Owning a rental property can be a great side hustle — but it also comes with tax rules that can get complicated quickly.

The good news? The IRS allows rental property owners to deduct many ordinary and necessary expenses connected to managing, maintaining, and operating rental property. The key is knowing what is deductible now, what must be depreciated over time, and what records you need to keep.

Most residential rental income and expenses are reported on Schedule E, unless you provide substantial services primarily for the tenant’s convenience, which may move the activity closer to Schedule C treatment.

The Big Picture

Rental property deductions generally reduce the amount of rental income subject to tax. IRS examples of deductible rental expenses include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation.

But here is the key point:

A rental property deduction is not just about whether you spent money. It is about why you spent it, when the property was available for rent, and whether the cost is a repair, maintenance expense, improvement, or personal expense.

Rental Property Deduction Checklist

 1. Mortgage Interest

Mortgage interest paid on rental property is generally deductible as a rental expense. Be careful with refinances: if you refinance for more than the old loan balance, the interest tied to proceeds not used for the rental property generally may not be deductible as a rental expense.

2. Real Estate Taxes

Real estate taxes related to the rental property are generally deductible against rental income.

3. Insurance

Rental property insurance is generally deductible. This may include landlord insurance, fire insurance, liability coverage, and other insurance directly connected to the rental activity.

4. Repairs and Maintenance

Repairs and maintenance are often deductible when they keep the property in ordinary operating condition and do not have to be capitalized. The IRS states that repair or maintenance costs may generally be deducted if they are not required to be capitalized.

Examples may include:

• Fixing a leak
• Repairing a broken appliance
• Patching drywall
• Painting an existing room
• Replacing a small part
• Routine cleaning and maintenance
• Lawn care or snow removal for the rental property

5. Improvements

This is where many landlords get tripped up.

Repairs may be deductible now, but improvements usually must be capitalized and depreciated. The IRS says you must capitalize expenses that improve the rental property, including costs that result in a betterment, restoration, or adaptation to a new or different use.

Examples of improvements may include:

• New roof
• Room addition (painting the room is also capitalized)
• Major kitchen remodel
• New HVAC system
• Structural upgrades
• Major flooring replacement
• Renovations that materially increase value or extend useful life

6. Depreciation

Depreciation allows rental property owners to recover the cost of income-producing property over time. The IRS states that depreciation begins when the property is ready and available for rent, not necessarily when the first tenant moves in.

Residential rental buildings are generally depreciated over 27.5 years under the General Depreciation System.

Important reminder: land is not depreciable because land generally does not wear out, become obsolete, or get used up.

7. Utilities

Utilities paid by the landlord may be deductible. This may include:

• Water
• Sewer
• Electric
• Gas
• Trash collection
• WIFI

8. Property Management Fees

Fees paid to property managers are generally deductible rental expenses. This may include monthly management fees, tenant placement fees, and leasing commissions.

9. Advertising and Tenant Placement Costs

Advertising is one of the common rental expenses listed by the IRS.

This may include:

• Online listing fees
• Rental platform fees
• Signs
• Photography for rental listings
• Tenant screening fees, if paid by the landlord

10. Legal and Professional Fees

Legal, accounting, bookkeeping, tax preparation, and other professional fees may be deductible when directly connected to the rental activity. The IRS includes legal and other professional fees among common rental expense categories.

11. Auto, Mileage, and Travel

Auto and travel expenses may be deductible when the primary purpose of the trip is to collect rent or manage, conserve, or to repair or improve the rental property. However, overnight travel costs primarily for improvements is recoverable through depreciation (capitalized costs).

12. Cleaning and Maintenance

Cleaning and maintenance are common rental expenses listed by the IRS.

This may include:

• Cleaning between tenants
• Pest control
• Lawn maintenance
• Snow removal
• Gutter cleaning
• Routine servicing of HVAC or appliances

13. Supplies

Supplies used for rental property operations may be deductible. This may include keys, locks, smoke detector batteries, cleaning products, small tools, light bulbs, and other property-related supplies.

The IRS tangible property rules also include a de minimis safe harbor election, which may allow qualifying taxpayers to deduct certain lower-cost tangible property items, generally up to $2,500 per invoice or item for taxpayers without an applicable financial statement (AFS). With an AFS, the deduction is increased to $5,000 per invoice or item . The election must be made annually with a timely filed tax return. 

14. HOA and Condo Fees

HOA or condo association fees may be deductible when they relate to the rental property.

15. Bank Fees and Software

Bank fees, bookkeeping software, rental management software, payment processing fees, and similar costs may be deductible if they are directly connected to the rental activity.

Watch Out for Personal Use

If you use the property personally, you may need to divide expenses between rental use and personal use. The IRS states that if a dwelling unit is used for both rental and personal purposes, expenses generally must be allocated between the two.

The "14-day rule": For personal and vacation homes, the IRS allows you to rent out your home for 14 days or fewer per year without having to report the rental income on your tax return. The rules become more complex for dedicated rental properties. If you are considering applying this rule to a property you primarily rent out, or if you are thinking about using it to rent your home to your own business, it's best to speak with a tax professional to ensure it's done correctly.

Vacant Rental Property

A vacant rental property may still generate deductible expenses if it is held for rental purposes. The IRS states that ordinary and necessary expenses, including depreciation, may be deductible while rental property is vacant, but you cannot deduct lost rental income for the vacant period.

Rental Losses May Be Limited

Rental losses are often subject to at-risk rules and passive activity loss rules. In general, rental real estate is treated as passive, and losses may be limited unless exceptions apply.

One important exception: if you actively participate in rental real estate, you may be able to deduct up to $25,000 of rental real estate losses against nonpassive income, subject to income limits.

Simple Example

Assume you own a small rental property and receive:

• Rental income: $24,000
• Mortgage interest: $8,000
• Property taxes: $4,000
• Insurance: $1,200
• Repairs and maintenance: $2,500
• Utilities: $1,800
• Property management fees: $1,920
• Depreciation: $6,000

Your total rental expenses are $25,420.

That creates a rental loss of $1,420 before applying passive activity and at-risk rules.

This does not automatically mean the full loss is deductible against wages or business income. The passive loss rules must be reviewed.

Best Recordkeeping Practices

For rental property owners, documentation is everything.

Keep:

• Closing statements
• Mortgage statements and Forms 1098
• Property tax bills
• Insurance statements
• Repair invoices
• Improvement invoices
• Mileage logs
• Lease agreements
• Security deposit records
• Utility bills
• Property manager reports
• Bank statements
• Before-and-after photos for major work
• Rental listing history
• Depreciation schedule

Final Thought

A rental property can be an excellent side hustle, but the tax rules are more detailed than many owners realize.

The goal is simple:

Report all rental income, capture legitimate deductions, separate repairs from improvements, track personal use, and keep excellent records.

Done correctly, your rental property books should tell the story clearly — what came in, what went out, what was deductible now, and what must be depreciated over time.

That is how you stay IRS-ready and make smarter decisions as a rental property owner.