What expenses can I deduct on a rental property?

Ordinary and necessary rental expenses are deductible — mortgage interest, property taxes, insurance, property management, repairs and maintenance, utilities you pay, HOA dues, advertising, legal and professional fees, and travel related to the property. These offset your rental income on Schedule E.

How does rental property depreciation work?

You depreciate the building (not the land) over 27.5 years for residential rental property using the straight-line method. Each year you deduct roughly 1/27.5 of the building's cost basis as a non-cash expense, which can shelter a large part of your rental income from tax even when the property is cash-flow positive.

What is the difference between a repair and an improvement?

A repair keeps the property in working order — fixing a leak, repainting — and is generally deductible in the year you pay it. An improvement betters the property, restores it, or adapts it to a new use — a new roof or a renovation — and must be capitalized and depreciated over time rather than deducted all at once.

What is depreciation recapture?

When you sell, the IRS 'recaptures' the depreciation you claimed (or could have claimed) by taxing it, generally at a maximum federal rate of 25%. So depreciation defers tax rather than erasing it — a real benefit because of the time value of money, but one to plan for at sale.

Can I deduct a rental loss against my other income?

Rentals are generally passive activities, so losses are usually limited to passive income. However, if you actively participate, a special allowance lets you deduct up to $25,000 of rental losses against other income, phasing out between $100,000 and $150,000 of modified AGI. Real estate professionals have different rules.

Rental property tax deductions & depreciation

Here's the quiet magic of rental real estate: a property can put cash in your pocket every month and still show a loss on your tax return. The reason is deductions — especially depreciation, a paper expense that costs you nothing out of pocket. Here's how it works, and the catch waiting at the finish line.

Last reviewed: June 2026

The everyday deductions

Rental income is taxable, but you only pay on the profit after deductible expenses, reported on Schedule E. The common ones:

Mortgage interest (the interest portion of your payment)
Property taxes and insurance
Property management fees
Repairs and maintenance
Utilities you pay, plus HOA dues
Advertising, legal and professional fees, and travel to the property

These are the same costs that make or break your cash flow — see is a rental property worth it? for how they hit the bottom line.

Repairs vs improvements — a costly mix-up

The IRS treats these very differently:

Repairs keep the property running (fix a leak, repaint a room) and are generally deducted in full this year.
Improvements better, restore, or adapt the property (new roof, kitchen remodel) and must be capitalized and depreciated over years.

Calling an improvement a "repair" to grab the deduction now is a common audit trigger. When in doubt, ask whether the work merely maintained the property or genuinely upgraded it.

Depreciation — the deduction that costs nothing

Depreciation lets you deduct the cost of the building itself over time, on the theory that it wears out. For residential rental property you depreciate the building over 27.5 years, straight-line — roughly 1/27.5 of the building's cost basis each year. Crucially, you depreciate the building, not the land (land doesn't wear out), so you split your purchase price between the two.

Example

Buy a $300,000 rental where the building (excluding land) is worth $240,000. Annual depreciation ≈ $240,000 ÷ 27.5 = ~$8,700 a year — a deduction you take without spending a dime, often enough to wipe out the tax on your cash flow.

This is why a profitable rental can show a tax loss: real cash comes in, but depreciation plus the cash expenses can exceed it on paper.

The catch: recapture and passive-loss limits

Depreciation recapture. When you sell, the IRS taxes back the depreciation you took (or could have taken), generally at up to a 25% federal rate. So depreciation defers tax rather than erasing it — still valuable, but plan for it at sale.
Passive activity loss rules. Rental losses are generally limited to passive income. If you actively participate, a special allowance lets you deduct up to $25,000 of loss against other income, phasing out between $100,000 and $150,000 of modified AGI.

The tax side and the cash side are different stories — which is exactly why it's worth modeling after-tax cash flow, not just the pre-tax number.

Model your after-tax rental cash flow

Our free Rental Property Cash Flow Calculator includes an after-tax view — so you can see how deductions and depreciation change what a property really nets, alongside cap rate, cash-on-cash, DSCR, and multi-year IRR. Nothing leaves your browser.

Run the numbers →

Frequently asked questions

What can I deduct on a rental?: Mortgage interest, property taxes, insurance, management, repairs, utilities you pay, HOA, advertising, legal/professional fees, and property-related travel — on Schedule E.
How does depreciation work?: You depreciate the building (not land) over 27.5 years straight-line for residential rentals — about 1/27.5 of the building's basis each year, a non-cash deduction.
Repair vs improvement?: Repairs (maintaining the property) are deducted now; improvements (bettering or restoring it) are capitalized and depreciated.
What is depreciation recapture?: At sale, the IRS taxes back the depreciation you claimed, generally up to 25% federal — so depreciation defers rather than erases tax.
Can I deduct a rental loss against other income?: Usually limited to passive income, but active participants can deduct up to $25,000 against other income, phasing out from $100,000 to $150,000 MAGI.