Updated for 2026
Four figures moved. The standard mileage rate is 72.5 cents, up from 70. The section 179 limit is $2,560,000. The state and local tax cap is $40,400 — and it still does not touch the property taxes on a rental. Bonus depreciation is back at 100% for property acquired after January 19, 2025, which changes what a cost segregation study is worth.
- Two of the ten are most of the money. On a typical single rental, depreciation and mortgage interest are just under 70% of every dollar deducted.
- The $40,400 SALT cap does not apply to rental property taxes. Section 164(b)(6) carves out taxes paid in carrying on a trade or business, so they run through Schedule E in full.
- Repairs versus improvements is where money is actually lost, and three safe harbors decide it — one of which is all-or-nothing at a dollar over the threshold.
- None of it may be deductible this year. Rental losses are passive by default, and section 461(l) caps what survives at $256,000, or $512,000 jointly.
Most lists of real estate deductions are a naming exercise. They tell you that insurance is deductible, which you knew, and stop before the two questions that decide what you actually pay: how big the deduction is, and whether you are allowed to use it this year.
This one is ordered by how much money each line moves, and it says what goes wrong on each. The figures are current for the 2026 tax year and every one is sourced at the bottom.
What the ten look like on one rental
If you read nothing else, read this. One duplex, bought for $500,000 in January 2026 with 20% allocated to land, financed with $380,000 at 6.5%, renting for $3,500 a month.
| On Schedule E | Amount |
|---|---|
| Rents received | $42,000 |
| Mortgage interest | ($24,600) |
| Depreciation | ($14,545) |
| Property taxes | ($7,200) |
| Repairs and maintenance | ($2,400) |
| Insurance | ($1,800) |
| Management fees | ($3,360) |
| Legal and professional | ($900) |
| Auto and travel — 800 miles at 72.5 cents | ($580) |
| Utilities and supplies | ($1,200) |
| Advertising and tenant screening | — |
| Net rental loss | ($14,585) |
Interest and depreciation are $39,145 of the $56,585 deducted — just under 70%. The other eight together are less than a third. That is worth knowing before spending a weekend reconstructing receipts for supplies.
The one-line version. Get the depreciation schedule right and the rest is bookkeeping. Figures are illustrative and rounded.
The two that are most of the money
Depreciation
You deduct it without spending anything, which makes it the only line on the list that improves your return without costing you cash. Residential rental property is written off over 27.5 years, straight line, using the mid-month convention, so a property placed in service in September gets three and a half months in year one.
Two decisions set the size of it, and both are usually made once and never revisited. The first is how much of the purchase price you assigned to land, which is not depreciable. Most returns use the county assessor’s ratio because it is printed on the tax bill; it is rarely the best supportable figure. The second is whether anything was broken out of the building — appliances, flooring, cabinetry, paving, fencing all have shorter lives. A cost segregation study is what separates them, and with bonus depreciation restored to 100% for property acquired after January 19, 2025, those components come off in year one instead of over five to fifteen years.
If prior years were wrong, you do not amend. A change in accounting method on Form 3115 brings the whole cumulative understatement into the current year. The mechanics are in our guide to calculating depreciation on a rental.
Mortgage interest
Interest on money borrowed to buy or improve a rental is deductible in full on Schedule E. It is not subject to the $750,000 acquisition-debt limit that applies to a personal residence — that limit lives in section 163(h) and governs the home mortgage interest deduction, not rental property.
What matters instead is tracing. Interest follows the use of the borrowed money, not the property pledged as collateral. Cash taken out of a rental refinance and spent on a personal car is personal interest and not deductible; money borrowed against your home and used to buy a rental is deductible on Schedule E. Keep the paper trail at the time, because reconstructing it three years later rarely works.
The three where guessing costs money
Property taxes
This is the line most investors get wrong, because they have read about the cap. The state and local tax deduction is limited to $40,400 for 2026 under section 164(b)(6). That limit applies to individual deductions on Schedule A.
It does not apply here. The statute carves out taxes “paid or accrued in carrying on a trade or business or an activity described in section 212” — which is exactly what a rental is. Property taxes on a rental run through Schedule E in full, however large, and they do not consume any part of your personal cap.
Worth checking on your last return. If a preparer moved rental property taxes onto Schedule A, or limited them, the deduction was reduced for no reason. It is a common enough error to be worth a look.
