Tax Time and Rental Real Estate

It’s that time of year again.

Everyone is pulling together all of the information needed to (hopefully) maximize their tax return. Adding an investment in rental real estate can help with that maximization when Uncle Sam comes knocking. In addition to the cash flow and historic trends of property value appreciation, there are many other tax benefits and deductions that often come with rental ownership. Here is a high-level overview of some of the most common topics.


For those new to this term, depreciation is defined as the reduction in the value of an asset with the passage of time, which is a way to recuperate some of your initial costs from a property purchase when you file your return. According to the most recent IRS Publication 946 (PDF), properties can be depreciated over a set amount of time, determined by property type – nonresidential (39 years) or residential rental (27.5 years). For example, you would first separate the cost of the land from the building(s), as you cannot depreciate the cost of land. Using the straight-line depreciation method, divide the building value by 27.5 to arrive at your yearly depreciation deduction.

Principal Reduction

Principal reduction is the process of paying off a loan over time. While not exactly a tax benefit, your tenants assist in paying down the balance of the mortgage by paying rent each month. With rental income going to pay the principal balance each month, this effectively raises your equity in the property. This can be visualized in an amortization schedule.

Interest Deductions

On your Schedule E, the largest deduction for a rental property owner is often the mortgage interest for the rental property. Other interest expenses can also be deducted, and speaking with your CPA can ensure that you understand the details of what can be deducted to ensure you are maximizing any/all tax benefits.

Other Deductions

Other items you can deduct as a landlord include:

  • Insurance payments
  • Utilities
  • Repairs
    • Not to be confused with improvements. Improvements must be depreciated at the same rate as your property type.
  • Local travel
  • Taxes
  • And more


Owning and maintaining a rental property can be a very rewarding endeavor. Also, if done correctly, it can be a great way to not only make some extra money, but also provide some year-end tax benefits. As always, please reach out to the team at Patriot Realty if you have interest in discussing investment real estate opportunities.

* The Patriot Realty and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.