What You Can Write Off When Starting to Rent Your Home

One of the genuine financial advantages of owning rental property is the tax treatment: expenses you incur to run the property reduce the rental income you report. Done correctly, many landlords generate a "paper loss" even when the property produces positive cash flow — because depreciation, repairs, and other deductible costs often exceed net income on paper.

But capturing these deductions requires understanding what qualifies, when you can claim it, and how the timing rules work. This post walks through the tax write-offs most relevant to first-time landlords, including some that commonly get missed.

The baseline: all ordinary and necessary expenses are deductible

IRC Section 162 allows landlords to deduct all "ordinary and necessary" expenses related to managing, conserving, or maintaining rental property. For long-term residential rentals, these are reported on Schedule E of your federal tax return.

The big categories:

Mortgage interest: Fully deductible as a rental expense on Schedule E. Unlike personal residence mortgage interest, which is subject to the $750,000 loan limit on Schedule A, rental property mortgage interest has no limit and is not subject to the SALT cap.

Property taxes: Fully deductible on Schedule E. Not subject to the $40,400 SALT cap. A $15,000 annual property tax bill on a New Jersey rental is $15,000 of deductible expense — the SALT cap is irrelevant.

Landlord insurance: The DP-3 policy premium is fully deductible in the year paid.

Repairs and maintenance: Fully deductible in the year paid — as long as the work qualifies as a repair rather than a capital improvement.

Property management fees: The monthly management fee and any leasing/placement fees are deductible.

Professional services: Attorney fees for lease review or eviction, CPA fees for preparing Schedule E, and property management consultant fees all qualify.

Advertising: Listing fees, signs, and marketing costs to find tenants.

Travel: Mileage to drive to the property for inspections, maintenance, or meetings with tenants. The 2026 IRS standard mileage rate for business use applies.

Supplies: Anything purchased specifically for the rental — cleaning supplies, lock replacement, light bulbs.

The repair vs. improvement distinction: the biggest tax trap

This is where most new landlords go wrong. The tax treatment of money spent on the property depends entirely on whether it's a repair or an improvement:

• Repairs (immediately deductible): Fix what's broken without making it materially better. Patching a leaking roof, replacing a broken window pane, fixing a plumbing leak, painting over water stains, replacing a failed appliance with one of similar quality.

• Improvements (must be capitalized and depreciated): Make the property better, adapt it to a new use, or restore it. Replacing the entire roof, installing a new HVAC system, remodeling a kitchen, adding a room, replacing all windows.

A subtle example: replacing a broken window pane is a repair ($200, immediately deductible). Replacing all windows in the house with energy-efficient double-pane units is an improvement (must be depreciated over 27.5 years, or over a shorter life if cost segregated and qualifying for bonus depreciation).

The de minimis safe harbor helps: items costing $2,500 or less per item can be immediately expensed even if they technically qualify as improvements, as long as you have a policy in place and elect the safe harbor on your return. This means a $1,800 dishwasher replacement can be expensed immediately rather than capitalized.

Depreciation: the deduction you must take

Depreciation on the building (27.5-year straight-line) is your largest recurring deduction and is required to be taken. The IRS will tax depreciation recapture upon sale whether you took the deduction or not — so skipping it costs you now without saving you later.

For a home with a $240,000 building value (total $300,000 minus $60,000 land): annual depreciation = $8,727. That's a $8,727 reduction in taxable income every year.

Depreciation starts from the "placed-in-service" date — when the property is ready and available for rent, not when a tenant actually moves in. If you complete your last fix-up on November 1 and the property is available for rent (even if no tenant starts until December), depreciation starts November 1.

What you cannot deduct on Schedule E

• Land: Land doesn't depreciate. Only the building's value.
• Personal use portion: If you use the property yourself for any days, expenses must be allocated between personal and rental use. Purely personal expenses are not deductible.
• Capital improvements (immediately): These must be capitalized, though components may qualify for bonus depreciation.
• Losses above your passive activity limit: If your rental generates losses beyond the $25,000 allowance (for AGI under $100,000), the excess carries forward to future years when you have passive income or sell the property.

Pre-rental startup costs: the tricky timing issue

Expenses incurred before the property is "placed in service" (ready for rental) are treated differently:

Improvements made before renting are added to the property's depreciable basis — you can't immediately deduct them, but they increase the depreciation base.

Operating expenses before placement (like insurance paid before a tenant, or cleaning costs) may qualify under Section 195 (startup costs) for up to $5,000 immediate deduction with the remainder amortized over 180 months. However, the IRS's treatment of pre-rental expenses for passive rental activities is an area of some ambiguity — a CPA consultation is worth having for your first year.

The practical answer: Once the property is placed in service, all ordinary and necessary expenses qualify. Focus on getting the property ready quickly and document the placed-in-service date clearly.

Building your deduction tracking system

Before your first tenant moves in, set up:

1. A dedicated bank account for rental income and expenses — this makes Schedule E preparation straightforward and creates an automatic audit trail.
2. A folder (physical or digital) for every expense receipt — categorized by type (maintenance, insurance, utilities, etc.)
3. A mileage log for every property visit — date, purpose, starting point, and ending point
4. A maintenance log with dates, descriptions, contractor names, and amounts for every repair

These take a few minutes per transaction and save hours at tax time. The first year is the hardest — after that, it's just a habit.

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Not sure you're ready to navigate all of this? Start with our free Rental Readiness Quiz — 5 questions that flag your most important preparation steps before you list your property.