A Simple Guide to Tax Deductions for Your Rental Property

Managing a rental property comes with its perks, but it also means navigating the world of tax deductions. The good news? With the right tools and a little know-how, you can maximize your deductions and minimize your tax bill. Here’s a simple guide to help you through the process.

Use TurboTax (or a Similar Tool)

If you’re new to rental property deductions, using a tool like TurboTax can make the process easier. TurboTax is run by Intuit and even integrates with QuickBooks Online if you want to get into the finer details. It allows you to input your expenses and automatically calculate the deductible amounts, saving you time and reducing errors.

Calculating Rental Expense Deductions

When deducting expenses related to your rental property, you’ll need to prorate certain costs based on the space you’re renting out. Here’s how to do that:

1. Determine the Rental Space Percentage
   Divide the size of your rental unit by the total area of your home. For example, if your rental unit is 700 sq ft and your total home is 3,000 sq ft, that equals approximately 23% (700/3,000 = 0.233).
2. Apply This Percentage to Monthly Costs
   You can deduct this percentage of monthly housing expenses, including:

• Utilities (electricity, water, internet)
• Property taxes
• Home insurance
• General home maintenance and repairs

Many tax software programs, including TurboTax, allow you to enter the full amount and then apply a percentage. Alternatively, you can calculate the deductible amount manually.

Mortgage Interest Deductions

You can also deduct a portion of your mortgage interest. Use the total interest from your 2024 mortgage statement (not individual monthly payments) and apply the same rental space percentage.

 Important: You can only deduct the interest portion of your mortgage payment—not the principal, which goes toward paying down your loan balance.

Phone Expense Deductions

If you use your phone for managing the rental, you can deduct a reasonable percentage of your bill. 25% is a safe estimate, while 50% might be the upper limit if you use it extensively for rental-related tasks.

Accounting for Partial-Year Rentals

If your rental unit was only in operation for part of the year, you need to adjust your annual expenses accordingly.

For example, if you rented for 4 months, you would deduct 4/12ths (33.33%) of annual costs like:

• Mortgage interest
• Property taxes
• Home insurance

For monthly costs, you can simply use the bills from the months the unit was rented.

Fully Deductible Rental Expenses

Certain costs are 100% deductible if they are directly related to the rental unit. These include:

• Appliances purchased for the rental (e.g., a new fridge)
• Repairs specific to the rental unit (e.g., fixing a plumbing issue)
• Setup costs (e.g., painting, disposal fees)

You can also deduct any leasing fees or report the net rent you received after these costs.

What If You Show a Profit or a Loss?

Once you add everything up, you may find you’re either breaking even, showing a loss, or making a profit:

• If you show a loss: This could lead to a small tax refund.
• If you show a significant profit: Reach out, and we can discuss strategies to minimize your tax liability.

Don’t Stress—You’ve Got This

The process may seem complex, but it’s manageable with the right approach. Even if you make a minor mistake, it’s unlikely to cause major issues. The chances of an audit are relatively low, especially for honest landlords reporting their income accurately.

If you’re unsure about anything or want to go over the finer points, feel free to schedule a call. We’re here to help make tax season a little easier.



Happy Renting!