what travel expenses are deductible for rental property

How To Calculate Travel Expenses For Rental Property

• Landlord Tips

by Stephen Michael White

March 7, 2023

There are a lot of numbers to keep track of in the rental industry. From vacancy rates to rent averages, numbers are a constant source of information and wealth generation. But there’s one number that some landlords forget to keep their eyes on: mileage for rental property management.

Tracking travel expenses for rental property management, such as mileage, is key in ensuring the best profit margin each year. Landlords with a strong handle on tax deductions and how to properly apply them to their business documentation each year utilize mileage in those calculations.

Do you know how to calculate travel expenses for rental property, or are you missing out on this key deduction? Maximizing profits is possible by reducing taxable income with deductions.

Today, learn how to track travel expenses, including mileage, to ensure you remain tax compliant while maximizing your profits.

A Table Of Contents On Mileage For Rental Property

Deducting mileage for rental property management isn’t always a straightforward process. Everything from inspections to property viewings may be included, and there are multiple ways to include mileage in your deduction calculations. Get started with this guide:

IRS Guidelines On Landlord Mileage

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Mileage is a deductible expense for landlords. The cost of gas and the wear-and-tear on your vehicle while traveling to and from rentals for work is a true expense for your business, so it’s essential to know how to include this expense in your annual tax return.

To claim mileage as part of your standard deduction, you must keep a detailed mileage log. This document should track your travel to and from business activities and can be used to verify your tax return.

Travel-related deductions landlords can use extend beyond just mileage. Toll road, parking, and license fees may all be deductible depending on your situation.

The IRS requires that all deducted travel and transportation expenses related to rental property must be ordinary and necessary costs for your business to operate. Otherwise, they are not legitimate. For example, meeting a local contractor about a rental repair is deductible; meeting a friend, who happens to be a landlord, for dinner is not.

More examples of valid expenses that may apply to your rental business include the following:

• Traveling for property showings
• Traveling to complete maintenance or repairs
• Traveling to meet with contractors, real estate agents, etc.
• Traveling to business-related classes

Conversely, any travel tied to your daily life or commute is not a deductible expense. These fall outside the “necessary and ordinary” expense rule the IRS follows.

For example, a detour on your way home from a rental to pick up dinner and groceries would not be a deductible travel expense. The purpose of that leg of the trip is not business related. While you could still deduct your travel to the rental property, the journey home should be excluded from your calculations.

It’s imperative to be careful about what you include in your expenses. The IRS implements hefty fines on your tax return if you are found to be deducting illegitimate business expenses.

Most landlords utilize the standard deduction on their business expenses . This means you will use the standard mileage rate for expenses when entering your mileage. Many find this method to be the most straightforward and effective.

It’s also possible to deduct your actual expenses rather than the standard deductible when filing your taxes. This is more complex as you will need to track more details, including:

• Car-operating costs
• Vehicle depreciation

For some, this method enables larger savings. This is typically the case when your business vehicle has very high operating costs.

Sticking to the standard deduction is usually the way to go for most landlords, especially those working in their home markets. Most accountants and tax software solutions will compare which filing method makes the most sense for your situation, so don’t get too stressed about this. The key is understanding that you have options.

Understanding why travel expenses are important for tax filing purposes isn’t enough. It’s time to learn how to calculate travel expenses for rental property. Put tracking into action to ensure your mileage for rental property management isn’t missed in your deductions.

The first thing you need to do is ensure that you have a clear tracking system for both mileage and expenses.

You’ll need to keep a mileage log if you plan to claim mileage based on a standard deduction. The IRS specifically requires the following information to be recorded in your driving log:

• Odometer at the beginning and end of every trip
• Purpose of travel
• Where the trip starts and ends
• Date of the trip

Your mileage records need to be precise. Guesswork shouldn’t be included. If you aren’t sure, check the details or leave it out. Otherwise, you could deal with a sticky review by the IRS.

Some people prefer to use a mileage-tracking app rather than creating a physical log. Either method can work. Try out a mileage app if you enjoy tracking your calendar and other essentials on your phone. Otherwise, keeping a notebook in your vehicle makes recordkeeping simple.

You’ll also want to track all expenses. Create a record of receipts to do so. This is especially important if you claim actual expenses rather than the standard deduction. If so, keep records of receipts and documents for all travel, travel-related services, and fees. Be sure to have the cost and description of the service on record along with the date.

The most common expenses claimed by landlords and real estate investors include the following:

• Travel to and from the airport
• Transportation fare (airfare, bus fare, train ticket)
• Travel to and from hardware or supply shop for business-related supplies
• Travel to and from meetings with team members
• Travel to and from knowledge seminars and continued learning sessions
• Shipping cost for luggage
• Lodging when traveling for work
• 50% of meal expenses while outside of your area for work
• Other miscellaneous fees incurred due to work (computer rental fees, internet fees, etc.)

As you work through your expenses and deductions, be sure that any relevant items from this list are included in your logs and documentation.

Even if you’ve been filing your taxes as a landlord for years, there is always a chance that some provisions will change. Working with a qualified accountant can help ensure you don’t misunderstand any of these changes, but you should also research to have an excellent foundation to work with.

Landlord tax deductions can be reviewed online. You can also see yearly updated mileage rates, as these change regularly to reflect the current economy. Keep up to date with the guidelines to ensure there aren’t any unexpected costs or changes.

Finally, make sure you take your time calculating deductions and expenses, and working through your overall tax return. There is a lot of information that you’re dealing with and it can get confusing. Break down the overall return into relevant sections and work on them one at a time. This will keep you on track and make sure everything is clear.

It’s always recommended that you work with a qualified professional to file or review your tax return before it’s submitted to the IRS.

We know your business is critical to you. As a landlord, you wear many hats and must keep up with a lot of information to stay current and thrive in this field. That can be exhausting, and that’s why we want to help.

At RentPrep, we prioritize creating tools to help landlords like you succeed. In addition to our tenant screening services, we also put energy into developing our newsletters and blog posts as valuable resources. Sign up for our latest updates today , and stay in the loop with the latest and greatest in the rental market.

Travel Expenses For Rental Property FAQs

Understanding what does and does not qualify as an expense is just one of the obstacles landlords face as they work through tax deductions. Here are the answers to the most commonly asked questions as landlords handle mileage, expenses, and taxes:

Landlords can deduct travel expenses if the travel is explicitly done to visit a rental property and is necessary for business. Travel expenses often include gas, lodging, and meals. It’s vital that you do not overuse these expenses or try to push the boundary of what’s actually necessary for business.

Travel expenses are an overused expense category of the IRS, so this section may be scrutinized if your return is under review. As such, ensure that your travel expenses are thoroughly documented so you can show your case if necessary.

Consulting a qualified CPA whenever you have questions about travel expense deductions is always the best move. However, there may be times when you’re trying to determine if something will or will not be a travel expense when you cannot consult an accountant.

In these times, consider the following:

• The trip must have a clear business purpose
• Most of the time on your trip must be spent on business, not leisure
• Accommodations, meals, and other expenses must be “ordinary” for your business rather than splurges on unnecessary and extravagant expenses
• Traveling for standard maintenance and repairs to a rental property is tax deductible; traveling for capital improvements is not
• Showing or inspecting a rental property is a valid reason to travel for business

These are just some of the most common areas that confuse landlords as they work on travel expense deductions. If you’re still trying to decide about a particular trip or expense, research the issue on the IRS page devoted to this topic or contact a qualified professional for assistance.

When it comes to tax deductions, you want to ensure you aren’t missing anything. Travel expenses represent unfamiliar territory for many landlords. Before you file your taxes, review this list of the most common travel expenses for landlords for any missed items:

• Mileage, including gas and vehicle wear-and-tear
• Meals and food-related expenses
• Cost of transportation, i.e., bus ticket
• Baggage fees on flights

Not all of these deductions will apply to how you work. Most landlords do not travel via airplane for rental property business, but some with an eye for long-term investments in other cities may need to include this expense. Consider your situation and how travel plays into your business. From there, list what costs should be included in your tax documents.

Yes. Mileage for traveling to and from your rental properties should be deducted from your taxes as long as the reason for the trip is business. This means you can include expenses incurred for trips related to property inspections , essential repairs, maintenance, lease signing appointments, property showings, and other necessary business activities.

Mileage accrued for capital improvements, such as replacing the roof on the house, should be excluded. These expenses are not ordinary and necessary to business, and as such, fall outside of the scope of deductible travel expenses.

This question gets a bit deeper into the complications of deducting travel expenses. Some landlords travel to multiple cities to determine where their next investment hub should be. This can incur large travel costs, which seem like they would be deductible.

However, there’s more to it.

Once you acquire your first property in the target market, you would need to depreciate the travel cost over a standard deduction period of 27.5 years. This is due to capitalization rules and the expansion of your business. The expenses are considered business startup expenses and are only deductible through depreciation.

Now you know how important it is for landlords to have a detailed record of their mileage and how it relates to their business. Though it can seem complicated to start tracking this information, it’s much easier once you set up a system.

Ensure you are doing the following for the most straightforward route to maximize profits:

• Keep a detailed record of your mileage, cost of gas, and other details. The more information, the better so you have options when determining tax calculation methods.
• Remember to include all eligible travel expenses, including applicable deprecation on any vehicles.
• Determine which type of tax deduction for mileage makes sense for your taxes and business expenses.

Mileage tracking doesn’t have to be complicated. Set up a system that works for you and adjust it over time if necessary. It doesn’t have to be perfect, but it does need to track essential info. You’re good to go if you have that ready for tax prep.

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Tracking Travel and Mileage Deductions for Rental Properties

Travel and mileage make up a significant tax deduction for landlords. Keep detailed records using software like Landlord Studio.

PUBLISHED ON

Updated for the 2023 tax year

Travel and mileage form a significant tax deduction for landlords. Unless you live next door to your property you are going to spend time and money traveling to and from, whether this is traveling to pick up supplies, managing viewings, or doing property inspections. Instead of paying for the associated costs out of pocket, these travel expenses can be deducted against taxable income at the end of the tax year.

This will allow you to reduce your taxable income and maximize profits. To ensure you remain tax compliant, you need to know what travel expenses are deductible and how to calculate your mileage tax deduction.

About the travel and mileage tax deduction

For landlords, mileage, as well as other car-related and travel expenses, are deductible in the year incurred.

This means that come tax season, you can claim your expenses for gas, car maintenance, and more against your taxes. The IRS has set guidelines as to what constitutes a deductible travel expense, and these should be followed to avoid being penalized.

However, it’s important to note that if you do intend to claim your mileage allowance you will need to keep a detailed and accurate mileage log. The easiest way to keep a mileage log for taxes is with specifically designed software. Thankfully, if you’re using Landlord Studio you can easily log the distance, purpose and details of all of your travel and easily run a mileage report at the end of the tax year.

The Travel Expenses Must Be “Ordinary And Necessary”

In order for your travel expenses to be deemed legitimate, they need to be both ordinary and necessary.

For landlords, this might look like traveling to one of your rental properties to perform a routine inspection or traveling to meet accountants. It would not include, taking a longer route to work every day so you can drive past your rental properties or meeting another landlord friend for coffee.

Mileage expense examples that can be claimed for rental business purposes include:

• Traveling to your property to deal with tenants, maintenance, repairs
• Traveling to your property to show prospective tenants
• Traveling to collect supplies, such as building supplies for maintenance or renovations
• Traveling to meet with contractors, attorneys, accountants, etc.
• Traveling to landlord-specific classes or trade shows

Non-business related travel that cannot be claimed includes:

• Traveling to and from your house and your workplace (every day commuting)
• Making a detour to the grocery store on the way home from visiting your rental

Although what constitutes a travel expense can sometimes be ambiguous, it’s best to abide by the guidelines to avoid being penalized by the IRS . If you’re audited by the IRS and they determine that you have claimed unnecessary expenses (extra miles, for example), you could face penalties for overstating deductions, such as fines or even federal prison time. Negligence and not keeping relevant records can also lead to penalties.

What Are The 2021/2022 Mileage Tax Deduction Rates?

The easiest way to calculate mileage tax deductions is by using the standard mileage rate set by the IRS.

• For the 2021 tax year, the rate was 56 cents per mile
• For the first 6 months of the 2022 tax year, it’s 58.5 cents per mile .
• In recognition of significant gasoline price increases during 2022, the IRD adjusted the rate for the last 6 months of the 2022 tax year to 62.5 cents per mile.

What Is The 2023 Mileage Tax Deduction Rate?

The IRS increased the standard mileage rate for tax purposes by 3c per mile for the 2023 tax year.

‍ For the 2023 tax year, the standard mileage rate is 65.5 cents per mile.

These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

Using The Standard Mileage Rate To Calculate Your Deduction

To calculate your deduction, simply multiply your business miles by the standard mileage rate. For example, if you drove 10,000 business miles in 2023, you would multiply this by 0.0655 to give you a mileage tax deduction of $655.

In order to claim this deduction, you need to keep an exact record of the miles traveled, the dates and time of the travel, and the purpose of the travel. The easiest way to do this is to use an automated mileage tracker like the one built into the Landlord Studio app.

Other vehicle expenses you can claim in addition to mileage include business-related parking fees and tolls, interest on a car loan, and registration or license fees. You must use the standard mileage rate in the first year you use a car for your rental activity to be qualified to use this rate going forward. The bottom line is that unless your vehicle has high operating costs, the standard mileage rate should give you a significant deduction.

Claiming Actual Expenses Instead Of The Mileage Deduction

Another way to claim a mileage tax deduction is to deduct your actual expenses. This is a little more complex than using the standard mileage rate as you also have to track how much you spend on gas, oil, repairs, tires, insurance, and other car operating costs. Vehicle depreciation is also included here.

The downside of using this method to claim expenses is that it requires more record-keeping, so may not be worth it if you don’t drive much for work purposes. If done properly and/or your car has higher than normal operating costs, it can lead to healthy tax savings.

An easy way to help you track actual expenses is to use an income and expense tracking software (like Landlord Studio) which will allow you to record and categorize your travel expenses as they happen so you don’t miss any, and easily digitize receipts and recording the purpose of the travel in the notes section.

Whether you claim actual expenses or the standard mileage rate, the IRS stipulates that you must complete part V of Form 4562 and attach it to your tax return.