Repairs and maintenance
A repair is deducted this year. An improvement is capitalized and recovered over 27.5 years. The difference on a single item can be thousands of dollars of timing, and three safe harbors in the tangible property regulations decide most cases:
| Safe harbor | Threshold | The catch |
|---|---|---|
| De minimis | $2,500 per invoice or item without an applicable financial statement; $5,000 with one | Requires a written accounting policy in place at the start of the year, and an annual election |
| Small taxpayer | Building unadjusted basis under $1,000,000, and total spend on that building for the year at or under the lesser of $10,000 or 2% of its unadjusted basis | All or nothing. One dollar over and none of it qualifies |
| Routine maintenance | Work you reasonably expect to perform more than once in a 10-year period | Does not cover betterments or restorations, however routine they feel |
A worked example. On the $500,000 duplex above — $400,000 of it building — you spend $9,000: a $800 dishwasher, $4,500 to repaint the exterior, $3,700 to replace all the windows.
The small taxpayer safe harbor is the one you would want, and it fails. Two percent of the building’s $400,000 unadjusted basis is $8,000, which is less than $10,000, so $8,000 is the ceiling — and $9,000 is over it. The safe harbor is all-or-nothing, so none of the $9,000 gets in that way.
What survives: the dishwasher is deducted under the de minimis safe harbor, the repaint is a repair, and replacing every window is a restoration that gets capitalized at $134 a year. $5,300 deducted now instead of $9,000 — and had the total come in at $7,900, the whole amount would have been deductible.
Travel and auto
Driving to the property, to the hardware store, to the management company and to the closing is deductible at 72.5 cents a mile for 2026, or on actual expenses if you prefer to track them. Overnight travel to inspect or work on an out-of-area property is deductible; the day you spend at the beach on the same trip is not.
This is the line examiners look at first, because it is the one most often estimated at year end. A contemporaneous log — date, miles, purpose — is the difference between a deduction that holds and one that does not. Our guide to travel, meals and property expenses goes through what the substantiation actually has to show.
What gets missed here is usually missed in the bookkeeping. Deductions that are simply claimed still need records that hold up, and that work happens during the year. How the firm works with real estate investors.
The five that are simply claimed
These are real deductions and they add up, but there is no judgment involved. Claim them, keep the invoices, and spend your attention on the first four.
| Deduction | What it covers |
|---|---|
| Insurance | Landlord, liability, flood and umbrella coverage on the property. Prepaid premiums covering more than 12 months are spread. |
| Property management | Management fees, leasing commissions and the on-site labor a manager bills through. |
| Legal and professional | Return preparation attributable to the rental, evictions, lease drafting and bookkeeping. Fees to acquire the property are added to basis instead. |
| Utilities and supplies | Anything you pay rather than the tenant, plus cleaning, lawn care and the consumables that go with turnovers. |
| Advertising and screening | Listing fees, photography, signage, credit and background checks. |
The rule that decides whether any of it counts
Every deduction above produces a loss on paper. Whether that loss reduces your tax this year is a separate question, and for most investors the answer is no.
Section 469 treats renting property as a passive activity by definition, no matter how many hours you put in. Passive losses offset passive income and nothing else; the remainder suspends on Form 8582 until you have passive income or you sell. There are three ways out, and they are not equally available:
- The $25,000 special allowance, which requires active participation and modified AGI under $100,000, falls by 50 cents on the dollar above that, and is gone at $150,000.
- The short-term rental exception, which takes property with an average guest stay of seven days or less outside the definition of a rental activity. You still have to materially participate.
- Real estate professional status, which needs more than half your personal services and more than 750 hours in real property trades or businesses, plus material participation in the rentals.
And above all three sits section 461(l): even a released loss is capped, with anything over $256,000 — $512,000 on a joint return — carried forward as a net operating loss. We cover that ceiling in detail in the 2026 excess business loss limitation.
What to do about it
- Pull your depreciation schedule and check the land allocation. It is the single largest number on the list and the one most likely to have been set by default years ago.
- Check whether rental property taxes were capped or moved to Schedule A. They should not have been.
- Put a written de minimis policy in place before January 1. The safe harbor is not available retroactively, and it is a one-page document.
