Residential landlord taxes and deductions

Rental losses are passive by default, which means they sit unused against your salary no matter how real they are. There are exactly two ways out and most landlords qualify for neither without planning for it.

The first exit is the $25,000 allowance: actively participate, own at least 10% and make the real decisions on tenants and rents. And you can take up to $25,000 of losses against other income. It shrinks by 50 cents for every dollar of income over $100,000 and is gone at $150,000. The second is real estate professional status, which needs more than half your working time and over 750 hours in property, and even then you must materially participate in each property unless you file an election to treat them all as one activity. Depreciation runs over 27.5 years for residential property, and it is not optional, sell without having claimed it and the recapture is calculated as though you had.

The rest of the residential landlord deduction list

Ordinary and necessary business expenses, deductible in full in the year you pay them, provided they are genuinely for the business:

Mortgage interest
Property tax
Repairs and maintenance
Property insurance
Depreciation
Property management fees
Utilities
Legal and professional fees

Worth knowing

Rental losses are passive by default and cannot offset wages, with two exits: a $25,000 allowance that phases out, and real estate professional status.

That is what is specific to this trade. The larger deductions are the universal ones, see the full checklist.

What each deduction is worth to you

On $100,000 of profit with no state income tax, $1,000 deducted saves $305, 30.5%, because it comes off self-employment tax and income tax together:

Net profit	Saved per $1,000 deducted	Effective
$40,000	$231	23.1%
$100,000	$305	30.5%
$200,000	$297	29.7%

The last row is worth less than the one above it, and that is not a mistake: past the Social Security wage base the self-employment part of the saving drops from 15.3% to 2.9%, and the higher income-tax bracket does not quite make up the difference. A deduction is worth most in the middle.

Add a state income tax and every row rises. The 1099 calculator applies that layer.

Where this comes from

The rules on this page that are specific rather than general are cited below. Follow a link to read the provision itself rather than taking our word for it:

Passive losses: the $25,000 allowance, active participation, and the $100,000 to $150,000 phase-outIRC 469(i)(1)-(3)
Real estate professional status: over half your personal services and more than 750 hours, with material participation still tested per propertyIRC 469(c)(7); Reg. 1.469-9(e), (g)
Residential rental property depreciates over 27.5 yearsIRC 168(c)

What these words mean

Depreciation: Spreading the cost of something long-lasting, a vehicle, a camera, a tractor, across the years you use it, rather than deducting it all at once.
Depreciation recapture: When you sell something you had been depreciating, the tax office takes back part of the benefit by taxing the gain up to the amount you already deducted.

General information about how these deductions work, not tax advice. Whether a particular expense is deductible for you depends on facts this page does not have, check with a tax professional before claiming anything listed here.