Other Travel Expense Deductions

Depending on how geographically widespread your rental property portfolio is, or if you’ve invested in out-of-state property , you may not always be able to travel for work by car. If this is the case, and you have to leave your city or state in which your business or work is located in order to manage your rental properties, you can deduct other expenses such as:

• Transportation : fares for airplanes, trains, buses, or if you rent a car .
• Meal and beverage: 50% of food and drink expenses.
• Lodging : 100% lodging expenses (hotel, motel, etc.) for days you work at your rental.

The Primary Purpose Of The Trip Must Be Work

For an overnight trip to be deducted, the primary purpose of the trip must be work. Although this sounds obvious, the IRS pays close attention to overnight business trips, so operating within the guidelines is a must.

Travel within the United States is subject to a hard-line rule whereby you can deduct 100% of your expenses for a business trip, but only if you spend more than half of your time on rental activities.

For example, if you go away for 6 days and work for 4 of those days and relax for 2 days, that can be expensed as a business trip. If, however, you’re only planning to work for 1 day but decided to extend the trip by 5 days to have a personal vacation while you’re already away, this cannot be counted as a work-related trip.

What To Include In Your Mileage Log For Taxes

Maintain a driving log (if claiming the standard deduction).

You must keep a log of the total miles driven if you choose to take the standard mileage deduction. The IRS specifically requires that you record the following:

• the odometer reading at the beginning and end of the trip
• the purpose of the travel,
• the start and end locations,
• and date of the trip.

The IRS does not care for ballpark figures, which means your mileage log must be maintained on a regular and consistent basis.

Tip: You can use the Landlord Studio's in-built GPS mileage tracker to easily keep an accurate and up to date mileage log.

Keep a Record of Receipts (If claiming the actual expense)

If you choose the actual expense deduction, you don’t need to maintain or record your mileage . Instead, keep copies of relevant receipts and documentation.

Each document must include:

• dollar amount of the service or service purchased,
• and description of the product or service needed.

The travel expense must be incurred within the tax year for which you’re making the claim.

How To Track Your Rental Mileage Tax Deduction

Your accounting software should have a built-in mileage tracking tool. Landlord Studio for exmple, has an automatic GPS mileage tracker that will save you time and simplify the process of tracking your travel and mileage expenses. Claim the maximum allowable deduction at tax time.

What’s more is that at the end of the tax year, you can instantly generate a mileage report to calculate your overall deduction for the year. This report can be generated on any device whenever you need it and all data is securely stored in the cloud for posterity.

If you choose to track your actual expenses or have other travel expenses such as airfares Landlord Studio can be used to easily record and categorize these and reports run at the end of the year.

All reports can be downloaded or shared directly from the software with your accountant or business partners.

Tracking your mileage tax deduction for rental property accurately is key to maximizing your tax deductions and avoiding being penalized by the IRS.

Landlord Studio has an in built GPS mileage tracker that makes it easier to stay compliant by allowing you to track your travel expenses and then create relevant reports at the tap of a button.

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10 rental property tax deductions.

If you are a rental property owner, you can claim certain tax deductions for your rental property. There are several deductions rental business owners can take advantage of, each of which will lower the amount of tax you have to pay to the IRS each tax year and help you save money.

Key Takeaways  

• Using tax deductions as a rental property owner will reduce the amount of tax owed to the IRS each year.
• Deducting mortgage interest, property taxes, depreciation, maintenance, insurance, and other costs helps property owners save money. 
• Many professional services related to rental properties are tax deductible, such as legal fees and tax software. 
• Certain costs like fines, uncollected rent, and personal expenses cannot be deducted.

Table of Contents

• 10 Tax Deductions for Rental Property
• What Rental Property Expenses Are Not Tax Deductible?
• Take Your Tax Preparation to the Next Level With FreshBooks
• Frequently Asked Questions

10 Tax Deductions For Rental Property

Tax deductions are legitimate, legal expenses that can be claimed to reduce your rental property tax payments to the IRS. The most common deductions are listed below. 

1. Mortgage Interest  

A mortgage interest deduction deduction is among the most common IRS rental property tax deductions, and is usually fully deductible. Called the “home mortgage interest deduction” or HMID, this tax break allows homeowners, including rental property owners, to subtract the mortgage interest payments made to their bank or private loan lender. This tax break could save you thousands of dollars at tax time. 

Note that if you were to rent out part of your home, the mortgage interest can be allocated between the primary home (on a Schedule A form) and the rental part (on a Schedule E form).

2. Property Taxes  

Property taxes may be deductible from your income tax bill once you have been taxed on the value of your home and any other real estate you own. These taxes are paid starting on the date of the property purchase. The type of taxation depends on the state that you live in.

3. Depreciation  

Tax deductions for rental property owners include the amount of market value loss, along with the cost of upkeep and improvement of the property, which is considered part of an income-earning rental business endeavor. Residential rental properties can be depreciated over 27.5 years. The IRS allows a specific amount, usually 3.636%, to be deducted from your annual taxable rental income as a depreciation tax break. 

Improvements to the property and their associated costs can also be depreciated, when they add to its value and usefulness and are expected to last for over 1 year, like updating the electrical system or putting on a new roof. Those costs can be segregated into different depreciation schedules and depreciated quicker than the main building.

4. Maintenance and Repairs  

Maintenance and repair costs are deductible expenses for your rental property if they are necessary and ordinary operating expenses. Routine maintenance must be necessary and reasonable, it must keep your property in rentable condition but all maintenance and repairs must not add significant value to the property. 

5. Insurance  

Having insurance is a smart idea for any property owner and is often mandated by lenders and banks before a mortgage can be finalized during any property purchase. The IRS considers basic homeowners insurance premiums, as well as special liability insurance, to be normal rental expense costs and allows these costs to be deductible expenses. Similarly, property value losses due to theft or natural disasters are also deductible in many cases. 

6. Travel and Transportation  

Some landlords have several properties and need to travel often to visit them. These transportation and travel expenses are deductible, the same way traveling for any job would be. You may deduct costs incurred traveling to collect rent, showing your rental property, and working on your property. Other expenses like parking, tolls, airfare, hotels, rented cars, etc. may also be added in some cases.

7. Utilities  

If you are a landlord who covers bills like electricity, heat, internet, cable, and gas for your tenants, you can deduct these costs on your tax return. If you do not pay these bills for your tenants, then you cannot claim them for your rental property tax deductions. 

Some client/tenant agreements will have the landlord pay for these services to claim as deductions, and then the client reimburses them, which needs then be claimed as taxable income. This arrangement may be more or less helpful for you, depending on your individual case.

8. Employees’ and Contractors’ Wages  

When your rental property needs repairs and maintenance, you can deduct the cost of hiring an employee or contractor to do the rental home repairs. There is also the option to deduct tools and equipment if you choose to do the repairs yourself.

If you decide to hire somebody as an on- or off-site property manager for your rental properties, their wages and contractor fees can also be deducted at tax time. Worker’s compensation insurance can also be deducted if you have employees who help you with the rental real estate.

9. Legal and Professional Fees   

Record-keeping costs, tax software or tax professional costs, lawyer fees, real estate agent commission fees, and other professional services fees related to rental property paperwork, finances, legal issues, and more can be deducted, as long as they are related to the business of renting out your property for financial gain. 

You may also be able to write off financial advisor fees if you are discussing your rental property, as well as the legal costs incurred during eviction processes. 

10. Advertising Costs  

If you advertise your rental property online, in newspapers, on the radio, or elsewhere, and it has cost you money to do so, you can deduct the costs of advertising from your taxes. This also includes the cost of printing “For Sale” signs, posting printed ads around college campuses, and any other related advertising costs for your rental property business.  

If you are a property owner or landlord exploring ways to optimize your financial strategy, check out the following video to find out how FreshBooks can make tax preparation easier for you, specifically streamlining the process of managing and maximizing landlord tax deductions . 

What Rental Property Expenses Are Not Tax-Deductible?  

Some items that are not allowable rental property tax deductions include:

• Tenant-paid expenses, like if your tenants pay their own cable bills or electricity bills
• Improvements to the property are not deductible when you pay for them, but you can depreciate them over time to count the expense
• Penalties and fines of any kind cannot be deducted
• Land does not depreciate in value, so you cannot claim depreciation on any land value
• Personal expenses that are unaffiliated with the rental property 
• Expenses that incur when the property is not available for rental 

Take Your Tax Preparation to the Next Level With Freshbooks  

When you own a rental property, it’s important to keep good records of all expenses, with receipts, logs, diaries, appointment books, etc. to back up your expense claims. FreshBooks accounting software helps small business owners keep track of every expense, categorizing them to make it easier to get every eligible deduction during tax time. 

Ready to streamline your small business accounting processes and make life easier for yourself? Try FreshBooks for free , and find out how easy tax preparation can be. Along with making your investment property deductions easier, FreshBooks helps track expenses and keeps collected payments organized.

For more information about the deductions available to you and how to use them, see our article on Small Business Tax Deductions .

FAQs About Rental Property Tax Deductions

The answer to the question, “What are the tax deductions for a rental property?” is clearly laid out on the IRS website. If you have further questions regarding rental property tax deductions, our frequently asked question section may have the answer you’re looking for. 

Are rental property tax deductions different from those for personal property? 

Yes, rental property tax benefits are similar to small business tax deductions. Rental income is treated as income, and deductions are related to your potential earnings as a small business owner. Personal property can include livestock, RVs, cars, or equipment, while only permanent structures are considered rental properties. 

Are property management fees tax-deductible for rental properties? 

Yes, if you hire somebody to manage your property, the fees for their professional services are tax-deductible in the USA. This includes on-site property managers or off-site management companies. You can also deduct condo fees or other such management, upkeep, or repair fees from your taxes. 

Are legal fees associated with rental property tax-deductible?  

Yes, legal fees can be tax-deductible, as long as they are directly related to the property rental. This includes paperwork needed for rentals or evictions, or other necessary expenses related to renting out properties, and any fees needed to pay for resolving tax issues related to your rental property. 

Can I deduct utilities like electricity, water, and internet for my rental property?   

Yes, you can deduct utilities in some cases. It depends on what is included in the rental cost for your tenants. If you pay these bills, the amount can be deducted. If your tenant pays for their own utilities, then they are not tax deductible. If you pay for utilities and are reimbursed by the tenant, these payments add to your year’s total rental property income amount. 

How do I handle rental property tax deductions if I use the property for personal use as well?  

You can only deduct expenses related to your rental and must divide your expenses between personal use and rental use. As per the IRS, if your rental use expenses are more than the gross rental income limitations, you may not be allowed to deduct all of your rental expenses. You may be able to carry forward the expenses to the next tax year.

Are losses from rental properties tax-deductible?  

Yes, a “Real Estate Loss Allowance”, allows those with 10% interest in a rental property to claim a deduction of up to $25,000 annually in rental property losses against their regular income, as long as they have a gross income of $100,000 or less, and they are not a real estate professional. The real estate professional status allows for additional deductions against their regular income.

More Useful Resources

Explore our diverse tax deduction guides catering to various niches. From small businesses to real estate agents, find valuable insights to optimize your tax savings.

Sandra Habiger, CPA

About the author

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

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Rental Property Tax Deductions

What rental property tax deductions can clients buying commercial or rental real estate take here's an overview of the main rental and investment property deductions..

Whether you’re currently representing a real estate investor or believe that you will do so in the future, there are  numerous tax deductions  that people who purchase and operate rental properties can claim. These deductions are somewhat different from deductions for a primary residence lived in by the owner. As a REALTOR®, your clients will likely ask you fundamental questions about the tax ramifications of owning rental real property. While no one should reasonably expect you to be a tax expert, it is important that you can answer basic questions that your clients might ask. This article examines rental property tax deductions and their meaning for your clients.

Common Rental Property Tax Deductions | Commercial and Investment Real Estate |  Which Rental Property Expenses Are Not Tax-Deductible? | Talking to Clients About Rental Property Tax Deductions

Common Rental Property Tax Deductions

The following deductions, which are the ones most commonly claimed by rental property owners, can substantially reduce the cost of purchasing, owning, and maintaining rental property. Understanding the basics of these deductions will allow you to help the client contextualize the purchase price by considering his or her projected net income based on available rental property tax deductions.

Asset Depreciation

Of the many tax benefits of rental property, depreciation might seem somewhat counterintuitive since property values typically increase over time. Yet, in the eyes of the tax law, the depreciable life of real estate generally ranges from 27.5 years for residential property to 39 years for non-residential real estate.

Depreciation is a tax allowance covering the expected wear and tear and obsolescence of the property that will invariably occur over time. Owners can also depreciate certain larger expenditures for personal property over time, such as appliances or furniture.

Mortgage Interest

Of all the investment property tax deductions that your clients may be able to claim, you should be most familiar with the mortgage interest deduction .  This deduction not only applies to primary and secondary residences, but also to all kinds of rental real property that have a mortgage.   However, for owners who live in a residence with a mortgage, the interest is an itemized deduction (reported on Schedule A) and the interest deduction is generally limited to mortgage debt of $750,000.  

Owners of rental properties, on the other hand, will report any mortgage interest paid as an expense on Schedule E of Form 1040 or on a partnership or corporate tax form. And unlike those who itemize mortgage interest deductions, rental property owners are not subject to a limit on the amount of the debt.

Property Taxes

Another tax deduction available to most rental property investors is that for  property taxes . This deduction is also available for owner-occupants of primary and secondary residences, but only if they itemize their deductions.   

The Tax Cuts and Jobs Act of 2017 temporarily capped the deduction for state and local taxes (SALT) at $10,000 or $5,000 for married people who file separately.

Simply stated, a repair involves fixing or replacing something that’s broken or inoperable. If your client needs to fix a broken banister or replace a damaged garage door on a rental property, the expenditures will constitute repairs and they can generally deduct the cost on their tax return. Upgrades or improvements to a rental property generally are not deductible as repairs, but the cost is depreciable over the useful life of the property. Examples of improvements include adding a new shed or remodelling a bathroom.

If your client provides a tenant with a rental credit in exchange for performing a repair, this credit can also be deducted. Let’s say that your client offers a tenant a credit of $500 off their following monthly rent for repairing a door and installing a new shower rod. Even though this $500 will be considered income, it can also be deducted as a repair expense.

Operating expenses

If your client chooses to use the expertise of a property management company to look after their rentals, the associated expenses are generally tax-deductible. Yet if your client also plans to be the property manager, they’ll face operating expenses that arise from handling the tenant relationship and keeping the property in working order.

