6 Key Tax Benefits of Owning Property for Landlords

It’s common wisdom that purchasing real estate provides some of the most dependable returns on investment out there. While owning and operating a rental property comes with associated costs — a mortgage, maintenance costs, etc. — rentals can generate significant passive income.

And unlike other investments, property appreciation is often more reliable than volatile investments in the stock market or crypto.

The returns associated with appreciation aren’t the only advantages, however. The tax benefits of rental property can be much more substantial than you might expect, leading to considerable savings during tax time. But first, landlords need to know the ins and outs of those benefits.

Here at TurboTenant, we’ve put together a guide that will give you a better understanding of the tax advantages of rental property and how you can use them to maximize your profits as a landlord. Read on to learn more.

1. Deductible Operating Expenses

The IRS allows landlords to deduct expenses like advertising, tenant screening, repairs, utilities paid by the landlord, and professional services such as accounting and legal fees. Even property management software fees are deductible.

To maximize your deduction and be prepared for tax season, maintain detailed records and receipts of all costs associated with managing your rental property. You can also utilize accounting software or professional services to help keep track of expenses.

2. Mortgage Interest Deduction

The mortgage you took for your rental property can also qualify as a deductible business expense on your taxes. More specifically, you can deduct interest payments on the loan.

Of course, this only applies to loans used for rental purposes. Landlords can also deduct the interest on any loans used to make capital improvements. That means that if you took out a loan to pay for a new roof or HVAC system, the interest on that loan counts as a deductible expense.

Don’t get too excited — there are still a few things you’ll have to keep in mind. Your principal payments are not deductible. Only the interest is.

3. Depreciation Benefits

As much as real estate appreciates over time, some wear and tear is inevitable on any property. To help offset these losses, the IRS allows rental property owners to claim depreciation as a non-cash deduction. In a residential rental unit, landlords can utilize depreciation deductions calculated by dividing the property’s adjusted cost basis by 27.5 years.

Here’s how it works: Land does not depreciate; only the structure and any capital improvements made to the property qualify. That means only the dwelling unit(s) and any appliances, major renovations, and structural additions can be considered for the depreciation deduction.

After you place your property in service, any future capital improvements will be tracked and depreciated separately from the property. Different types of assets are depreciated on different timelines. For example, appliances depreciate over 5 years instead of 27.5 years due to their lower expected useful life.

The longer you own a property, the more capital improvements you’re likely to have. The total depreciation amounts for each improvement, along with the property, collectively sum to the total amount of depreciation you can deduct each year.

With these rules in mind, landlords must maintain accurate and detailed records of capital improvements and appliances. Expense tracking and accounting software can help you maximize your deductions when tax season rolls around.

4. Home Office Deduction & Passive Income Tax Treatment

Like other self-employed individuals, landlords are permitted to deduct the costs of using a home office space (though there is a significant difference in how landlords are taxed compared to other self-employed people). If you’re a property owner and have a space that you use exclusively and regularly to conduct rental property business activities, you can deduct the costs of that home office space from your taxes.

For example, you could deduct a portion of your rent or mortgage interest (though not principal payments). You could also deduct any utilities and maintenance costs associated with your home office. Or, you could go with the IRS’ simplified method, which calculates the home office deduction based on square footage.

As of 2025, that deduction is $5 per square foot in a space up to 300 square feet. Though that might sound relatively small, every penny counts toward maximizing your tax benefits.

Beyond all the deductions mentioned, you’ll also benefit from making passive income during tax season. While most self-employed folks must pay self-employment taxes quarterly, rental income is typically considered passive income and not subject to self-employment taxes.

Further, this distinction can lower your overall tax liability as opposed to actively earned income since you don’t have to pay FICA tax — aka Medicare and Social Security tax — on passive income.

5. Capital Gains Tax Advantages & 1031 Exchange

Capital gains taxes often present a hassle for property owners, but even these can be used to your advantage as a landlord. Property owned for over a year is taxed at long-term capital gains tax rates. These rates are typically lower than regular income tax rates, saving landlords a pretty penny.

On top of that, there’s the possibility of a Section 1031 exchange. You can defer your need to pay capital gains taxes by reinvesting the proceeds from selling one rental property into a different investment property.

That said, you can’t just save yourself tax dollars by purchasing the first property to come along. You’ll have to adhere to a complex series of requirements and timelines. The three main rules to remember are: First, the new property must be of equal or greater value than the property you are selling. Second, you must identify the new property within 45 days of selling the first property. Finally, you must complete the new property purchase within 180 days.

A 1031 exchange will also help you avoid a process known as depreciation recapture, which occurs when you sell your rental property for a profit after taking depreciation deductions.

Recapture requires landlords to report taxable profits from the property sale to the IRS to recapture some of the money you previously deducted for depreciation.

The IRS caps depreciation recapture rates at 25% for residential properties.

6. Special Tax Considerations: Advance Rent, Security Deposits, & Cash Basis Taxpayers

Landlords can use a few other tax benefits to their advantage during tax time. First is advance rent. Advance rent must be reported as income when the rent is collected, including security deposits received as a final rent payment in advance. This can alter your income reporting from year to year, though it could lead to lower taxable income in some instances.

Then, there’s the fact that landlords are considered cash-basis taxpayers. Landlords only need to report income and expenses when each occurs, allowing for greater flexibility in managing deductions and taxable income during tax season.

The Final Word

Rental properties can earn you money in more ways than via passive income and property appreciation. The six key tax benefits of rental property on taxes — deductions for property expenses, deductions for mortgage interest, deductions for depreciation, capital gains tax advantages, home office deductions, and special tax considerations — will also help you maximize your profits as the owner and operator of a rental property.

Though this guide will help you start filing those taxes, you may still want to consult with tax professionals to make the most of your tax return while ensuring compliance with all IRS regulations. We didn’t have room to cover other factors, such as state laws and the tax benefits of LLCs for rental property, so make sure to do your research.

Additional Resources

The IRS has published a number of resources and guidelines to help landlords understand rental property taxation. You can read more about rental property tax benefits below:

• Rental income and expenses – Real estate tax tips
• Publication 527 (2024), Residential Rental Property
• Tips on rental real estate income, deductions and recordkeeping

Besides these resources, detailed accounting tools and software will save you valuable time during tax season. Utilizing property management software in your day-to-day rental operations will help you avoid confusion and maintain accurate records, which can increase your rental property’s tax benefits.

Tax Benefits of Rental Property FAQs