Rental Property Tax Deductions Frequently Asked Questions

By Jason Watson, CPA
Posted Sunday, May 25, 2025

Here are some FAQs you might find helpful as a chapter summary.

What makes an expense deductible for rental property purposes?
It must be ordinary (everyone does it), necessary (my rental would die otherwise), reasonable, and directly related to the rental activity.

What’s the difference between a tax deduction and a tax deferral?
A deduction lowers taxable income immediately. A deferral (like depreciation) saves tax now but may result in future tax through recapture.

Is depreciation really a deduction if I don’t spend money?
Yes. It’s a non-cash deduction, allowing you to recover the cost of your investment over time. Since mortgage principle payments are not deductible, depreciation, in part, is designed to help offset the tax burden of using after-tax cash to pay down debt.

Are passive losses lost forever?
No. Unused passive losses carry forward and can offset future rental income or be released upon sale.

What advertising costs are deductible?
Listing fees, staging, signage, platform subscriptions (Airbnb, VRBO), and marketing consultants.

Can I deduct property management fees?
Yes—monthly fees, tenant placement costs, and startup charges are all deductible.

Are software tools deductible?
Yes. Tools like REIHub, Stessa, and QuickBooks are ordinary and necessary.

Can I deduct a home office for managing my rentals?
Yes, if you use a dedicated space regularly and exclusively for rental activities. The “regularly” part can be problematic.

Are commissions deductible?
Yes. Leasing fees and real estate agent commissions associated with finding guests or tenants are transactional deductions. Commissions associated with purchasing a rental property is considered an acquisition cost.

Can I deduct furnishings and supplies?
Yes, if used for the rental. Items under $2,500 may qualify for de minimis expensing.

What about occupancy taxes and permits?
Yes. Licensing, permit fees, and local lodging taxes are all deductible.

Are utilities deductible if tenants reimburse me?
Yes. Report utility income as gross rent and deduct utility costs separately.

How should I allocate general expenses across multiple properties?
Use a consistent method: gross rent, square footage, or equal allocation depending on context.

Can I deduct expenses for a property not yet rented?
Yes, once it’s placed in service, expenses like marketing and repairs, and other operating expenses, are tax deductible. We’ll say it again- get that rental placed in service as we’ve defined elsewhere.

Should my rental property own a car?
Usually no. Use mileage deduction or actual expenses tied to your personal vehicle for cleaner records. However, at some point you might justify (ordinary and necessary) purchasing a work truck or separate vehicle dedicated to your gaggle of rental properties.

Can I write off meals while traveling for my rental?
Sometimes. Only when the travel is related to the rental property and you required substantial rest during the travel (overnight).

Can I deduct travel to buy a rental property?
Generally not—it’s capitalized as an acquisition cost and depreciated.

What is a deductible operating travel expense?
Travel between rental properties, your home office, or suppliers/vendors (like Lowe’s or Home Depot).

What method should I use to deduct vehicle use—mileage or actual expenses?
You can use either the standard mileage rate or actual vehicle expenses, but not both. Most landlords use the standard rate for simplicity.

How do I track mileage for rental-related travel?
Use a contemporaneous log with date, destination, purpose, and miles driven. Apps like MileIQ or REPSLog help automate this.

Is traveling from my home to the rental property deductible?
Yes, if you qualify for a home office deduction. Under IRS rules, travel from your personal residence to a rental property within your tax home is generally considered commuting, which is not deductible. However, if you have a qualified home office that serves as your principal place of business for managing your rental properties, then travel from your home to rental sites is considered travel between work locations is deductible.

What is my tax home?
Your tax home is your primary place of business and for most rental property owners, it will be your primary residence regardless of having a home office. It usually encompasses the general metropolitan area as well such that travel within this space is commuting (unless you have a home office as defined by the IRS).

Can I deduct travel expenses if my rental property is outside my tax home?
Yes, with or without a home office, travel outside your tax home for the rental property or business purposes is deductible.

What if I don’t have a home office—can I deduct local travel to my rental property?
It depends on the distance and purpose of the trip. If you don’t have a qualified home office, then travel from your home to a rental property within your local metro area is generally considered commuting, and not deductible. However, travel outside your tax home (often defined as more than 50 miles or beyond your normal geographic area) can be deductible as business travel, even without a home office.

Can you give me a summary of the FAQ above because my head hurts?
Sure, local trips without a home office = commuting (non-deductible). Long-distance trips (outside your tax home) = business travel (deductible). Keep in mind: you must still have a legitimate business purpose for the travel (e.g., repairs, inspections, meetings), and proper documentation (mileage log, receipts) is essential to support the deduction. Darn recordkeeping!

Is lost rent deductible?
No. Cash-basis taxpayers only report received rent—uncollected rent isn’t deductible. Your deduction if you will is the lower than normal rental income. Doesn’t make you feel any better, we get it.

Can I deduct security deposits I keep?
That would be nice. You recognize the kept security deposit as rental income and deduct the associated repairs as expenses.

Can I expense a water heater replacement in my rental property?
Yes—if the total cost is under $2,500 per unit or invoice, you may use the de minimis safe harbor to expense it. If not, you may qualify under the small taxpayer safe harbor or potentially the routine maintenance safe harbor, depending on your expectations for future replacements.

Is a water heater considered personal property or a building improvement?
Generally, a water heater is part of the plumbing system, which is a building system, not personal property. It typically must be capitalized and depreciated unless a safe harbor applies. See above.

Can I deduct a new roof under Section 179?
Yes, but only if your property qualifies as non-residential real property (e.g., short-term rentals with average guest stays under 30 days or commercial building), and your involvement is regular, continuous with a profit motive. Otherwise, the roof is typically capitalized and depreciated over 27.5 or 39.0 years coincidental with the primary building.

What’s the best tax treatment for replacing an HVAC system?
It likely exceeds the $2,500 de minimis limit. However, it might qualify for small taxpayer safe harbor. Alternatively, it might qualify as qualified improvement property (QIP) under Section 179 if the rental is non-residential and operated as a business.

Is a mini-split air conditioner considered an appliance or HVAC system?
It depends on the installation. Arguably, a stand-alone mini-split could be considered personal property or an “appliance” and thus eligible for Section 179. But the IRS might view it as part of the building system if fastened to the structure requiring capitalization if new (converting an attic, for example). If replacing a mini-split, perhaps small taxpayer safe harbor could be used).

Can I expense a window AC unit or portable appliance?
Yes. These are considered personal property, usually under $2,500, and can typically be expensed immediately under the de minimis safe harbor.

Is a hot tub considered personal property or real property?
Depends. It is 15-year property, but whether it is personal property and eligible for Section 179 depends on the installation. Above ground on a slab, personal property. Cut into a deck or in the ground, real property. Either situation is bonus depreciation eligible; the difference is Section 179 eligibility.