Any tenant screening costs can be deducted, including background, credit, or reference checks. Other necessary expenses of maintaining the property or landlord-paid utilities are also typically deductible. These may include:

• Appliance care and maintenance
• Carpet cleaning
• Pest control
• Seasonal property maintenance (gutter cleanings, tree pruning, snow removal, etc.)

Travel and Other Miscellaneous Expenses

Many travel expenses  that your client has in connection with his or her rental property may be deductible. If they need to travel to collect rental income or to manage, conserve, or maintain their property, associated expenses are generally tax-deductible. To claim this deduction, you’ll want to advise clients to keep extensive records, ensuring they keep receipts and count mileage from their travels.

According to the tax law, only travel expenses that are ordinary and necessary can be deducted, which means that costs can’t be lavish or extravagant.  Nor can they be related to personal travel. Examples of deductible travel expenses include:

• Airfare, train costs, car, or other transportation costs related to the trip
• Taxi or ridesharing fares when traveling from a hotel to the rental property
• Using a vehicle while at the rental property 
• Lodging expenses
• Laundry and dry cleaning
• Property-related telephone calls
• Service tips

Expenses related to traveling to make improvements or renovations to a rental property aren’t tax-deductible as these costs are recoverable through depreciation. However, your client may be able to deduct other standard expenses like printing, office supplies, advertising costs, and insurance costs.

Commercial and Investment Real Estate

Commercial real estate can involve all kinds of rental property from hotels and office buildings to shopping centers and multi-family apartment buildings or even bakeries and restaurants. Commercial real estate that can be rented doesn’t only involve apartments or Airbnbs.

Once your client has made their investment, they can earn rental income from the payments they receive from any tenant that has rented the property.

 Before advising a client who plans to offer short-term rentals, make sure that you familiarize yourself with any  short-term rental restrictions  in your area. These restrictions may limit the ability that property owners have to rent out a property on a short-term basis.

Which Rental Property Expenses Are Not Tax-Deductible?

Certain rental property expenses are not tax-deductible, including:

• Lost rent that came about because it wasn’t paid or collected or because the property was vacant.  However, if your client is on the accrual basis of accounting, and they included the rent in their income, it may be deductible.
• Personal expenses, such as the cost of commuting to and from work.
• Entertainment expenses.
• Political contributions.
• Fines and penalties.

You should always consult a tax professional about the specifics of tax deductions before you advise a client about claiming any rental property tax deductions.

Talking to Clients About Rental Property Tax Deductions

When speaking with your clients about rental property tax deductions, there are a few key areas you’ll need to cover.

The goal of most real estate investors is to make money, so guiding clients to a property that makes sense for them is your primary role as a REALTOR®. And keep in mind that it’s always best to refer your clients to a tax professional to confirm how a rental property and eligible deductions will impact their financial situation.

Related Content

Commercial & Investment Real Estate

Rental Properties

• Credits and deductions
• Homeownership

What kinds of rental property expenses can I deduct?

By intuit • updated 4 months ago.

The IRS lets you deduct ordinary and necessary expenses required to manage, conserve, or maintain property that you rent to others. You're allowed to deduct these expenses if your property is vacant, as long as you're trying to rent it .

Expenses are generally deducted in the year you pay them (if you use the accrual method, go here for more info). For example, if a pest-control company serviced your rental in 2023 but you didn't pay them until early 2024, you'd deduct that expense on your 2024 tax return.

Deductible expenses include, but aren't limited to:

• Cleaning and cleaning supplies
• Maintenance and related supplies
• Travel to and from the property
• Management fees
• Legal and professional fees
• Commissions
• Taxes and tax return preparation
• Lease cancelation costs
• Advertising
• Real estate taxes
• Refinance fees and mortgage points are entered in the  Assets/Depreciation  section instead of the Expenses section. The IRS considers these "amortizable intangibles," which means they must be expenses over the projected life of the asset (or amortized). These don't get expensed or depreciated like tangible assets
• Entered in the Assets/Depreciation section instead of the Expenses section  

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How Short-Term Real Estate Rentals Can Lower Your Tax Exposure

Short-term rental properties can be profitable from both a business and tax perspective.

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Income and losses from rental real estate activities have generally been classified as passive, regardless of the amount of participation by the taxpayer. The result is that the losses from these activities can only be deducted against income from other passive activities. They could not be used to offset nonpassive income, such as wages, interest, dividends or certain capital gains .

However, certain developments in the law combined with the advent of Airbnb - and Vrbo-related sectors can result in losses from rental real estate being characterized as nonpassive and, thus, being available to offset nonpassive income. For this to happen, the taxpayer must “materially participate” in the activity, and the activity must not be treated as a rental activity. 

Know the rules

Regulations issued under the passive activity rules provide that a taxpayer materially participates if he/she: 

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• Engages in the activity for over 500 hours during the year.
• Participates in the activity for the taxable year and their activity constitutes substantially all of the participation in such activity of all individuals for such year.
• Participates in the activity for over 100 hours during the taxable year, and such individual’s participation in the activity for the taxable year is not less than the participation in the activity of any other individual for such year.
• Engages in a significant participation activity for the taxable year, and their aggregate participation in all significant participation activities during such year is over 500 hours.
• Materially participated in the activity for any five taxable years (whether or not consecutive) during the 10 taxable years that immediately precede the taxable year.
• Engages in a personal service activity, and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year.
• Based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous and substantial basis during such year (i.e., over 100 hours).

However, an activity is not treated as a rental activity if:

• The average stay of a guest is no more than seven days.
• The average stay of a guest is 30 days or less, and significant personal services are provided by or on behalf of the owner on par with the services a hotel would provide.
• Extraordinary personal services are provided by the owner (i.e., services that are not incidental to the property).
• The rental of the property is treated as incidental to the nonrental activity of the owner.
• The property is available during business hours and is not exclusive to any one guest.
• Any part of the property for use in activities conducted by a partnership, S corporation or joint venture in which the property owner has an interest is not a rental activity.

To deduct otherwise passive losses against nonpassive income, the landlord must satisfy at least one of the material participation tests and one of the exceptions to rental property treatment. Most Airbnb landlords can meet the second or third items of the material participation tests and the first exception above.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Don’t forget depreciation

Most people do not realize that their short-term rentals can reduce their tax liability while simultaneously earning them extra cash. This is because of the depreciation deduction, which does not require a corresponding outlay of cash. A taxpayer is not allowed to deduct in one year the entire cost of the short-term rental property but must instead recover the cost of the property over several years. Depreciation deductions can turn rental profits into tax losses. Because a short-term rental period is usually 30 days or less, the IRS classifies it as a commercial property with a depreciation period of 39 years.

Depreciating property over 39 years doesn’t yield a big annual expense (about 2.5% of the cost each year). However, there are ways to accelerate the depreciation deduction and, thus, increase the annual expense. The landlord can arrange for a cost segregation study. Such a study reclasses a portion of the real property into assets that have shorter depreciable lives, which results in an increased depreciation expense and bigger tax savings for the property owner.

Track your expenses

The landlord must learn which expenses are deductible and keep track of them. Allowable tax deductions include mortgage interest, property taxes , travel and transportation expenses to and from the property, maintenance and repairs, utilities, legal and professional fees, insurance premiums and more.

Keeping track of expenses is necessary to maximize the tax savings. Using bookkeeping software or keeping a spreadsheet of income and expenses is a good practice. Or simply get a separate credit card and use it only for the expenses having to do with the rental property. At the end of the year, your accountant can take the credit card’s annual summary to complete the tax return.

Short-term rental properties can be profitable from both a business and tax perspective. However, it is important to follow all the necessary rules and methodically keep track of income and expenses. One should always consult with a tax adviser to determine if this process is a good fit.

Related Content

• 5 Tax Tips for Renting Out Your Vacation Home
• 5 Ways to Save Money on Vacation Rental Properties
• Your Vacation Home Needs an Estate Plan!
• Four Tips for Renting Out Your Home on Airbnb

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

David R. Silversmith , CPA, CFP, CFE, MBA, is a senior manager in Private Client Services with Eisner Advisory Group LLC , in Melville, NY

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Rental Property Deductions Checklist [Top 25 Deductions]

Rental property deductions are expenses that real estate investors use to reduce taxable net income. 

As an individual, you can’t deduct items on your tax return such as replacing light bulbs, fixing a leaky sink, or putting gas in your car to travel to and from your office. But as a real estate investor, you have flexibility to deduct out-of-pocket and travel expenses that are directly related to the upkeep of your rental property.

Tax breaks – along with the receipt of recurring income from rent payments and appreciation in property value over the long term – are one of the main reasons why people invest in real estate.

Let’s take a look at 25 of the most common deductions you can take when you own investment property.

25 Top Rental Property Tax Deductions

1. closing costs.

There are a variety of closing costs paid when you purchase a rental property. There are three that you can deduct the year they are incurred:

• Mortgage points
• Real estate taxes

Other closing costs – such as legal and recording fees, surveys, transfer taxes, and title insurance – must be added to the property basis and depreciated over a number of years.

2. Advertising & Marketing

Money you spend on advertising and marketing to find a new tenant is also fully tax deductible. Many rental listing websites such as Apartment List, Cozy, and Zillow Rental Manager offer free syndicated listing services. But if you pay a professional photographer or copywriter to create your ad you can deduct that expense.

3. Tenant Screening

Fees paid to screen a tenant such as a credit and background check, criminal and sex offender search, rental history, and social security number verification all costs that can be deducted. Alternatively, you can have the tenant pay for their own reports by using tenant screening services like the American Apartment Owners Association (AAOA), Avail, and MySmartMove.

Commissions you pay a real estate agent to find and lease a vacant property to a new tenant are another rental property tax deduction. Although leasing commissions are always negotiable, most brokers charge a leasing fee equal to one month of rent.

5. Property Management

A good property manager will charge a fee of about 8-10% of the monthly rent collected. When you consider everything a management company does, including:

• Rent collection
• Tenant communications
• Repair and maintenance coordination
• Routine property inspections
• Compliance with local and state landlord-tenant laws and Federal Fair Housing laws

Most investors agree that the property management fee is more like an investment instead of a tax-deductible expense.

6. Repairs & Maintenance

Labor, material, and supply costs for repairing and maintaining a rental property are fully tax deductible. Think of all the things you do to keep your own home in shape, now imagine being able to expense all of those costs with a rental property. Keep in mind, however, that some major capital expenditures (CapEx) must be added to your basis and depreciated rather than expensed out the year the work is done.

7. Landscaping

Costs for keeping your property’s curb appeal in peak condition, such as cutting the lawn and trimming the trees, are deductible. The same thing is true with seasonal maintenance items, such as cleaning the gutters and snow removal once winter sets in.

8. Utilities

Normally the tenant in a single-family home pays for all of the utilities, but many multifamily properties work a little bit differently. Sometimes smaller duplexes and triplexes have a master meter for the water or gas. In cases like these, the landlord pays the utility bill and deducts the expense, while factoring in the utility expense as part of the tenant’s monthly rent.

9. Mortgage Interest

Interest paid on loans for a rental property is fully deductible. Your monthly mortgage payment normally includes principle, interest, taxes, and insurance (PITI). At the end of the year, your lender should send you a statement itemizing each deductible expense, or you can use a free rental property accounting software like Stessa to track your expenses in real time.

10. Property Taxes

In some states, property taxes are one of the biggest rental property deductions a landlord can take. For example, in states such as California and New York, property taxes on a mid-priced single-family home can easily run thousands of dollars or more per year.

11. Sales Taxes

Some jurisdictions collect a sales or use tax on the monthly rent that a tenant pays. As a landlord, you or your property manager are responsible for collecting the rental tax from the tenant and remitting it to the city or state every month. Those taxes are also deductible for a landlord.

12. Insurance

Insurance premiums are treated as a rental property business expense, including additional coverage you purchase in the form of landlord insurance when you rent out a home. Speaking of insurance, many landlords have found it to be a good idea to require the tenant to take out a renter’s insurance policy (if your state law allows) to protect the tenant and you from claims of theft or negligence if a tenant’s guest gets injured on your property.

13. Licenses & Registration

Common license fees that are tax deductible include a business license, sales and use tax license, and an annual registration fee for your LLC that you hold your rental property in. Some cities may also charge a fee to conduct an annual property inspection to ensure your rental meets local health and safety codes.

14. Attorney

Legal fees paid to an attorney for preparing or reviewing a lease, responding to a complaint, or evicting a tenant are all tax deductible. Some real estate attorneys offer fixed-fee pricing for many of their services versus a more expensive hourly rate.

15. Accountant

Fees paid to an accountant for preparing tax returns are deductible as well. To help minimize accounting fees at tax time, many rental property investors sign up for a free account with Stessa Tax Center to automatically track income and expenses, and generate tax-ready financials at the end of the year.

16. Dues & Subscriptions

Subscriptions to business and real estate publications, along with dues paid to your local real estate investment club, are fully tax deductible. There are also some very good free online resources for learning more about the real estate business, including the Roofstock Blog and Stessa Blog .

17. Continuing Education

Knowledge is power and, in a dynamic business like real estate investing, it’s important to do everything you can to stay on top of your game. Fees for continuing education like Roofstock Academy can be deducted.  This training can be a great way to learn how to keep building rental income through real estate.

18. Home Office

Both local and remote real estate investors may qualify for a home office deduction. Although calculating the home office deduction used to be complicated, the IRS Simplified Option for Home Office Deduction is an easy way to figure the deduction for business use of your home.

19. Office Supplies

Office supplies used for your home office – such as stationary and printer ink – along with lease agreements and legal forms are also deductible. To create an additional paper trail, any hard copy forms and documents should also be organized and stored online with bank-grade security to help protect your data.

20. Telephone & Internet

Costs for telephone and internet used directly for your rental property business are also tax deductible. However, be careful of commingling business with personal expenses. It’s a good idea to purchase a separate cell phone or phone number exclusively for business use, and pay for the service each month using a debit or credit card linked to your business bank account.

21. Travel – Local

Even if you’re a remote real estate investor and own rental property in another state, you may still be able to deduct local travel expenses for going to your financial planner or attending a real estate networking event. Keep a log of the miles driven to and from each business appointment, then use the IRS standard mileage deduction of $0.56 per mile or calculate the actual expenses used for business purposes.