- Track the total spend per building through the year, not just per item, so the small taxpayer ceiling is a decision rather than an accident in December.
- Decide the passive loss question before you plan around a deduction. A deduction you cannot use this year is a deferral, not a saving.
- Keep books by property. Ours is a short guide to the chart of accounts that makes all of the above straightforward.
Frequently asked questions
Can I deduct my rental property taxes if I already hit the SALT cap?
Yes. The cap in section 164(b)(6) — $40,400 for 2026 — applies to individual state and local taxes on Schedule A. The statute expressly excludes taxes paid or accrued in carrying on a trade or business or a section 212 activity, and a rental is one. Property taxes on rental property are deducted in full on Schedule E and do not use up any of your personal cap. If your last return shows them limited, that is worth a second look.
Is a new roof a repair or an improvement?
Replacing an entire roof is a restoration and gets capitalized over 27.5 years. Patching a section of it is a repair. The line is drawn at the unit of property: work that betters, restores or adapts the building is capitalized, and work that keeps it in ordinary operating condition is deducted. The small taxpayer safe harbor can override that for smaller buildings, but only if total spend on that building for the year stays at or under the lesser of $10,000 or 2% of its unadjusted basis.
Why does my rental loss not reduce my tax bill?
Because it is passive. Section 469 classifies rental activity as passive regardless of effort, so the loss offsets passive income only and otherwise suspends on Form 8582 until you have passive income or dispose of the property. The three exits are the $25,000 allowance, which phases out between $100,000 and $150,000 of modified AGI; the short-term rental exception for average stays of seven days or less; and real estate professional status. The suspended losses are not lost — they release on a fully taxable sale.
Can I use section 179 on a rental property?
On some of it. Section 179 does not apply to residential rental buildings, but it does apply to qualifying personal property used in the rental and to certain improvements to nonresidential real property such as roofs, HVAC, fire protection and security systems. The 2026 limit is $2,560,000, phasing out above $4,090,000 of qualifying purchases. For most residential investors bonus depreciation on cost-segregated components is the more useful of the two.
Do I need to track mileage, or can I estimate it at year end?
Track it. Auto and travel is the most commonly examined line on Schedule E precisely because it is the one most often reconstructed in April. The substantiation rules want date, mileage and business purpose recorded at or near the time of the trip. A phone app takes seconds a trip and turns a vulnerable deduction into a settled one. At 72.5 cents a mile for 2026, a landlord driving 2,000 miles a year is defending $1,450.
What can I deduct in the year I buy, before there is a tenant?
Less than most people expect. Costs to acquire the property — title, survey, most legal fees, transfer taxes — are added to basis rather than deducted. Costs to get the property ready for its first tenant are generally capitalized too. The clock starts when the property is placed in service, meaning available for rent, not when you close. Loan costs are amortized over the term. Travel to find and evaluate properties before you own any is investigatory and generally not currently deductible.
Does a home office count if I manage the rentals myself?
It can, but the ground is narrower than for an operating business. The space must be used regularly and exclusively for the activity, and the activity has to rise to a trade or business rather than a passive investment — a distinction that matters more with one property than with ten. The simplified method allows $5 per square foot up to 300 square feet. Where a home office is claimed against a rental activity, the deduction generally follows the same passive loss limitations as everything else on Schedule E.
Related reading
- How to calculate depreciation on a rental property — the land allocation, the conventions and the first-year arithmetic.
- Cost segregation: when it is worth it — and when the study costs more than it returns.
- Real estate professional status — the two tests and the records that survive an examination.
- Depreciation recapture on sale — what every deduction above costs you at the exit.
- Real estate CPA services for investors — how we handle this work.
Have someone check the depreciation schedule
It is the largest number on this list and the one most likely to have been set once and rolled forward ever since. We look at the land allocation, the in-service dates and whether anything should have been broken out of the building, and tell you what a corrected schedule is worth before you commit to anything. We can work with you in any state.
General information for the 2026 tax year, not advice on your situation. Figures in the examples are illustrative. Sources: IRS Publication 527 and Publication 946; the tangible property regulations and Notice 2015-82 for the $2,500 de minimis threshold; Notice 2026-10 for the mileage rate; Rev. Proc. 2025-32 sections 4.24 and 4.31 for the section 179 and excess business loss figures; and IRC section 164 and section 469.
