Owning a rental can be a solid wealth builder, but the tax side is where people either save real money or accidentally overpay. This guide explains what gets taxed, what you can deduct, and the few rules that trip landlords up most often.
Rental income: what the IRS treats as taxable
Rental income is not just monthly rent. In general, you report rent you receive for the use of the property, plus other amounts connected to the rental. Common examples include advance rent, payments a tenant makes on your behalf (like covering a repair you were responsible for), and fees you keep (like certain late fees or lease cancellation fees, depending on the facts).
If you rent out only part of your home or you also use the property personally, the rules change because you may have to split expenses between personal and rental use.
Where rental income is reported
Most small landlords report rental income and expenses on Schedule E attached to their individual return.
If your rental activity looks more like running a hotel (for example, short stays with substantial services), the tax treatment can shift toward business income, but a typical long term rental is usually handled on Schedule E.
What you can usually deduct
The IRS generally allows ordinary and necessary expenses to manage, conserve, and maintain rental property.
Typical deductible categories often include:
- Mortgage interest
- Property taxes
- Insurance
- Repairs and maintenance (not improvements)
- Utilities you pay
- HOA fees (if they are your expense)
- Advertising, tenant screening, and leasing costs
- Property management fees
- Travel that is directly tied to managing the rental (when it meets tax rules)
- Professional services like bookkeeping and tax prep for the rental portion
Publication 527 is the best starting point because it covers rental income, deductible expenses, and how to report them.
Repairs vs improvements
This is where people mess up. Repairs keep the property in ordinary efficient operating condition. Improvements add value, extend useful life, or adapt the property to a new use. Improvements are typically capitalized and recovered through depreciation, not deducted all at once.
Depreciation: the biggest tax benefit most owners underuse
Depreciation is a non cash expense that lets you deduct the cost of the building over time (land is not depreciated). This is one of the main reasons rentals can look “profitable” on paper even when cash flow is tight.
Publication 527 covers what can be depreciated, how depreciation works for rental real estate, and reporting basics.
Passive loss limits: why you might not be able to use your rental loss this year
In many cases, rental activity is treated as passive, which means losses are limited. You often cannot use rental losses to offset your wages or other non passive income unless you qualify for an exception.
There is a common exception called the “special allowance” for rental real estate that may let some taxpayers deduct up to $25,000 of rental real estate losses, with the allowance phasing out as income rises. The IRS covers the concept and mechanics in its passive activity guidance.
If you cannot use the loss this year, it does not automatically disappear. Passive losses can carry forward and may be used in future years when you have passive income, or when you dispose of the activity under the applicable rules.
What happens when you sell
When you sell a rental, your taxes can include:
- Capital gains on the profit
- Depreciation recapture on depreciation you claimed or were allowed to claim
Publication 527 covers reporting and also points you toward the right rules when you sell or convert property.
Clean recordkeeping that makes taxes easy
If you want rental taxes to be simple, do this:
- Keep a separate bank account for the rental
- Save receipts and invoices for every deductible expense
- Track mileage only when it is directly rental related
- Keep settlement statements from purchase and sale
- Keep a depreciation schedule (or have your CPA maintain it)
This is not just about organization. It is what protects you if questions come up later, especially around repairs vs improvements and large losses.
Quick notes for Florida landlords
You do not need to plaster location everywhere in your blog, but a short local section helps readers.
- Florida has no state personal income tax, so the main income tax rules landlords deal with are federal.
- If you do short term rentals (living, sleeping, or housekeeping accommodations for six months or less), Florida sales tax can apply.
- Florida repealed sales tax on many commercial lease payments for rental periods beginning on or after October 1, 2025, but certain categories remain taxable (like transient rentals, parking, boat slips, and similar items).
One line that keeps you safe
This article is general information, not tax advice. Rental tax rules get personal fast based on income level, personal use, short term vs long term, and how you title the property. For anything material, a CPA who works with real estate is worth it.