22. Travel – Long Distance

Remote real estate investors can also deduct expenses for long distance travel for things such as periodically visiting the rental property, meeting face-to-face with the property manager, or attending a local real estate convention. However, the IRS scrutinizes long distance travel expenses pretty closely, so be sure that expenses are reasonable and well documented, the purpose of travel is mainly for business, and that the majority of the travel time is spent on real estate business and not leisure.

23. Depreciation - Property

Depreciation is a non-cash expense that rental property owners use to reduce taxable net income. The IRS assumes that residential income property wears out or depreciates over a period of 27.5 years for tax purposes. For example, if your property basis (including most closing costs, capital improvements, and the home but not the land value) is $150,000 you can claim a depreciation deduction of $5,454 per year and use the depreciation expense to lower your taxable net income.

24. Depreciation – Appliances & Carpeting

Certain items such as new carpeting and appliances can be depreciated over a period of just five years, even if they last much longer. This means if you spend $5,000 to replace carpeting due to normal wear and tear, you can claim a depreciation deduction for the carpet of $1,000 for the next five years.

25. QBI Pass-Through Deduction

The Qualified Business Income ( QBI ) deduction allows many real estate investors to deduct 20% of the income from a rental business from the total taxable business income amount. For example, if your rental property generated a net income of $5,000 last year, you could use the QBI deduction to reduce your taxable income to $4,000. There are phase-outs and other limitations with the pass-through deduction, so be sure to ask for guidance from your tax professional.

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.

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Tax Treatment of Income and Losses

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Do you own real estate that you rent out? Besides the potential for regular income and capital growth, real estate investments offer deductions that can reduce the income tax on your profits.

First, consider what kind of real estate investor you are. Are you a passive investor or a real estate professional? Your classification as one or the other determines how your income and losses are treated.

Key Takeaways

• Rental property owners can deduct the costs of owning, maintaining, and operating the property.
• Most residential rental property is depreciated at a rate of 3.636% per year for 27.5 years—what the IRS considers the property's "useful life."
• Only the value of the buildings can be depreciated. You can't depreciate the land since it never gets "used up."
• The tax treatment of income and losses depends on your level of involvement in the rental property.
• Specific costs like personal expenses, fines, fees, or uncollected rent accounted for on a cash basis can often not be deducted against your income for tax purposes.

Real estate is generally considered a passive activity. However, your level of participation determines the tax treatment of the income and losses the property generates.

Real Estate Professionals

The Internal Revenue Service (IRS) defines a real estate professional as someone who spends more than half of their working hours in the rental business. This may include property development, construction, acquisition, and management. You must also devote more than 750 hours per year to working on your real estate rental properties to qualify as a professional.

Activities of real estate professionals are not treated as passive activities. Instead, the income you generate is characterized as active income (i.e., non-passive income). As such, you can use losses to offset other income (e.g., wages, salaries, interest, and dividends)—and avoid the 3.8% net investment tax if the rental generates income.

Material Participation

If you materially participated as a real estate professional, your rental property involvement will receive non-passive tax treatment. You can use any losses to offset other types of income, and you won't be subject to the net investment tax.

According to the IRS, you materially participated in an activity if you satisfy any of the following tests:

• You participated in the activity for more than 500 hours during the year.
• You do all (or nearly all) of the work in the activity.
• You work 100+ hours in the activity during the year and work at least as much as anyone else.
• The activity is a significant participation activity (SPA) and you participated for at least 500 hours in SPAs.
• You materially participated in the activity for any five of the previous 10 years (whether consecutive or not).
• The activity is a personal service activity, and you materially participated for any three preceding tax years.
• Based on all the facts and circumstances, you participated in the activity on a "regular, continuous, and substantial basis" during the year.

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Active Participation

Active participation is a lower standard of involvement than material participation. The IRS treats you as actively participating if you "make management decisions in a significant and bona fide sense." Management decisions that count as active participation include things like:

• Approving new tenants
• Determining rental terms
• Approving expenditures

If you actively participate by making management decisions—and have at least a 10% interest in the investment—you might be able to deduct some of your passive losses.

This level of participation allows a special passive loss rule. In general, you can deduct up to $25,000 of passive losses if your modified adjusted gross income (MAGI) is $100,000 or less. The deduction phases out if your MAGI is between $100,000 and $150,000. Once your MAGI exceeds $150,000, you can't take any passive losses. Losses of more than $25,000 can be carried over to the following year.

Passive Activity

On the other hand, if your rental property is a sideline investment—and you don't materially participate in the investment—it's considered a passive activity. In this case, any passive activity losses can be used only to offset passive activity income. In other words, you can't use any losses from the rental property to shelter other taxable income. Instead, the losses are carried forward until you generate passive income or sell the investment.

If you own rental property, you have to report all of the rental income you receive—but keep in mind that includes more than just those monthly rent checks.

The money you receive for rent is generally considered taxable in the year you receive it, not when it was due or earned. This means any advance payments must also be treated as income.

For example, suppose you rent out a house for $1,000 per month, and you require new tenants to pay the first and last months’ rent when they sign a lease . In this case, you’ll have to declare the $2,000 you received as income, even though $1,000 of that $2,000 covers a period that might be several years in the future.

Tenant-Paid Expenses

Expenses your tenants pay count as rental income if the expense is for something they're not obligated to pay. For example, suppose your tenant pays the water bill and deducts it from their regular rent payment. In that case, you must include the amount in your rental income. Depending on the expense, you may then deduct the amount as a rental expense.

Trade for Services

If your tenant offers to trade services in exchange for rent, you must include the fair market value of the services as income. For example, if your tenant paints the rental house in exchange for one month’s rent (valued at $1,000), you must include the $1,000 as income even though you didn’t receive the cash. However, you will be able to deduct the $1,000 as an expense.

Security Deposits

Security deposits are not taxable when you receive them if the intent is to return the money to the tenant at the end of the lease. But what if your tenant does not live up to the lease terms? For example, suppose you collect a $500 security deposit and your tenant moves out and leaves holes in the walls that cost $500 to repair. You must include the $500 as income for that year (but you can also deduct the repair costs).

Note that a security deposit used as a final rent payment is considered advance rent. Hence, you include it as income the year you receive it.

As a rental property owner, you can deduct various expenses related to buying, operating, and maintaining the property. Here's a rundown of the most common deductions.

Mortgage Interest Deduction

Expenses to obtain a mortgage —such as commissions and appraisal fees—are not deductible when you pay them. Instead, these costs are added to your basis in the property.

Still, you can deduct interest on up to $750,000 ($1 million if you took out the mortgage before Dec. 16, 2017) of secured mortgage debt on your first or second home. For investment properties, you can deduct mortgage interest as a business expense.

Your mortgage company will send you an IRS Form 1098 each year showing how much you’ve paid in interest throughout the year. If part of your payment includes money that goes into an escrow account to cover taxes and insurance, your mortgage company should report that to you as well.

While home mortgage interest is reported on  Schedule A of the 1040 or 1040-SR tax form, rental property mortgage interest is reported on Schedule E.

The Tax Cuts and Jobs Act (TCJA) , passed in 2017, reduced the maximum mortgage principal eligible for the deductible interest to $750,000 (from $1 million) for new loans. The TCJA also nearly doubled the standard deduction, making it unnecessary for many taxpayers to itemize.

Rental Property Depreciation

Another key tax deduction is the allowance for depreciation . Rather than taking one large deduction when you buy (or improve) a property, depreciation lets you deduct the costs over the property's useful life . The IRS lets you depreciate a rental property if it meets these requirements:

• You own the property.
• You use the property in your business or income-producing activity.
• The property has a determinable useful life—meaning it's something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes.
• You expect the property to last for more than one year.
• The property was not placed in service and later disposed of (or no longer used for business) during the same year.

Land is not depreciable since it never gets used up. Likewise, you generally can't depreciate the costs of clearing, planting, and landscaping since those activities are considered part of the cost of the land, not the buildings.

Residential rental property placed in service after 1986 is depreciated using the  Modified Accelerated Cost Recovery System (MACRS) . This method spreads costs (and depreciation deductions) over 27.5 years—what the IRS considers the “useful life” of a rental property.

While depreciation saves you money now, the IRS might want some of that money back. If you depreciate property and then sell it for more than its depreciated value, you'll owe depreciation recapture taxes on the gain. Many real estate investors use 1031 exchanges to defer taxes—including depreciation recapture and capital gains taxes. Your rental property can also decline in market value due to an overall decline in the real estate market—known as economic depreciation .

Repairs and Improvements

Rental property owners may assume that anything they do on their property is a deductible expense. Not so , according to the IRS.

A repair keeps your rental property in good condition and is a deductible expense in the year when you pay for it . Repairs include painting, fixing a broken toilet, and replacing a faulty light switch. On the other hand, improvements add value to your property and are not deductible when you pay for them. Instead, you recover the cost of improving (and buying) a property by depreciating the expense over your property’s useful life. Improvements might include a new roof, patio, or garage.

From a tax standpoint, you should make repairs as problems arise instead of waiting until they multiply and require renovations.

Property Taxes

Property taxes are an ongoing expense for rental property owners. Homeowners can deduct up to a total of $10,000 ($5,000 if married filing separately) for property taxes and either state and local income taxes or sales taxes . However, that limit doesn't apply to business activities. Depending on your level of participation in the property, you may be able to deduct the full amount as a business expense.

Travel Expenses

Money you spend on travel to collect rent or maintain your rental property is deductible. However, if the purpose of the trip was for improvements, you must recover that expense as part of the improvement.

There are two ways to deduct travel expenses : using the actual expenses or the standard mileage rate . The latest details about the IRS’s requirements and current mileage allowance are in IRS Publication 463.

Other Common Expenses

In addition to mortgage interest, repairs, and depreciation, some other common expenses you can deduct include:

• Advertising
• Employees and independent contractors
• Home office expenses
• Insurance premiums
• Losses from casualties (hurricane, earthquake, flood, etc.) or thefts
• Professional services (e.g., accountants, tax preparers, property managers, attorneys)
• The cost of personal property (e.g., appliances and furniture) used in rental activity

IRS regulation may vary based on different specific situations, but there are general expenses often not allowed to be deducted. Those general categories are discussed below.

Personal Expenses

In general, you cannot deduct expenses that are solely personal in nature and unaffiliated with the rental property. These could include personal purchases of food, clothing, or travel. In many cases, you may find yourself temporarily staying at a rental property you own; consider an example of you staying on site to perform repairs on your own. The personal expenses of your stay are not deductible.

Repairs vs. Upgrades

While upgrades that increase a property's worth or lengthen its useful life are normally deductible, they may need to be capitalized and depreciated over time rather than being entirely deducted in the current year. This is different from repairs which do not lengthen the useful life of the asset nor enhance the usefulness of the property. Therefore, while both types of charges may be deductible, certain types of costs may not be fully deductible in a single period but must instead be spread out over time.

Expenses During Vacancy

You might not be able to deduct expenses associated to a rental property when it is empty or not earning rental income. This may include costs like mortgage interest or advertising costs. Be mindful that depending on your jurisdiction, there can be exclusions or particular laws. In addition, if you are a cash basis taxpayer, you can't deduct uncollected rents because these rents have not been capture or accrued in income.

Cost of Travel

In general, travel costs from your home to the rental property are regarded as personal expenses and are not tax deductible. You might be able to deduct the cost of getting to and from the property for upkeep or management.

Fines and Penalties

As is the case with other types of tax deductions, you likely are not allowed to deduct the cost of fines and penalties. Some fines and penalties may not be deducted as expenses for a rental property if they were incurred as a result of breaking laws, rules, or homeowner association guidelines. In many of these situations, the fines or penalties could have been avoided with simple compliance with prevailing regulation.

If you own a rental condominium or cooperative, each has some special rules:

• Condominiums: If the rental is a condominium, you probably pay dues or assessments to maintain common areas—such as lobbies, elevators, and recreational areas. When you rent out your condominium, you can deduct expenses, such as depreciation, repairs, interest, and taxes that relate to this common property. However, just as with a single-family rental, you can't deduct money spent on capital improvements , such as an assessment for a cabana at the clubhouse. Instead, you must depreciate your share of the cost.
• Cooperatives: Expenses for a cooperative apartment you rent out are deductible. This includes the maintenance fees paid to the cooperative housing corporation. Capital improvements are treated differently. You can't deduct improvement costs, nor can you depreciate them. Instead, you must add the cost of the improvement to your cost basis in the corporation’s stock, reducing your capital gain when you sell.

Under the IRS's Schedule E, there are spaces for miscellaneous categories of expenses. That gives you flexibility in the items that you can deduct. But be prepared to back up your claim and separate costs for repairs and maintenance from those that are capital improvements. Remember, the money you spend on improvements could reduce your tax liability when you sell.

Plan to keep supporting documentation (like appointment books, diaries, calendars, and logs) to prove your active participation and the time spent on your properties each year.

Where Do I Report Rental Income?

You report rental property income, expenses, and depreciation on Schedule E of your 1040 or 1040-SR (U.S. Tax Return for Seniors). You'll have to use more than one copy of Schedule E if you have more than three rental properties.

What Deductions Can I Claim for Rental Property?

As a rental property owner, you can claim deductions to offset rental income and lower taxes. Broadly, you can deduct qualified rental expenses (e.g., mortgage interest, property taxes, interest, and utilities), operating expenses, and repair costs.

You can also depreciate the cost of buying and improving the property over its "useful life," generally 27.5 years. You may also be able to deduct an additional 20% of your qualified business income (QBI) . However, to qualify for the QBI deduction, the rental real estate must "rise to the level of a trade or business under section 162" of the Internal Revenue Code, among other restrictions.

What Is a 1031 Exchange?

When you eventually sell your rental property, you could be on the hook for capital gains and depreciation recapture taxes. Many real estate investors defer these taxes by using a 1031 exchange, which lets you swap one investment property for another. According to the IRS, the exchanged properties must be “like-kind,” meaning "they’re of the same nature or character, even if they differ in grade or quality." In general, properties are considered like-kind, whether they’re improved or unimproved.

Is Rental Income Taxed as Ordinary Income?

Maybe. If you rent out a property for more than 14 days during the year, you must report the rental income on your tax return—and the net income is taxable as ordinary income. You don't have to report or pay taxes on the income if you rent out the property for 14 or fewer days.

