
- Trade or Business Use. Your activities in this area should be related to an established trade or business.
- Principal Place of Business. Your home must be your primary workplace to conduct activities related to your business.
If you’re eligible for this deduction, you should be able to deduct most of your home expenses, including rent, repairs, utilities, telephone charges, mortgage interest, and real estate taxes. You can choose to use either the Simplified Method or actual expenses. You are allowed this deduction, regardless of whether you own the workplace or you rented it.
#9 Defer Capital Gains Tax
One of the most significant tax benefits of owning rental property is the ability to defer capital gains tax and depreciation recapture on the sale of a rental property through a Section 1031 exchange.
Ordinarily, on the sale of a property, the amount of profit you made on your property due to depreciation is taxed as depreciation recapture. Depreciation recapture is taxed at a maximum rate of 25%.
Also, you are required to pay a long-term capital gains tax (usually 15-20%) on your profit from the sale. If you hold the property for less than a year, you are instead charged at the ordinary income tax rate (up to 37%).
For this reason, investors often opt for a 1031 exchange to defer taxes for a later time. A 1031 exchange involves swapping an investment property for another to defer capital gains taxes. The process of a 1031 exchange can be complicated, and you should hire a professional to walk you through it. You can learn more about 1031 exchanges here.
There are rules for this process; one is that the properties must be of “like-kind”, i.e., of a similar nature and intended for the same purpose.
There is no limit on how often you can conduct 1031 exchanges. So, it is possible to defer capital gains and depreciation taxes indefinitely.
However, taxes will have to be paid at some point, except in the case of inheritance, where a stepped-up tax basis is used.
#10 Medical Home Improvement Deductions
A lesser-known tax benefit of owning rental property is the ability to deduct home improvements made for health reasons. Home improvements made to provide medical care for residents of the home are considered medical expenses and are deductible. These improvements may include modifications to fire alarms and warning systems, entrance and exit ramps, installation of railings in bathrooms, and stairway modifications.
To qualify for this deduction, you must prove that a resident requires those improvements. You’ll have to itemize and ensure that you deduct only medical expenses that are more than 7.5% of your adjusted gross income (for 2022). Also, you’re required to subtract the increase in the value of your home from your deduction.
As an example, let’s say you install porch lifts in your home to provide accessibility and spend $5000 in total. If it increases your home’s value by $2000, you can only deduct $3000.
Claiming this deduction can be a bit tricky, so it might be helpful to work with someone who is licensed and experienced.
Note that homeowner’s insurance and private mortgage insurance are not tax-deductible at the moment.
How Much Can You Write Off On a Rental Property?
Homeowners have always been allowed to deduct the property taxes they pay on their homes each year. Under current tax law (updated by the One Big Beautiful Bill Act), the maximum amount individuals can write off on itemized deductions for state and local income, sales, and personal property taxes (the SALT cap) is $40,400 for 2026 ($20,200 for married couples filing separately). However, if you own rental property, the property taxes you pay on those investments are treated as business expenses on Schedule E and are fully deductible without being subject to this SALT cap.
Real estate investors may want to use the standard deduction instead of itemizing personal deductions. For 2026, the standard deduction is $16,100 for single taxpayers (and married filing separately), $24,150 for heads of households, and $32,200 for married couples filing jointly. If you choose the standard deduction, you can not use itemized deductions for the rest of that year, but you can still fully deduct your rental property expenses. You should compare both deductions to see which lowers your tax bill the most. The rental property tax deduction calculator includes a section on standard vs. itemized deductions, so you can determine which is more beneficial to you.
How RealWealth Can Help
Landlords who fail to take advantage of these tax benefits end up paying more than they need to and earning less than they should. To get the information and assistance you need, it helps to work with a registered tax consultant.
One of the benefits of being a RealWealth investor is getting access to an exclusive list of industry pros, including CPAs, lawyers, lenders, and more. In addition, you’ll be able to connect with property teams in top-performing markets and find investment opportunities. Let us help you set yourself up for real estate investing success. Join RealWealth today; it is 100% free!
