Tax Day Countdown:11 Tax Deductions To Take If You Have Rental Income
Written by
John Csiszar
Edited by
Levi Leidy
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Like with almost any dollar you earn in the United States, if you earn rental income, you must report this on your taxes. This is true whether you have an extensive rental business with apartment buildings and multiple units or if you simply rent out a spare room in your house.
However, to help offset that income, the IRS allows you to take certain deductions to hopefully lower your tax bill to a more manageable amount. While you have to keep careful records and document any write-offs you claim for the taxes you’ll owe, these deductions can greatly reduce your taxable income when it comes time to file.
That day is quickly approaching, so it’s good to know that Tax Day is Apr. 15, 2025, which is just round the corner. Here’s a look at the most common tax deductions you can take if you have rental income.
What Is Rental Income?
It’s important to know what’s considered “rental income” if you’re planning to take tax deductions against them on your income tax returns. This is because your loss may be limited if your losses exceed your rental income, per IRS rules. However, as the idea behind renting out a property is to generate income, you generally won’t have to worry about losses exceeding income.
This may not always be the case if you’re running a professional rental business, in which factors like tax deductions and depreciation are always maximized in a way to pay the least taxes possible. Regardless, you’ll have to know what’s considered “rental income” to correctly file your taxes.
According to the IRS, the following payments are considered taxable income:
- Rent payments
- Advance rent payments
- Security deposits used as an advance payment of rent
- Security deposits kept if tenant does not live up to the terms the lease
- Payments for cancellation of a lease
- Property or services received as rent
- Lease with option to buy payments
- Expenses paid by tenant and deducted from regular rental payment
Common Tax Deductions If You Have Rental Income
To qualify as a valid tax deduction, the expenses you incur relative to a rental property must be “ordinary and necessary.” Ordinary expenses, according to the IRS, are “common and generally accepted in the business,” while necessary expenses are “those that are deemed appropriate.”
Here’s a list of common deductions to claim when you pay taxes if you have rental income:
- Mortgage interest
- Property tax
- Operating expenses
- Depreciation
- Repairs, including materials and supplies
- Interest
- Taxes
- Advertising
- Maintenance and repairs
- Utilities
- Insurance
While maintenance and repairs are considered deductible expenses, improvements are not when you file your return. However, you may be able to claim back your improvement expenses over time through the depreciation deduction.
Personal expenses are never allowable as rental property deductions for federal or state income taxes, even if they’re related to the property itself. Moreover, you also cannot deduct more than your share of a property’s expenses if you’re not the sole owner.
Running a Rental Business
If you actively manage your rental property and use it primarily to seek profits, you may also qualify as a business under IRS rules. In this case, you may be able to deduct an additional 20% of your rental income using the qualified business income deduction that was created by the Tax Cuts and Jobs Act of 2017.
The bar to qualify as a rental income business is fairly low, so it might be worth looking into how you can legally snag this additional — and sizable — tax deduction.
How To Report Rental Income and Expenses
In nearly all cases, you’ll report your rental income and expenses on Schedule E of Form 1040 (or simple Form 1040 returns only). This is true even if your rental income comes from a “trade or business activity” per IRS definitions.
The main exception is if you also provide extensive services to your renters, such as maid service. In that case, you’ll report your income on Schedule C instead of Schedule E.
For your first three rental properties, enter the income you receive on line 3 of Schedule E, with each property listed under a separate section (A, B and/or C, as necessary). Use Form 4562 to calculate how much depreciation you should enter on line 18.
If you have more than three properties, you’ll have to complete additional Schedules E. Once you enter all your properties, the amount in the “totals” column should be the combined totals of all Schedules E.
Caitlyn Moorhead contributed to the reporting for this article.
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