The Bottom Line

Rental property ownership tends to be most profitable when you consider the tax rules before jumping in. Since there are quite a few deductions available, it pays to know which ones you qualify for so you can maximize your bottom line. Moreover, it's essential to understand how taxes work on your rental income and the eventual sale of your property. For more guidance and help with deductions, taxes, and planning, be sure to consult a qualified tax professional.

Internal Revenue Service. “ Publication 527, Residential Rental Property (Including Rental of Vacation Homes) .” Page 11.

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Page 6.

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Pages 5-6.

Internal Revenue Service. " Find Out if Net Investment Income Tax Applies to You ."

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Page 5.

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Page 4.

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Pages 4-5.

Internal Revenue Service. “ Publication 925, Passive Activity and At-Risk Rules .” Pages 3-4.

Internal Revenue Service. “ Rental Income and Expenses — Real Estate Tax Tips .”

Internal Revenue Service. “ Publication 527, Residential Rental Property (Including Rental of Vacation Homes) .” Pages 5-6.

Internal Revenue Service. “ Publication 527, Residential Rental Property (Including Rental of Vacation Homes) .” Page 7.

Internal Revenue Service. " Publication 936, Home Mortgage Interest Deduction ." Pages 1, 4.

Internal Revenue Service. " Form 1098, Mortgage Interest Statement ." Page 4.

Internal Revenue Service. " Schedule A (Form 1040), Itemized Deductions ."

Internal Revenue Service. " Schedule E (Form 1040), Supplemental Income and Loss ." Page 1.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ." Page 5.

Tax Policy Center. " How Did the TCJA Change the Standard Deduction and Itemized Deductions? "

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Internal Revenue Service. " Publication 946, How To Depreciate Property ." Page 6.

Internal Revenue Service. “ Publication 527, Residential Rental Property (Including Rental of Vacation Homes) .” Pages 7, 9.

Internal Revenue Service. " Publication 544, Sales and Other Dispositions of Assets ." Page 27.

Internal Revenue Service. " Publication 946, How To Depreciate Property ." Pages 12-13.

Internal Revenue Service. " Tips on Rental Real Estate Income, Deductions and Recordkeeping ."

Internal Revenue Service. " Topic No. 503, Deductible Taxes ."

Internal Revenue Service. " Publication 535, Business Expenses ." Pages 18-20.

Internal Revenue Service. “ Publication 527, Residential Rental Property (Including Rental of Vacation Homes) .” Page 4.

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Internal Revenue Service. " Like-Kind Exchanges—Real Estate Tax Tips ."

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How to Deduct Travel Expenses (with Examples)

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November 3, 2022

This article is Tax Professional approved

Good news: most of the regular costs of business travel are tax deductible.

Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).

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Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.

Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line.

The travel needs to qualify as a “business trip”

Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business purposes.

Here’s how to make sure your travel qualifies as a business trip.

1. You need to leave your tax home

Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.

2. Your trip must consist “mostly” of business

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.

For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.

3. The trip needs to be an “ordinary and necessary” expense

“Ordinary and necessary ” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.

If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.

Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.

What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. if the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties .

4. You need to plan the trip in advance

You can’t show up at Universal Studios , hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.

Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.

The rules are different when you travel outside the United States

Business travel rules are slightly relaxed when you travel abroad.

If you travel outside the USA for more than a week (seven consecutive days, not counting the day you depart the United States):

You must spend at least 75% of your time outside of the country conducting business for the entire getaway to qualify as a business trip.

If you travel outside the USA for more than a week, but spend less than 75% of your time doing business, you can still deduct travel costs proportional to how much time you do spend working during the trip.

For example, say you go on an eight-day international trip. If you spend at least six days conducting business, you can deduct the entire cost of the trip as a business expense—because 6 is equivalent to 75% of your time away, which, remember, is the minimum you must spend on business in order for the entire trip to qualify as a deductible business expense.

But if you only spend four days out of the eight-day trip conducting business—or just 50% of your time away—you would only be able to deduct 50% of the cost of your travel expenses, because the trip no longer qualifies as entirely for business.

List of travel expenses

Here are some examples of business travel deductions you can claim:

• Plane, train, and bus tickets between your home and your business destination
• Baggage fees
• Laundry and dry cleaning during your trip
• Rental car costs
• Hotel and Airbnb costs
• 50% of eligible business meals
• 50% of meals while traveling to and from your destination

On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

The cost of your lodging is tax deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, but it depends on how you schedule your trip. The trick is to wedge “vacation days” in between work days.

Here’s a sample itinerary to explain how this works:

Thursday: Fly to Durham, NC. Friday: Meet with clients. Saturday: Intermediate line dancing lessons. Sunday: Advanced line dancing lessons. Monday: Meet with clients. Tuesday: Fly home.

Thursday and Tuesday are travel days (remember: travel days on business trips count as work days). And Friday and Monday, you’ll be conducting business.

It wouldn’t make sense to fly home for the weekend (your non-work days), only to fly back into Durham for your business meetings on Monday morning.

So, since you’re technically staying in Durham on Saturday and Sunday, between the days when you’ll be conducting business, the total cost of your lodging on the trip is tax deductible, even if you aren’t actually doing any work on the weekend.

It’s not your fault that your client meetings are happening in Durham—the unofficial line dancing capital of America .

Meals and entertainment during your stay

Even on a business trip, you can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. So, if you’re in Louisiana closing a deal over some alligator nuggets, you can write off 50% of the bill.

Just make sure you make a note on the receipt, or in your expense-tracking app , about the nature of the meeting you conducted—who you met with, when, and what you discussed.

On the other hand, if you’re sampling the local cuisine and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.

Meals and entertainment while you travel

While you are traveling to the destination where you’re doing business, the meals you eat along the way can be deducted by 50% as business expenses.

This could be your chance to sample local delicacies and write them off on your tax return. Just make sure your tastes aren’t too extravagant. Just like any deductible business expense, the meals must remain “ordinary and necessary” for conducting business.

How Bench can help

Surprised at the kinds of expenses that are tax-deductible? Travel expenses are just one of many unexpected deductible costs that can reduce your tax bill. But with messy or incomplete financials, you can miss these tax saving expenses and end up with a bigger bill than necessary.

Enter Bench, America’s largest bookkeeping service. With a Bench subscription, your team of bookkeepers imports every transaction from your bank, credit cards, and merchant processors, accurately categorizing each and reviewing for hidden tax deductions. We provide you with complete and up-to-date bookkeeping, guaranteeing that you won’t miss a single opportunity to save.

Want to talk taxes with a professional? With a premium subscription, you get access to unlimited, on-demand consultations with our tax professionals. They can help you identify deductions, find unexpected opportunities for savings, and ensure you’re paying the smallest possible tax bill. Learn more .

Bringing friends & family on a business trip

Don’t feel like spending the vacation portion of your business trip all alone? While you can’t directly deduct the expense of bringing friends and family on business trips, some costs can be offset indirectly.

Driving to your destination

Have three or four empty seats in your car? Feel free to fill them. As long as you’re traveling for business, and renting a vehicle is a “necessary and ordinary” expense, you can still deduct your business mileage or car rental costs even when others join you for the ride.

One exception: If you incur extra mileage or “unnecessary” rental costs because you bring your family along for the ride, the expense is no longer deductible because it isn’t “necessary or ordinary.”

For example, let’s say you had to rent an extra large van to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle to travel alone, the expense of the extra large van no longer qualifies as a business deduction.

Renting a place to stay

Similar to the driving expense, you can only deduct lodging equivalent to what you would use if you were travelling alone.

However, there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct the portion of lodging costs that is equivalent to what you would pay only for yourself .

For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150. You can rent the $150 option and deduct $100 of the cost as a business expense—because $100 is how much you’d be paying if you were staying there alone.

This deduction has the potential to save you a lot of money on accommodation for your family. Just make sure you hold on to receipts and records that state the prices of different rooms, in case you need to justify the expense to the IRS

Heads up. When it comes to AirBnB, the lines get blurry. It’s easy to compare the cost of a hotel room with one bed to a hotel room with two beds. But when you’re comparing significantly different lodgings, with different owners—a pool house versus a condo, for example—it becomes hard to justify deductions. Sticking to “traditional” lodging like hotels and motels may help you avoid scrutiny during an audit. And when in doubt: ask your tax advisor.

So your trip is technically a vacation? You can still claim any business-related expenses

The moment your getaway crosses the line from “business trip” to “vacation” (e.g. you spend more days toasting your buns than closing deals) you can no longer deduct business travel expenses.

Generally, a “vacation” is:

• A trip where you don’t spend the majority of your days doing business
• A business trip you can’t back up with correct documentation

However, you can still deduct regular business-related expenses if you happen to conduct business while you’re on vacay.

For example, say you visit Portland for fun, and one of your clients also lives in that city. You have a lunch meeting with your client while you’re in town. Because the lunch is business related, you can write off 50% of the cost of the meal, the same way you would any other business meal and entertainment expense . Just make sure you keep the receipt.

Meanwhile, the other “vacation” related expenses that made it possible to meet with this client in person—plane tickets to Portland, vehicle rental so you could drive around the city—cannot be deducted; the trip is still a vacation.

If your business travel is with your own vehicle

There are two ways to deduct business travel expenses when you’re using your own vehicle.

• Actual expenses method
• Standard mileage rate method

Actual expenses is where you total up the actual cost associated with using your vehicle (gas, insurance, new tires, parking fees, parking tickets while visiting a client etc.) and multiply it by the percentage of time you used it for business. If it was 50% for business during the tax year, you’d multiply your total car costs by 50%, and that’d be the amount you deduct.

Standard mileage is where you keep track of the business miles you drove during the tax year, and then you claim the standard mileage rate .

The cost of breaking the rules

Don’t bother trying to claim a business trip unless you have the paperwork to back it up. Use an app like Expensify to track business expenditure (especially when you travel for work) and master the art of small business recordkeeping .

If you claim eligible write offs and maintain proper documentation, you should have all of the records you need to justify your deductions during a tax audit.

Speaking of which, if your business is flagged to be audited, the IRS will make it a goal to notify you by mail as soon as possible after your filing. Usually, this is within two years of the date for which you’ve filed. However, the IRS reserves the right to go as far back as six years.

Tax penalties for disallowed business expense deductions

If you’re caught claiming a deduction you don’t qualify for, which helped you pay substantially less income tax than you should have, you’ll be penalized. In this case, “substantially less” means the equivalent of a difference of 10% of what you should have paid, or $5,000—whichever amount is higher.

The penalty is typically 20% of the difference between what you should have paid and what you actually paid in income tax. This is on top of making up the difference.

Ultimately, you’re paying back 120% of what you cheated off the IRS.

If you’re slightly confused at this point, don’t stress. Here’s an example to show you how this works:

Suppose you would normally pay $30,000 income tax. But because of a deduction you claimed, you only pay $29,000 income tax.

If the IRS determines that the deduction you claimed is illegitimate, you’ll have to pay the IRS $1200. That’s $1000 to make up the difference, and $200 for the penalty.

Form 8275 can help you avoid tax penalties

If you think a tax deduction may be challenged by the IRS, there’s a way you can file it while avoiding any chance of being penalized.

File Form 8275 along with your tax return. This form gives you the chance to highlight and explain the deduction in detail.

In the event you’re audited and the deduction you’ve listed on Form 8275 turns out to be illegitimate, you’ll still have to pay the difference to make up for what you should have paid in income tax—but you’ll be saved the 20% penalty.

Unfortunately, filing Form 8275 doesn’t reduce your chances of being audited.

Where to claim travel expenses

If you’re self-employed, you’ll claim travel expenses on Schedule C , which is part of Form 1040.

When it comes to taking advantage of the tax write-offs we’ve discussed in this article—or any tax write-offs, for that matter—the support of a professional bookkeeping team and a trusted CPA is essential.

Accurate financial statements will help you understand cash flow and track deductible expenses. And beyond filing your taxes, a CPA can spot deductions you may have overlooked, and represent you during a tax audit.

Learn more about how to find, hire, and work with an accountant . And when you’re ready to outsource your bookkeeping, try Bench .

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Business Travel Expenses for Rental Owners [2023 Update]

In general, business travel expenses must be considered both “ordinary and necessary” to be tax-deductible. Ordinary means it is common and accepted within the trade or business. Necessary means it is helpful and appropriate for the trade or business.

As a real estate investor, you’ll likely travel to and from your rental properties, other business locations, new markets, and education related events. While most of these activities are indeed ordinary and necessary, you must understand the rules for deducting travel expenses.

Local Business Travel Expenses

Most rental property owners routinely travel to and from rental properties located within driving distance. You might also travel to the bank, the hardware store, or to meet with your broker, your attorney, and so on.

If you established a home office, these miles are considered business miles and are tax deductible within your “tax home.” Your “tax home” is considered the geographic location (that is, the city or locality) where you have an established rental business that functions as your place of business.

There are usually two ways you can deduct these trips: 

• using the actual expense method, or 
• the standard mileage deduction.

Both methods require you to keep an IRS-compliant mileage log that contains the following:

• odometer at the beginning of the year 
• odometer at the end of the year
• the date of your trip
• the purpose of the trip 
• the amount of miles of the trip
• locations of your trip

Remembering to log the trip each time you drive somewhere for business can be a challenge. Use an automatic mileage tracking app like MileIQ in tandem with Stessa’s mileage expense feature to make sure you’re not missing any deductible miles.

Standard Mileage Rate

The standard mileage rate is the simplest way to deduct local travel expenses because it requires the least amount of tracking. 

Simply take the number of miles you drove for business and multiply it by the standard mileage rate to get your deduction. The standard mileage rate for 2022 is 58.5 cents per mile for 1/1/22 – 6/30/22 and 62.5 cents per mile from 7/1/22 to 12/31/22. The Internal Revenue Service (IRS) has updated the optional standard mileage rate in 2023 to 65.5 cents per mile for business travel.

You drive a total of 10,000 miles in 2023. 6,700 of those were business miles. Your mileage deduction for 2023 is $4,388.50 ($0.655 x 6700 miles).

The sole actual expenses you can deduct under this method, in addition to the mileage, are parking fees, tolls, interest on a car loan, and personal property tax on the vehicle.

To use the standard mileage rate, you must use it in the first year you use your vehicle for business purposes, otherwise you can only use the actual expense method. However, you can later switch to the actual expense method, and back again, so it’s generally best to start with the standard mileage rate.

