What expenses can I deduct on rental properties?
Rental property owners can deduct most expenses related to owning, operating, and maintaining their investment properties. These deductions reduce your taxable rental income on Schedule E, which directly lowers your overall tax bill.
Mortgage interest is typically the largest deduction. You deduct the interest portion of your mortgage payments, not the principal. Property taxes are fully deductible as well. Both amounts show up on the 1098 form from your lender at year end.
Repairs and maintenance are deductible in the year you pay for them. This includes fixing a leaky faucet, repainting walls between tenants, patching the roof, and replacing broken appliances. The critical distinction is between repairs and improvements. Repairs keep the property in its current condition and are immediately deductible. Improvements that add value or extend the property’s life must be depreciated over time. A new roof is an improvement. Fixing a few shingles is a repair. Get this wrong and you either overstate deductions or leave money on the table.
Depreciation lets you deduct the cost of the building itself over 27.5 years for residential rental property. This is a paper deduction that reduces your taxes without any cash outlay in the current year. Many landlords forget about depreciation or skip it entirely. That’s a mistake because the IRS assumes you took it whether you did or not when you eventually sell.
Insurance premiums for landlord policies, liability coverage, and flood insurance are deductible. So are HOA fees, property management fees, and professional services like legal and accounting fees related to the rental. Real estate investors with multiple properties often find that professional bookkeeping pays for itself through better expense tracking alone.
Utilities you pay on behalf of tenants or during vacant periods are deductible. Advertising costs to find tenants, credit check fees, and landlord-related software subscriptions all count as operating expenses.
Travel expenses to your rental properties are deductible. Track mileage when you drive to collect rent, inspect the property, meet with contractors, or handle tenant issues. If you fly to manage an out-of-town property, airfare and lodging are deductible as long as the trip is primarily for property management.
The biggest mistake landlords make is not tracking expenses throughout the year. Small purchases add up fast. Locks, cleaning supplies, yard maintenance, keys made, mileage driven. By tax time, you’ve forgotten half of them because nothing was recorded.
Keep a dedicated account or credit card for rental expenses when possible. Save receipts or photograph them immediately. If you own multiple properties, track expenses by property since Schedule E requires separate reporting for each one.
Working with small business bookkeepers in New Mexico who understand rental property accounting means your deductions are captured correctly and documented the way the IRS expects. The cost of professional help is itself deductible and usually pays for itself in deductions you would have missed.
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