Personal Finance

Pay Less in Taxes: Essential Deductions for Rental Property Investors

3 Articles Written
closeup of hand using scissors to cut paper that reads taxes

Want to keep more of your hard-earned dollars in your pocket? Making sure you are maximizing tax deductions on your rental properties is one of the best ways to do that.

Stessa teamed up with top tax strategists over at the Real Estate CPA to bring you the top tax deductions for rental owners. We cover everything from home office, mileage, and repairs and maintenance to the new Tax Cuts and Jobs Act 100% bonus depreciation (limited time opportunity) and Opportunity Funds.

How to Lower Your Tax Bill

All real estate investors will benefit from taking a proactive approach to taxes. The reality is there is little you can do retroactively to impact your results once the year ends.

Use the guide below to develop a plan and start implementing strategies now to deliver the best results for the next tax filing season.

Here are some of the most important deductions and strategies to reduce and defer taxes that investors should be aware of:

  • Depreciation: This is one of the biggest and most important deductions for rental property investors because it reduces taxable income without impacting cash flow. Since land cannot be depreciated, the preferred strategy is to allocate as much of the property’s purchase price to the building as possible to maximize your depreciation expense.

  • Home Office: As a rental property owner you can dedicate a room, or a portion of a room, exclusively for home office purposes to claim what is often a significant tax deduction. The presence of an official home office also allows you to deduct local transportation expenses, including auto mileage.

  • Repairs & Maintenance: When you incur repair and maintenance or renovation expenses, you’ll want to classify as much as possible as standard repairs and maintenance to deduct them in the year incurred.

  • 1031 Exchanges and Opportunity Funds: These offer additional methods to defer and reduce taxes. 1031 Exchanges allow you to defer both the capital gains tax and depreciation recapture from the sale of a property and invest the proceeds into another “like-kind” property, often called “trading up.” Introduced by the Tax Cuts and Jobs Act, Opportunity Funds allow you to defer and reduce the capital gains tax from the sale of any capital asset.

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Related: 4 Helpful Tax Tips for Overwhelmed Landlords

Do you have further questions about any of these tax strategies or about lowering your tax bill as a real estate investor?
Ask in a comment below!

Devin Redmond has acquired, developed, and managed investment property across Northern California since 2005. He's currently Head of Customer Success at Stessa, a free software platform that provides automatic income and expense tracking to rental property owners. Devin's long-running love-hate relationship with Excel uniquely positions him to help end investors' reliance on spreadsheets once and for all.

    Dawn Vought Buy and Hold Investor from Commack, New York
    Replied 5 months ago
    What form do we use to take the home office deduction? Do we put that on Schedule E somewhere?
    Natalia Sturza
    Replied 5 months ago
    These expenses most likely will go to Schedule A where all the home-related itemized deductions are claimed. Ref:
    Yaminah Muhammad
    Replied 5 months ago
    Great and informative article! Thanks for sharing!
    Debra K Rubio
    Replied 5 months ago
    Great information. Thank You.
    Troy Pedigo
    Replied 5 months ago
    Wonderful post. Thanks!