Actual Expense Method 

Under the actual expense method, you can deduct a portion of your actual expenses from operating your vehicle. These expenses include, but are not limited to:

• lease payments
• gas and oil
• tolls and parking fees
• depreciation
• interest on car loans
• repairs and maintenance
• car washing
• other fees (for example, registration fees)

Note: Tickets and violations are NOT tax deductible.

Your deduction is based on the percentage of actual miles driven that you used your vehicle for rental business. This percentage is determined by dividing the amount of miles you drove for business by the total miles you drove for the year (business miles/total business and personal miles).

You will also need to keep records (receipts) of all these expenses throughout the year. Stessa’s mobile app can help as it includes OCR and machine learning to capture and automatically categorize receipts for free.

You drove a total of 10,000 miles in 2022. 6,700 were business miles. Your business percentage for the vehicle is 67% (6,700/10,000). After tallying up all the expenses related to your vehicle, the total is $8,000 for the year. You can deduct $5,360 for 2022($8,000 x 67% ).

Business Travel Expenses for New Markets

Travel expenses are treated differently when traveling to a new market outside of your tax home. 

Travel expenses incurred to research and evaluate any new property that you eventually purchase outside of your tax home will be added to the basis of the property and depreciated over 27.5 years. Once you purchase a rental property in the new geographic area, additional new travel to the same area to evaluate other potential acquisitions becomes tax deductible as a business expense.

If your rental activities rise above the level of “investor” (Frank v. Comm’r., 20 T.C. 511) then travel costs to look for properties falls into two categories:

• Expenses incurred to look at properties you purchase, and
• Expenses incurred to look at properties you don’t purchase.

Expenses incurred to look at the property you ultimately acquire will be added to the basis and depreciated over 27.5 years (Rev. Rul. 77-254).

Expenses incurred to look at property within a geographic location in which you already operate as a landlord are fully deductible assuming they are ordinary and necessary for the conduct of your landlord business. Expenses incurred to look at a property in a geographic location in which you do not already operate as a landlord are considered business start-up expenses. This is documented in O’Donnell v. Comm’r., 62 T.C. 781.

As with other expenses, travel must be ordinary and necessary.

Perhaps surprisingly, travel expenses incurred to evaluate property in a new market in which you don’t eventually purchase a property are not immediately deductible. These are considered start-up expenses that can only be deducted after purchasing your first property in the new geographic area.

What Types of Business Travel Expenses are Deductible?

Transportation .

Transportation to and from the business destination is tax deductible. This includes but is not limited to:

• train and bus tickets
• car expenses (see above)

Other transportation costs that are deductible include:

• expenses for travel to and from the airport (taxi, bus, etc.)
• from the lodging area (hotel, Airbnb, etc.) to the business location (potential rental property, conference center, etc.)
• rental cars

Lodging expenses (such as a hotel, Airbnb, etc.) on overnight stays that are required for sleep or rest are deductible.

Other Expenses 

• business meals outside of your tax home are 50% tax deductible
• dry cleaning 
• other ordinary and necessary business travel expenses

Entertainment is no longer tax deductible under The Tax Cuts and Jobs Act.

Mixing Personal & Business Travel

When you mix business travel with personal travel as many small business owners do, some of the expenses (like airfare) may still be tax deductible if the trip was primarily for business purposes. 

In general, this means you should be spending more than half of the total number of days you’re traveling on business activities versus personal activities. A day is considered a business day if you spend four or more hours on business activities.

However, lodging expenses, meals, and other expenses incurred during days primarily dedicated to non-business purposes are not tax deductible. In addition, any travel expenses for a spouse (or child) that isn’t traveling for a “bona fide” business purpose is not tax deductible.

Also keep in mind that if the trip is primarily for personal purposes, travel to and from the destination is not tax deductible but business expenses incurred during the same trip are deductible. 

You go on a seven-day business trip to visit your out-of-state investment portfolio and spend five days on business and the other two at the beach.

Because this trip was primarily for business purposes, the entire round-trip airfare, plus lodging, meals and related expenses for the five business days are business-related tax deductible. However, lodging, meals, and other expenses from the two personal days are not deductible.

Check out more topics on rental property tax deductions: 

• Rental Property Accounting Basics
• 9 Common Landlord Tax Deductions
• Pass-Through Deductions and Casualty Losses
• Rental Property Depreciation Overview
• Capital Improvements vs. Repairs and Maintenance Expenses
• Passive Activity Limits and Passive Losses
• Capital Gains, Depreciation Recapture, and 1031 Exchange Rules
• Short-Term Rentals and Related Taxes

While reasonable efforts were taken to furnish accurate and up-to-date information, we do not warrant that the information contained in and made available through this guide is 100% accurate, complete, and error-free. We assume no liability or responsibility for any errors or omissions in this guide.

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10 Tips to Crush Your First Rental Property

Buying rental property successfully starts with thoroughly researching the local real estate market. Before searching for a property, take time to understand key metrics that will impact your investment. Here are a few things to analyze:

• Rental Rates - Look at average rents for different neighborhood properties you are considering. Online sites like Zillow and Rentometer can provide rent estimates. Drive around target areas and look for "For Rent" signs to understand current asking rents. You want to buy in an area where you can charge rent high enough to cover your expenses and financing payments.
• Sales Prices - Research sales prices for recent comparable property sales. Look at the price per square foot and compare it to other neighborhoods. This helps you determine a fair market value offer on a property. You want to avoid overpaying based on inflated appraisals.
• Vacancy Rates - Markets with vacancy rates below 5% are generally considered strong rental markets. High vacancy means lower demand and more competition for tenants. Ask local real estate agents for the vacancy rates in different neighborhoods. Only invest in areas with consistently low vacancies.

Doing this rental market homework takes some time upfront. But it ensures you have the knowledge to set accurate rent prices, make smart bidding decisions, and avoid overpaying for properties. Take the time to research before jumping into your first rental property purchase.

1. Preparing to be a Landlord

As a new landlord, you must understand and fulfill your legal responsibilities to tenants. Here are some key things to prepare for:

Learn Landlord-Tenant Laws

Research federal, state, and local landlord-tenant laws. Become familiar with regulations around security deposits, rent increases, entry to the property, discrimination, and evictions. Stay up-to-date on any changes to rental and housing laws. 

Create a Comprehensive Lease Agreement 

A lease protects both you and your tenant. Make sure your lease complies with state and local requirements. Clearly outline terms like rent amount and due date, security deposit, length of lease, maintenance responsibilities, house rules, and termination of lease policies. Consider consulting a real estate attorney.

Implement a Thorough Applicant Screening Process

Pre-qualify all applicants to avoid problem tenants. Require a rental application and background check. Call previous landlords for references. Verify income, run credit checks, and do criminal background checks. Set clear criteria that applicants must meet to be approved.

Have a Property Maintenance Plan

As the landlord, property maintenance and repairs are your responsibility. Do a walkthrough inspection before each tenant. Set a repair budget and find reliable contractors. Respond promptly to maintenance requests. Keep the property in good shape.

Create Rules and Expectations

Provide tenants with a clear set of rules and expectations around use of property, noise, guests, smoking, and pets. Enforce lease terms and rules consistently with all tenants.

Being prepared as a new landlord helps avoid major issues down the road. Do your homework to understand legal obligations, properly screen tenants, maintain your investment property, and set expectations. This helps lead to happy tenants and profitable rental properties.

2. Pay Off Personal Debts First

Before investing in a rental property, it is wise to pay down any high-interest personal debts you may have, such as credit cards or personal loans. This will help improve your credit score and lower your debt-to-income (DTI) ratio, key factors mortgage lenders look at when approving loans. 

A lower DTI ratio shows lenders you have fewer existing debt obligations relative to your income. Most lenders like to see your DTI ratio below 43% before approving you for an investment property mortgage. Paying off credit cards and other debts helps lower your ratio.

Likewise, improving your credit score by paying debts on time demonstrates responsible financial behavior to lenders. Aim for a credit score of at least 680 or higher. Pay off old collections, charge-offs, or late payments. Also, keep credit card balances low and avoid new credit inquiries.

By eliminating high interest debts and loans first before investing in real estate, you will qualify for better mortgage rates and terms. This will lead to higher profit margins and returns on your rental property over the long run. Paying off debts now sets you up for success later.

3. Choose the Right Property Location

Choosing the right location is one of the most important decisions when investing in your first rental property. You want an area that will continue to be in demand from renters and see stable or increasing property values over time. Here are some key factors to consider:

Job Growth and Economic Outlook

Research whether the local job market and the economy are growing and thriving. Areas with major employers or expanding industries tend to attract more residents. New job growth means there will be more people looking to rent in the area. Also, look at future developments or infrastructure improvements planned for the area.

Amenities and Quality of Life 

Look for family-friendly amenities like parks, schools, dining, entertainment, and recreation. Areas with a higher quality of life tend to attract more residents and retain value. Be sure the property is within a reasonable distance of shopping, restaurants, and other conveniences.

Stable or Increasing Property Values

Look at trends for both residential and rental property values over the past 5-10 years. Areas where values are steadily increasing are a good bet. Avoid neighborhoods with volatile property values or those trending downward.

Strong Rental Demand

Look for data on rental vacancy rates, average rents, and days on the market for rental listings. An area with strong demand will have low vacancy (under 5%), competitive rents, and limited inventory. Talk to local property managers to assess demand.

The ideal location will check all these boxes. Drive around potential neighborhoods to get a feel for the area and talk to locals. Choosing the right location gives your property the best chance for maximizing rents and building long-term value.

4. Get the Best Financing 

When buying your first rental property, you’ll need to secure financing like any real estate purchase. However, investment property loans differ from primary home mortgages in key ways. As a real estate investor, you have several options to consider when financing your rental property purchase.

Compare Down Payments 

The minimum down payment on a primary home is typically 3-5%. But for an investment property, expect to put down at least 20-25% as a down payment. Conventional loans usually require 25% down for a rental property. FHA loans allow you to put down as little as 15%. The more you put down, the lower your monthly mortgage payments.

Compare Interest Rates

Interest rates on investment property loans are usually 0.5 - 1% higher than owner-occupied mortgage rates. This is because lenders consider rental properties to be riskier investments. The exact rate depends on your credit score, income, debt levels, and the type of rental property. Compare rates from multiple lenders to find the best deal. 

Compare Loan Terms

A 30-year fixed-rate mortgage is standard for primary homes, but a 15-year loan term is usually best for investment properties. The faster you pay off the rental property, the quicker you can build equity and cash flow. Make sure to compare loan terms across lenders.

Some lenders also offer adjustable rate mortgages (ARMs), interest-only loans, and other specialized products for real estate investors. But proceed cautiously, as the risks may outweigh the rewards with these non-standard mortgages. Stick to fixed-rate loans whenever possible.

When getting financing for your first rental property, be sure to shop around with several lenders. Compare down payment amounts, interest rates, and loan terms to find the best mortgage loan for your investment property goals. The right financing can save you thousands over the life of the loan.

5. Get Proper Insurance

As a new rental property owner, it's crucial to have the proper insurance coverage to protect your investment. Here are some key insurance policies to consider:

Landlord Insurance 

• - Covers the physical property in case of damage from things like fire, theft, vandalism, and natural disasters. Make sure your policy has replacement cost coverage.
• - Provides liability insurance if someone gets injured on your property and tries to sue you. Get at least $300,000 - $500,000 in coverage.
• - Optional add-ons like loss of rent and tenant property damage can also be useful. Shop around, as these vary between insurers.

Umbrella Insurance

• - Provides additional liability coverage above and beyond your regular insurance policies. 
• - Usually an inexpensive way to get an extra $1 million or more in liability protection.
• - Especially important for landlords to guard against major lawsuits.
• - Make sure your umbrella policy covers your rental properties and any liability from being a landlord.

The bottom line is protecting your investment with the right insurance is non-negotiable. Work with an experienced insurance agent to review options and determine adequate coverage limits for your situation. Having robust policies will give you peace of mind and financial protection as a new rental property owner.

6. Work with a Real Estate Agent

Working with a real estate agent when buying your first rental property can offer huge benefits and make the process much smoother. An experienced real estate agent has in-depth knowledge of the local market and can help you find deals and negotiate the best price and terms. 

Here are some of the key benefits of using a real estate agent for your first rental property purchase:

• - Gain access to MLS listings and properties not available publicly: Agents have access to the multiple listing service (MLS) database of properties for sale, which contains listings that are not advertised publicly. This gives you an advantage in finding homes priced fairly and "off-market" deals.
• - Utilize their negotiation skills: Skilled real estate agents know how to negotiate with sellers to get you the best sales price and contract terms. They can often negotiate discounts and concessions an individual buyer may not be able to get.
• - Handle paperwork and transactions: - Real estate transactions involve a lot of complex paperwork like purchase agreements, disclosures, inspection reports, and more. An agent will handle all of this paperwork for you properly.  
• - Guide you through the buying process: - The home buying process has many steps like getting pre-approved, submitting an offer, inspections, appraisal, and closing. An experienced agent will guide you through each step and make the process much easier.
• - Provide objective perspective: - Since they are not emotionally invested like an individual home buyer, agents can provide an objective, knowledgeable perspective on each property and neighborhood.

Having a talented real estate agent represent you when purchasing an investment property for the first time can make the entire process smoother, easier, and lead to the best deal. The benefits of tapping into their expertise outweigh any commission costs.

7. Understand All Expenses

When calculating potential returns on a rental property, it's crucial to have an accurate picture of all the expenses you will incur as a landlord. Many first-time investors only consider the mortgage payment but forget about other key costs that quickly add up.

You will need to pay property taxes that are assessed annually based on the property's value. Property taxes can vary greatly by location but typically range from 0.5% - 2% of the home's value per year. 

Landlord or rental property insurance is required to protect your investment. This covers damage to the dwelling along with liability coverage. Average insurance costs are $200 - $500 per year.

Maintenance & Repairs

As a landlord, you are responsible for maintaining the property and making any necessary repairs. Budget around 5% of the home's value annually for maintenance expenses like appliance repairs, landscaping, pest control, etc.

Vacancy Costs

Even the best landlords deal with vacancies. On average, plan for 8-10% of potential rental income to be lost due to vacancies. Also, account for 1-2 month's rent for tenant turnover costs like marketing and cleanings between renters.

To determine your true cash flow, make sure you tally up all these ongoing ownership costs. It's better to overestimate expenses than be surprised later by the hidden costs of rental property ownership. A detailed budget and sufficient reserve fund can prepare you for the inevitable expenses that come with longterm rental property investing.

