If you earn income from renting out a home, apartment, condo, or other residential property, you may be able to deduct many of the costs associated with owning and managing that property.
Common deductible rental expenses include:
- Mortgage interest
- Property taxes
- Insurance premiums
- Utilities paid by the landlord
- Advertising and marketing costs
- Property management fees
- Operating expenses
- Repairs and maintenance
- Depreciation of the property and certain assets
These deductions can help reduce your taxable rental income and may lower the amount of tax you owe.
What Are Ordinary and Necessary Rental Expenses?
The IRS allows landlords to deduct expenses that are both ordinary and necessary for managing, maintaining, and protecting a rental property.
- An ordinary expense is common and accepted in the rental property business.
- A necessary expense is helpful and appropriate for operating your rental activity.
Examples of ordinary and necessary expenses include:
- Property taxes
- Mortgage interest
- Insurance
- Utilities
- Maintenance costs
- Advertising expenses
- Professional fees related to the rental
If an expense is directly connected to operating your rental property, it may qualify as a deduction.
Can You Deduct Property Upkeep Expenses?
Yes. Costs related to the routine upkeep of your rental property are generally deductible in the year you pay them.
Examples include:
- Repairs
- Maintenance
- Cleaning services
- Landscaping
- Supplies and materials used to maintain the property
These expenses help keep the property in good operating condition and are typically deductible as rental expenses.
Can You Deduct Expenses Paid by Your Tenant?
In some cases, yes.
If a tenant pays an expense on your behalf and that expense would otherwise be deductible, you generally must include the amount in your rental income. You can then deduct the same amount as a rental expense.
For example, if a tenant pays for a repair you were responsible for under the lease, the payment may need to be reported as rental income, and the corresponding repair cost may be claimed as a rental deduction.
Can You Deduct the Cost of Property Improvements?
Generally, no. Improvements are not immediately deductible as rental expenses.
A property improvement is an expense that:
- Makes the property better than it was before (a betterment)
- Restores the property or a major component of it
- Adapts the property to a new or different use
Examples of improvements may include:
- Adding a new room
- Installing a new roof
- Remodeling a kitchen
- Replacing an entire HVAC system
Because improvements add value to the property or extend its useful life, the IRS requires you to recover those costs over time through depreciation rather than deducting the entire amount in one year.
How Do You Claim Depreciation for Improvements?
You can use Form 4562, Depreciation and Amortization, to report depreciation for your rental property and any qualifying improvements or furnishings.
Depreciation generally begins when:
- The rental property is first placed in service, or
- An improvement or depreciable asset is placed in service for the rental activity
Because depreciation is spread over multiple years, you typically deduct only a portion of the cost each year rather than the full amount in the year of purchase.
Additional Information
For more details about rental income, deductions, depreciation, and recordkeeping requirements, see the IRS guidance on rental real estate income and expenses here and the IRS resources covering tangible property regulations and improvements here.