The Most Important Tax Deductions
1. Depreciation (The Big One)
Residential rental properties are depreciated over 27.5 years. If you buy a $150,000 property (excluding land value of ~$30,000), you can deduct approximately $4,364 per year ($120,000 ÷ 27.5) — even though you didn't spend that money. This is a "paper loss" that reduces your taxable income.
2. Mortgage Interest
100% of mortgage interest on investment properties is deductible. In the early years of a mortgage, interest makes up the majority of your payment.
3. Repairs and Maintenance
All ordinary and necessary repairs are deductible in the year incurred: plumbing fixes, painting, appliance repairs, HVAC servicing, pest control, etc.
4. Insurance Premiums
Landlord insurance, including liability coverage and any umbrella policies, is fully deductible.
5. Property Taxes
All property taxes paid on your investment properties are deductible against rental income.
6. Other Deductions
- Travel: Mileage to/from properties, PHA meetings, and property inspections
- Professional services: CPA, attorney, and property management fees
- Advertising: Listing fees, marketing costs
- Supplies: Cleaning supplies, tools, and materials
- Education: Courses, books, and seminars related to real estate investing
Frequently Asked Questions
Is Section 8 rental income taxed differently?
No. The IRS treats Section 8 rental income identically to market-rate rental income. Government payments are reported as ordinary rental income on Schedule E.
Should I form an LLC?
An LLC provides liability protection and may offer tax flexibility. Consult with a real estate attorney and CPA to determine the best entity structure for your situation.