8. Know Your Legal Obligations

As a rental property owner, you have several legal obligations to uphold. Being aware of these regulations will help protect you from any issues down the line. Here are some key areas to understand:

• Fair Housing Laws: - Federal and state fair housing laws prohibit discrimination against tenants based on race, color, religion, sex, national origin, disability, and familial status. Make sure your tenant screening process and interactions comply with fair housing. Do not make assumptions or selections based on any protected characteristics.  
• Security Deposits: - Most states regulate how much you can collect for a security deposit, typically 1-2 months rent. Security deposits must be placed into a separate bank account in some states. Always provide tenants with a receipt. Return deposits within the required timeframe per local laws and send an itemized deduction list if any portion is kept.
• Evictions: - If you need to remove a tenant for lease violations or nonpayment, follow the eviction process properly. Serve adequate written notice per state laws before filing for eviction. Attend the court hearing and provide documentation to the judge. Use law enforcement to remove tenants if ordered legally. 
• Leases: - Use a professionally drafted lease agreement that complies with state and local laws. Detail rent amount, due date, late fees, security deposit, maintenance responsibilities, occupancy rules, and termination policies. Outline what constitutes lease violations. Update your lease regularly to stay current with laws. Have tenants carefully review and sign the lease.

Adhering to all legal obligations will help avoid expensive mistakes as a new landlord. Consult with a real estate attorney if you have any concerns or questions about complying with regulations in your state and municipality. Do your due diligence to operate rental property safely and legally.

9. Prepare After Your Offer is Accepted

After your purchase offer is accepted on a property, there are still some crucial steps to take before closing day. Here's what to do:

Finalize Mortgage Paperwork

Work closely with your lender to submit any remaining documents and get your final loan approval. Confirm the interest rate, monthly payments, and all closing costs. Shop around between lenders if you aren't happy with the terms.

Make Any Needed Repairs

Inspect the property thoroughly and make a list of any repairs or improvements you want done before renting it out. This is the best time for upgrades since the property will be empty. Prioritize repairs that will increase rental income or prevent future maintenance issues. 

Prepare the Property for Tenants

Clean the rental thoroughly inside and out before listing it. Paint walls in neutral colors, install new flooring if needed, and upgrade fixtures and appliances. These little improvements make a big difference in attracting quality tenants who will pay top dollar rent. 

Market the Property

Create online listings on rental sites with great photos showing the property in its best light. Highlight amenities and upgrades you’ve made. Be ready to show the unit and process applications. The sooner you fill the vacancy, the sooner rental income starts coming in.

Complete a Final Walkthrough

Do one last thorough walkthrough before closing to check if the sellers removed all their belongings and the property is in the agreed-upon condition? Ensure all appliances are in working order and anything included in the purchase, like furniture, is still there.

These steps will ensure a smooth transition to your new rental property investment. With the mortgage and paperwork handled, repairs made, and a tenant secured, you'll be off to a great start as a new landlord.

Utilize Tax Benefits and Deductions

Understanding and utilizing the various tax benefits and deductions available to rental property owners can significantly enhance your investment returns. The IRS allows landlords to deduct many expenses related to the upkeep and management of rental properties.

Key Deductions to Take Advantage Of:

• Depreciation : You can depreciate the cost of the property (excluding land) over 27.5 years, providing a significant annual tax deduction.
• Mortgage Interest : Interest paid on your mortgage is deductible, often one of the largest deductions available to property owners.
• Repairs and Maintenance : Costs associated with maintaining and repairing the property can be deducted in the year they are incurred.
• Property Management Fees : Fees paid to property managers or leasing agents can be deducted.
• Insurance Premiums : Premiums for rental property insurance are fully deductible.
• Travel Expenses : If you travel to manage your property, the travel expenses can be deductible, including airfare, lodging, and meals.
• Utilities : If you pay for utilities, those costs are also deductible.

Consult with a Tax Professional:

• Stay Compliant : Ensure you are compliant with IRS regulations and not missing any potential deductions.
• Plan Strategically : A tax professional can help you plan your finances to minimize tax liabilities and maximize returns.

Starting your journey in rental property investing requires thorough preparation, strategic decision-making, and a solid understanding of the real estate market. By researching local markets, securing the right financing, preparing for landlord responsibilities, and leveraging tax benefits, you can set the foundation for a successful rental property investment. Remember to choose properties in desirable locations, understand all expenses, and seek professional guidance when necessary. With the right approach and dedication, rental property investing can become a lucrative avenue for building long-term wealth and financial security.

Finding and Selecting the Best Tenant

11 Vacation Rental Tax Deduction Rules Hosts Need to Know

Creating strategies to be more profitable isn’t just about getting more bookings and increasing rental income. You could save yourself thousands of dollars by understanding more about vacation rental tax deduction rules.

Depending on your annual rental income, you might be able to deduct up to $25,000 in losses each year.

There is no reason to leave any money on the table. To help you understand the IRS and its rules better, see this comprehensive guide about the tax implications of short-term rentals.

Protect your business from costly damages with Safely’s short-term rental insurance.

Complete list of vacation rental tax deduction rules

Income taxes vs lodging taxes: what’s the difference.

Income taxes are federally regulated and levied directly on your personal income by the government, while lodging taxes are paid by the guests themselves, but you still need to collect them.

Lodging tax requirements vary by city, country, region, and state. For example, the lodging tax in Texas is 6% while in the District of Columbia, it’s almost 15%. In Alabama, the lodging tax is 4%, with the exception of the lake area where it is higher (5%).

This is why it’s important to do your research and inform yourself about the taxes you are obligated to pay depending on the location of your vacation rental.

Bear in mind that, as a short-term rental owner, you have to pay both income taxes and lodging taxes on your vacation rentals . It’s not as bad as it sounds, though, since there are many tax benefits of running a vacation rental.

What are the tax benefits of owning a vacation rental?

As a short-term rental owner, you can benefit from a number of tax benefits. For example, if you plan on advertising your rental, the expenses can be deducted from your taxable income.

Now let’s look at some of the main other ways you can make tax savings.

Get tax breaks on insurance, utilities, and property taxes

As a property owner or a property manager, you get tax breaks on:

• Vacation rental insurance like Safely: Most homeowner insurance policies are not sufficient when you rent your home and use it for commercial purposes, which is why short-term rental insurance is considered a valid business expense.
• Utility bills: Water bills, electricity bills, and even internet service can all be deductible as utilities.
• Property taxes : You can deduct mortgage and real estate taxes as you would on your primary residence.

Deduct operational expenses

There are also many operational expenses you can write off when you run a vacation rental. Here’s a list of examples:

• Repairs: Both service fees and materials can be deducted
• Maintenance and improvements : From paint jobs to lawn maintenance
• Marketing and advertising costs : These count as a business expense—for example, the cost of an Airbnb listing can be deducted from your taxable income.

Bear in mind it’s different in situations where you’re a co-owner of a vacation home you’re renting. Here’s an example. Let’s say you own 50% of interest in a rental house. If you paid $700 for necessary repairs, you can deduct half of it as a rental expense—$350. You are entitled to ask for reimbursement for the remaining half from the co-owner.

Tax deduction and transportation expenses

If you incur transportation expenses to collect rental income or to manage your property, you’re looking at another deduction option. If you use your home as a principal place of business, you can easily do this. In other cases, the expenses are nondeductible.

Deducting your expenses is possible in two following ways:

• You can deduct actual expenses
• You can deduct at a standard mileage rate for business use ( for 2022, this amounts to 58.5 cents per mile )

To deduct the expenses, you must keep records of your travel expenses. You can find more information about this in IRS Publication 463.

Write off depreciation

By definition, depreciation is a capital expense. It offers a way to recover your cost in a rental property and it must be taken over the expected life of the property (this is called “useful life” and is typically 27.5 years).

In layman’s terms, you choose to depreciate the value of your vacation house “on paper” —even if in reality its value grows. This is how you can lower the tax liability and deduct expenses from your rental income. Also, it’s not possible to depreciate the value of the land itself since it never gets “used up.”

You can begin to write off the depreciation of your vacation home as soon as your rental is fit to host guests.

Important vacation rental property tax deductions rules

Tax deductions are great but you need to ensure you’re eligible according to the IRS and their guidelines. Here’s an overview of the three most prominent rental property tax deduction rules you should bear in mind.

1. Minimum time requirements to qualify for deductions

There is a difference between renting a residential property and a vacation property. According to the IRS , the property you’re renting is to be considered residential if you use it for personal purposes during the tax year for more than 10% of the total days you rent it out, or if you rent it for a maximum period of 14 days. If that’s the case, you can’t apply for rental property tax deductions, but you also don’t need to report your rental income.

2. Tax breaks on certain operating expenses

As we mentioned, operational expenses related to your rental property are subject to tax deductions. However, you need to ensure you divide your personal expenses from rental expenses that can be categorized as a part of business operations.

Here’s an example. You may have a dedicated home office that you use for managing your short-term rental business. In this case, you could be eligible for deductions (e.g. office equipment and supplies). The same goes for vacation home insurance . Comprehensive insurance policy providers such as Safely, are also deductible . It’s also smart to ask for a security deposit for property management to protect your vacation rental from guests’ negligence or carelessness.

Major rental listing services have some insurance policies in place. For instance, there is Vrbo damage insurance and AirBnb’s Host damage protection that provides hosts with $1 million coverage.

3. Qualified Business Income (QBI) deduction requirements

If as a vacation rental owner you registered an official short-term rental business, you may be able to apply for a Qualified Business Income (QBI) deduction . With a QBI deduction, you could save up to 20% of your rental income. The requirement is that you provide at least 250 hours of rental service per year. You are obligated to keep records such as time reports, logs, and other business documents.

How do you calculate the tax on a vacation rental?

In most cases, you will use the Schedule E or Schedule C form to write off your taxes. See the table below to understand what is each respective form used for (both are a part of Form 1040).

You may also need to file Form 6198 and Form 8582 if you have a loss from your rental real estate operations. Form 4562 is used for claiming deductions for depreciation and amortization.

Tax season begins in late January and ends in mid-April.

You can either use the cash method or the accrual method. As a cash basis taxpayer, you report income when you receive it (regardless of when it was earned). If you opt for the accrual method, you report income when you earn it (not when you actually receive it).

The actual tax calculation for your rental business and all the deductibles depend on various factors. Let’s look at one example.

The person doing the taxes has been actively participating in property management. Think everything from handling repairs personally, collecting rent, and conducting marketing activities. Because of this fact, this person can use the $3000 rental loss to offset their other income.

Tax laws are rather complicated, which is why many people opt for hiring a tax advisor to navigate these confusing waters. However, it gets easier to understand the implications for your vacation rental business once you invest some time to read through the IRS guidelines .

You need four pieces of information:

• Type of rental payments received
• Type of rental expenses paid
• The number of days you rented the property
• The number of days you used the property for personal purposes (if applicable).

There’s also an Interactive Tax Assistant that can potentially be of use to you.

Protecting your vacation rental doesn’t have to hit your profits

As you can see, many of your outgoings are viewed as business expenses, and this includes short-term rental insurance.

So you don’t have to cut any corners—you can follow best practices without it affecting your bottom line.

And remember, Safely doesn’t just protect you and your home—it also includes automated guest screening and a fast and simple claims process that pays 80% of claims in three business days.

Frequently asked questions about vacation rental tax deductions

What vacation rental expenses are tax-deductible.

Tax-deductible vacation rental expenses include:

• Short-term rental insurance (like Safely, which includes automated guest screening )
• Marketing and advertising services
• Travel expenses, cleaning, maintenance and improvements, depreciation, repairs, and utilities

Can you write off a vacation home as a business expense?

Your vacation home is considered a business. This means you can deduct various rental expenses, including short-term rental insurance, property taxes, mortgage interest, and property depreciation.

What is the average tax rate on vacation rental income?

For the tax year 2022, the federal income tax brackets range from 10% to 37%.

What is the standard depreciation deduction procedure for a vacation rental?

For more details about how to handle standard depreciation deduction, see the IRS Publication 527 .

Note: This article is meant for informational purposes only. Please be sure to consult your tax professional for full details on short-term rental tax liabilities.

Safely’s Short-Term Rental Protection

Related Resources

Challenges of Managing Rural vs. Urban Vacation Rentals

Pros and Cons of Top OTA Listing Sites Used by Property Managers

The Role of Data Analytics in Property Management 

Navigating the Transition From Traditional Leasing to Short-Term Rentals

Effective Cost Management Strategies for Short-Term Rental Properties

The True Cost of Employee Turnover for a Property Management Business: Impact and How to Minimize It

• Property Manager Tips

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Can You Deduct Your Trip From Your Taxes? Experts Weigh In

P eople are traveling like crazy these days. The Sunday after Thanksgiving 2023 was the biggest single travel day in U.S. aviation history, with TSA screening more than 2.9 million passengers on November 26.

If you're one of those travelers racking up frequent flier miles as quickly as you can fasten your seat belt, you may be looking for ways to recoup some of the cost. Can you legally write off your trip? If you're self-employed (for example, if you're an entrepreneur, freelancer, or consultant, or have an online business) and you did some work while on the road, there's a good chance you can.

Here's what it takes to get two thumbs up from the IRS.

Pass these four tests

For starters, your trip must have a business purpose, meaning it must include activities such as client meetings, attending a conference, being a guest speaker at a conference, doing research and development for the business, or holding a board meeting or annual shareholders' meeting. The activity should have the potential to generate revenue.

"Don't think you can take a personal trip, talk business for an hour and then try and deduct the whole amount of your trip. The intent of the trip needs to be business," says Caitlynn Eldridge, founder and CEO of Eldridge CPA .

The second and third requirements deem that the trip must be both "ordinary and necessary," according to IRS guidelines on business travel expenses . "An ordinary expense means it's typical in your business, both [in terms of] amount [as well as in] frequency and purpose. Necessary means it actually helps you increase your profits or expand your business," explains Tom Wheelwright, a certified public accountant and author of the book Tax-Free Wealth (BZK Press, 2018).

Lastly, every expense must be properly documented. To get a deduction for travel, Wheelwright said that you must spend more than half your time during the business day doing business and have everything documented. "So, if you spend four and a half hours a day doing business, it becomes deductible. You also must have documentation, which includes receipts, of what you did, and a log of your expenses," says Wheelwright.

