Kyle Crown is the President of Crown Commercial PM. He holds a B.S. in business from the University of Pennsylvania’s Wharton School.
Being a real estate investor can sometimes feel like juggling flaming torches while balancing on a tightrope. Managing tenants, maintenance and financing is enough to make anyone’s head spin.
What’s one bright spot in the chaos? Taxes. Yes, taxes can actually be your friend—stick with me on this—when you know how to leverage the key deductions for which you qualify.
My father was a real estate investor, so I grew up at the dinner table hearing about these deductions. These deductions are something I now apply to my own properties as well. However, as the president of a property management firm, I’m also consistently informing clients of these options as something they should look into with the guidance of a tax professional.
Here are five tax deductions every savvy real estate investor should know about to help maximize their returns while keeping Uncle Sam happy.
1. Mortgage Interest Deduction
Ah, the mortgage—that charming financial burden we all know and love. Fortunately, the IRS throws landlords a bone by allowing you to deduct mortgage interest paid to banks. For many property owners, this is the largest single deduction available.
This deduction may apply to both first mortgages and refinanced loans. However, according to Publication 527 by the IRS, “When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally can’t be deducted as a rental expense.”
2. Depreciation Deduction
Here’s the fun part: The IRS recognizes that buildings (not land) lose value over time due to wear and tear. This is called “depreciation.” Even if your property is appreciating in real life, you may be able to claim depreciation deductions to reduce your taxable income. Under the general depreciation system, residential rental properties are depreciated over 27.5 years; commercial properties are depreciated over 39 years.
Depreciation is a non-cash deduction, meaning you don’t need to pay out of pocket to claim it. This can be a powerful tool for boosting cash flow.
3. Repairs And Maintenance
Need to patch up that leaky roof or replace your tenant’s dishwasher after it broke? Good news: Repairs and maintenance costs can often be deducted in the year they occur. Common deductible repairs include plumbing issues, replacing broken appliances and pest control (because no one wants a raccoon squatter).
One important distinction here: Repairs are deductible, but improvements, like adding a new room or upgrading to granite countertops, must be depreciated. The key difference? Repairs restore something to its original condition; improvements add value or extend the life of the property.
4. Property Taxes And Insurance
Property taxes are like that neighbor who shows up uninvited at every BBQ: unavoidable but manageable. These taxes can also be deducted for rental properties. Similarly, insurance costs—whether for liability, fire, floods, etc.—can be deducted, according to Publication 527.
5. Professional Services And Travel Expenses
Being a landlord doesn’t mean you have to go full DIY. Many legal and professional services that make your life easier are tax-deductible. Even travel expenses related to your rental property may be able to be deducted “if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property,” per Publication 527. In other words, the travel must be for business purposes. Don’t try to claim a weekend getaway to Vegas as a “site inspection.”
Final word of advice: Document everything.
The IRS loves documentation as much as you probably love maximizing your deductions. Keep clear records of expenses, receipts, invoices and contracts. Ensure you’re working with a certified tax professional to save you both time and headaches come tax season.
So there you have it: five ways you may be able to keep more money in your pocket as a rental property owner. By strategically leveraging the deductions you qualify for, you can keep your real estate empire thriving—and maybe even afford that flaming-torch juggling class on the side.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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