On receipts, write the name of the client who you had the meal with for further proof. "Save the emailed confirmation and receipt from the hotel reservation or conference ticket payment that show the dates, times, and name of the events as well as the receipts from the travel it took to get there and back [such as for gas or flights]," says Ben Watson, founder of Fiscal Fluency , a personal finance and business coaching company.

Note that for 2024, the IRS mileage reimbursement rate is 67 cents for employees or a self-employed individual traveling for work, up from 65.5 cents in 2023.

Know, too, that you must be away from home overnight-the IRS requires an overnight stay for the trip to qualify as business travel, Wheelwright says.

Domestic travel versus travel abroad

There's a big difference between how you calculate deductions if the work trip was taken in the United States versus abroad. According to Wheelwright, "It's an all-or-nothing test in the U.S., so either you spent more than 50 percent of your time on business, and it's all deductible, or you spent 50 percent or less and none of it's deductible."

For international business travel, the deductions work differently. He explained that when you travel to another country, the deduction is proportionate. "For example, if you spent 40 percent of your time doing business in Italy, then 40 percent is deductible," says Wheelwright.

Stick to the rules

It has to be a legitimate business trip. "You can't simply do some work while on the beach and call it a business trip," says Watson. But if you make it a "bleisure trip" by adding a couple days at the beach onto your preplanned business trip to the coast, you could still write off at least some of your lodging fees, he explained. If you do extend your trip for vacation, you can only deduct the expenses that were directly related to work and took place on the days that you conducted business. If you are traveling to multiple cities, keep in mind that each must have a business purpose.

You do have to work. If you are at a conference, make sure you fully participate, which means not just attending one or two sessions. If you only attend a small number of the business-related events, the entire purpose of the trip would be considered a personal trip with "incidental" business activities, Watson points out. Remember you need a log of what you did, and if it's thin on details, it could prove problematic. "You don't want to lose the ability to deduct transportation, lodging, meals, and other expenses," says Watson.

If it's a business trip of your own making, be sure it includes meetings with clients or participating in some work-related activity. "To demonstrate evidence of these events, it's wise to put calendar appointments down in your phone in advance and hold onto receipts when the time comes to file your tax return and claim your deductions. Remember, the primary purpose of this trip is [supposed to be] for work," says Riley Adams, a CPA and CEO and founder of WealthUp , a financial literacy website.

Don't try to bend what "ordinary and necessary" means. "If you have the ability to accomplish the same business tasks while staying at a modest hotel as you would at the Four Seasons, you'll have a hard time justifying the extra cost if you're ever audited," Watson cautions.

Stay at a place that is similar to places you normally stay on a business trip, so your expenses are considered "ordinary." Wheelwright explains that if you usually stay at five-star hotels for your business trips, then the Four Seasons would fall into the same category. However, if you usually stay at hotels like the Comfort Inn, and suddenly switch to a luxury hotel, the high-end venue could raise red flags with the IRS. He says that it doesn't matter whether you stay at a hotel or a vacation rental, the quality level and price tag should be similar to what is typical for your business trips.

When traveling with non–business companions, such as a spouse or family members, you may only deduct the cost of the lodging you would have paid if you were traveling alone-for example, if a single room costs $150 per night, and you paid $200 for a double room, you could only deduct at the $150 rate.

What can you deduct?

Personal meals are not deductible, but half the cost of food expenses related to business can be deducted. Expenses for your family's meals and entertainment cannot be deducted unless they are actively engaged in the business and you can show that their expense is both ordinary and necessary.

Travel expenses are only deductible on the days in which the work-related event occurs. "For example, a taxi ride to the meeting, train to a conference, or plane ride to the event [are deductible]," says Adams. "Lodging, much like travel expenses, is deductible on the days in which business is set to occur."

Understand too, that if you're provided with a plane ticket paid for by your company, or you're riding free because you're redeeming frequent flier miles, your cost is zero, so you can't deduct it.

But there are a couple of things you may not be aware of. For example, if you have to ship your baggage, you can deduct that cost; you also can deduct for tips for services, such as a tip to the waiter during a meal with a client.

Be strategic

It's best to put your "vacation" days in the middle of the business days, advises CPA Greg O'Brien. "For example, if [a] business owner took a seven-day trip to Florida and spent five days meeting with clients or prospects and two days relaxing on the beach, this would still qualify as a deductible business trip. The trick is to stick the ‘vacation' days in the middle of the business days," he says.

By placing the vacation days in the middle, the travel days to and from are still considered business related, rather than personal.

Watson offers another tip: "Laundry, dry-cleaning and shoe-shine expenses are perfectly acceptable expenses if incurred shortly after returning home."

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Topic no. 511, Business travel expenses

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Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can't deduct expenses that are lavish or extravagant, or that are for personal purposes.

You're traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day's work, and you need to get sleep or rest to meet the demands of your work while away.

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that's your tax home. Your travel on weekends to your family home in Chicago isn't for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.

You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can't deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you'll work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.

Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business. Special rules apply to conventions held outside the North American area.

Deductible travel expenses while away from home include, but aren't limited to, the costs of:

• Travel by airplane, train, bus or car between your home and your business destination. (If you're provided with a ticket or you're riding free as a result of a frequent traveler or similar program, your cost is zero.)
• The airport or train station and your hotel,
• The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
• Shipping of baggage, and sample or display material between your regular and temporary work locations.
• Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
• Lodging and non-entertainment-related meals.
• Dry cleaning and laundry.
• Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
• Tips you pay for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer.)

Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, which varies depending on where you travel. The deduction for business meals is generally limited to 50% of the unreimbursed cost.

If you're self-employed, you can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) , or if you're a farmer, on Schedule F (Form 1040), Profit or Loss From Farming .

If you're a member of the National Guard or military reserve, you may be able to claim a deduction for unreimbursed travel expenses paid in connection with the performance of services as a reservist that reduces your adjusted gross income. This travel must be overnight and more than 100 miles from your home. Expenses must be ordinary and necessary. This deduction is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Claim these expenses on Form 2106, Employee Business Expenses and report them on Form 1040 , Form 1040-SR , or Form 1040-NR as an adjustment to income.

Good records are essential. Refer to Topic no. 305 for information on recordkeeping. For more information on these and other travel expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses .

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Real Estate

By Lisa Hannam on May 3, 2024 Estimated reading time: 6 minutes

How it works: Capital gains tax on the sale of a property

When is capital gains tax payable on the sale of property? And at what rate are capital gains taxed? We answer these questions and more.

Capital gains. Even the mention of these two words together can immediately conjure myths about owing the government 50% of the money earned from selling a home. But, like most rumours, it’s only half true—for now. You may have also heard that Budget 2024, the Canadian federal government introduced an increase on certain capital gains. That’s 100% true.

For individuals with a capital gain of more than $250,000, they will be taxed on 66.67% of the gain as income—up from the current 50% rate, according to Budget 2024 . This inclusion rate change comes into effect on June 25, 2024. Every week, our inbox is full of letters from readers asking how to avoid the capital gains tax. They want to know how to work the system and keep more money in their pockets. Listen, it’s valid to want to hold on to the money earned off of the sale of a secondary residence (cottage, second home) and an investment property (rental or commercial property).

According to RE/MAX Canada’s Cottage Trends in Canada in 2024 report, the average price of a cottage in Canada is expected to rise this year by 6.8% from 2023—which is not small change. So, the idea that you’re forking over half your money simply isn’t true. The need to dispel this rumour is what inspired this guide to capital gains on the sale of property, which will answer the most common questions with our most popular articles on the topic. 

And while we cannot show you how to avoid taxes (it’s one of two things you can’t avoid in life—death is the other), I can share insights on how to use any Canada Revenue Agency (CRA) rules in your favour. 

Why trust us

MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our  advertising and trusted partners .

What are capital gains in Canada?

According to the MoneySense Glossary , “a capital gain is the increase in value on any asset or security since the time it was purchased, and it is ‘realized’ when the asset or security is sold.” In the case of this article, the asset we are dealing with is property, which could be a cottage, second home, investment or rental property, as stated above.

Can you have a capital loss?

Our definition of capital gains begs the question: “Can you have a capital loss?” Yes, you can. A capital loss occurs when you sell a property for less money than you originally purchased it for. In some cases, you might be able to use a capital loss to reduce your income for your tax return, if you are reporting capital gains in the same year. 

Speaking of tax, a capital gains tax is the money owed in taxes from the income earned. It’s not a specific tax, per se…. But more on that below.

For more on the ins and outs of how capital gains works, read: Capital gains explained .

How are capital gains calculated? How are they taxed?

Before we dive into the tax part, let’s go through how to calculate capital gains on the sale of a property. Essentially, this calculation figures out how much the property’s value grew from when you first bought it to the day you sold it. This above is a simple-math calculation of the capital gain.

Capital gain = purchase price – selling price 

We will dive even deeper to reduce the amount of capital gains you would claim on your tax return (more on that below).

So, it’s not that capital gains are taxed at a rate of 50%, but it’s that 50% of the capital gains are taxable. At least until June 25, 2024, when that rate changes to 66.7% for gains more than $250,000. And the capital gains tax rate depends on the amount of your income. You add the capital gain to your income for the year, including money you receive from your job, side hustles, dividends in non-registered accounts, any selling of assets and so on. 

Capital gains are taxed as part of your income on your personal tax return. Below are the federal tax brackets for 202, which can give you an idea of how much tax you may owe for the year. You will need to figure out the provincial tax bracket rate for your province or territory , too. Since Canada has a tiered tax system, you will have to do a bit of math to estimate your annual income tax, breaking down your total tax into the brackets, and the amount owed for each bracket. 

The first column is the tax rate, meaning the percentage of the income that is considered taxable (this doesn’t include deductions, of course). The second column is the range of income for that tax rate. Say you earn $60,000 a year, $55,867 would be within the 15% tax rate and $4,133 is in the 20.5% rate ($60,000 – $55,867). That’s right your income is taxed through the tax brackets, and not on a flat tax rate. This is what’s called “a progressive tax system,” meaning that Canadians with lower incomes are taxed at a lower rate, and tax rates rise incrementally for higher-income earners.

Read on for the provincial and territorial tax brackets .

And, of course, to really get down to the nickel of how much you ultimately owe, you will need to do your tax return and receive a notice of assessment. 

It’s worth noting that there can be other factors for calculating capital gains. Here are some articles that delve deeper into some of these specific situations.

• Can transferring ownership of a house help avoid probate tax?
• Federal Budget 2024: How it will affect Canadians’ finances and taxes
• Cutting down on tax payable when selling real estate

Can you avoid capital gains tax?

It’s not so much that you can avoid capital gains tax, but that there are CRA rules that you can take advantage of to reduce the amount you may owe . Here are a few: 

Principal residence exemption

First is the principal residence exemption. You don’t pay tax on the sale of your home, but you may have to for a secondary property or residence, and/or investment property. According to the CRA, a property is exempt from capital gains tax if your situation meets these four criteria:

• “It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
• “You own the property alone or jointly with another person.
• “You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.
• “You designate the property as your principal residence.”

Accounting for outlays and expenses

There is also accounting for outlays and expenses. From your capital gain, you can subtract the costs necessary for selling the property, such as renovations and maintenance expenses, finders’ fees, commissions, brokers’ fees, surveyors’ fees, legal fees, transfer taxes and advertising costs.

Claiming capital losses

You can also claim capital losses when you have capital gains. So if you have assets, not limited to property, that you earned income on, you can lower your gains by applying your capital losses to that amount (until it reaches $0). That can be losses from other property, investments in non-registered accounts, and other capital. 

The Ask MoneySense column has answered the following questions on reducing the amount of income for capital gains: 

• When does the “plus 1” rule apply to a principal residence?
• How capital gains tax on property is divided in a divorce
• The tax implications for Canadians selling foreign real estate
• Capital gains when selling property to family

Who pays capital gains?

The obvious answer is whomever is earning the capital gain, right? Not always. There can be less obvious scenarios involving multiple owners or even unfortunate situations that include the death of a property owner. If that’s the case for you, our readers can relate. Here are some of the tricky circumstances they have faced when selling a property. 

• How to carry back a capital loss for a tax refund
• The tax implications of buying a second home in Canada
• When your child moves into your rental property: Capital gains and how to claim principal residence exemption

Other questions about capital gains

We also have a category of questions about capital gains that can’t be categorized, but these articles are popular with readers. So we hope that they may be an asset to you, too—free of charge (see what I did there?).

• Reducing capital gains on a cottage
• Can you save tax by moving into your rental property?
• Principal residence exemption on death and capital gains with joint tenancy

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These Liberals have to GO before they completely ruin our country

Justin Trudeau is destroying the Canadian dream.

I wish more people understood how this works because we paid capital gains in 2018 and with these changes we would have paid LESS. The people saying the liberals need to go don’t understand basic math.

That’s B.S. Mary Smitt. The LIBERALS increased the capital gains from 50% to 66.65%. If you paid capital gains in 2018, you would be paying an incredible amount more. And if you think the Liberals are good for Canada, then you are part of the problem we have today.

Can you deduct the interest you paid on a mortgage as part of the capital gain?

If one buys property for 200,000 and sells for 400,000 but there is still mortgage of 100,000 on it, what is the real capital gain? Is it 200000 or 100000 less other expenses?

What happens if I sell a rental property and there is mortgage that I must pay back. It is not a gain and must be returned to financed. Can you comment on this please.

how do i sell 50% of my rental house to my daughter without paying capital gains on the entire amount? i assume im selling i have to sell 100 percent of my house ; 50% to my daughter and 50%back to me (i am selling entire house technically.Do i have to pay capital gains on entire sell ) i have 1,000,000 gain (i bought a house for 300,000 30 years ago and now it sells for 1,300,000)

Just to let you know, the links under Ask MoneySense above don’t seem to be correct (e.g. selling foreign property).

Thank you for letting us know. We have updated the links.

There’s some confusion all over the internet on how this is applied. If I sell a rental property and my capital gain is $240,000. I assume I’m still taxed on 50% of that. So $120,000 is added to my income for the year and then taxed at my marginal tax rate. But, with the new Capital Gains adjustment , if I sell for a capital gain of $300,000 how much is eligible to be taxed; a. 50% of the first $250,000 – ($125,000), plus 66.66% of the remaining $50,000 ($33,300), for a total of $158,300 at my marginal tax rate: OR b. 66.66% of $300,000. Thus $199,800 added to taxable income, at my marginal tax rate.

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