Many real estate investors miss thousands of dollars in available tax savings every year—not because they’re careless, but because they don’t know what deductions exist or how to claim them correctly.

The U.S. tax code is complex, but for rental property owners what really matters boils down to three things:

• which expenses can be deducted immediately,

• which ones must be added to your property’s cost basis and depreciated over time, and

• how the 2025 tax law changes under the One Big Beautiful Bill Act (OBBBA) reshape the landscape for real estate investors.

With permanent 100% bonus depreciation, doubled Section 179 limits, and the continuation of the qualified business income deduction, 2025 is one of the most favorable tax years in decades for real estate investors who know how to maximize their write-offs.

The Big Picture: How Real Estate Tax Deductions Actually Work

Before diving into the 23 specific deductions, it helps to step back and see how the IRS buckets real estate expenses. Broadly, they fall into three categories:

• Current-year deductions — reduce taxable rental income right away. Think repairs, property management fees, utilities, and insurance.
  
  

• Capital improvements — extend the life or increase the value of a property. These get added to your property’s basis and written off through depreciation (27.5 years for residential, 39 years for commercial). New roofs and HVAC systems usually fall here.
  
  

• Equipment and personal property — often eligible for immediate expensing under Section 179 or bonus depreciation. Under the 2025 OBBBA changes, bonus depreciation is permanently 100%, and Section 179 limits doubled.

Understanding which bucket an expense falls into is critical. Claiming an improvement as a repair (or vice versa) can trigger IRS scrutiny and cost you deductions.

Jess Holt, one of Town’s Sr. Tax Managers, often tells clients: “Think of deductions as timing tools. You’ll usually get the deduction one way or another—the real question is whether you get it today, or spread it over decades.”

What Changed in 2025: New Opportunities for Real Estate Investors

OBBBA made several permanent changes that tilt the math in favor of property owners:

• 100% bonus depreciation made permanent for property acquired after Jan. 19, 2025.

• Section 179 limits doubled — up to $2.5M in deductions, with a $4M phase-out threshold.

• Qualified Business Income (QBI) deduction continued beyond 2025, with higher income thresholds and clearer material participation rules.

• SALT cap raised — personal deduction cap increased to $40,000, but remember this applies to Schedule A, not rental property taxes (Schedule E).

• Excess Business Loss limits made permanent, meaning large rental write-offs can’t always offset other income.

Jess Holt notes: “2025 is the first year in a long time where we can build tax plans knowing these rules are permanent — not temporary extenders that might vanish in a few years.”

The 23 Essential Tax Deductions for Real Estate Investors

Startup and Business Management Expenses

1. Professional Services

Attorney fees, accounting costs, and consulting tied to your rentals are fully deductible in the year paid (evictions, lease drafting, tax prep, disputes).

2. Educational Expenses

Workshops, books, and courses are deductible if they improve or maintain your skills in an existing rental activity. Training for a new line of business isn’t deductible.

3. Bank and Credit Card Fees

Business checking fees, wires, and tenant payment processing costs all qualify. A dedicated business account keeps the audit trail clean.

4. Tenant Screening Costs

Application software, background checks, and credit reports are deductible—even for applicants you reject.

5. Home Office Expenses

For home office expenses, if a space is used regularly and exclusively to manage rentals, you can use either:

• Simplified method: $5/sq. ft. up to 300 sq. ft. (max $1,500), or

• Actual expenses: pro-rated share of mortgage interest/rent, utilities, insurance, and repairs.

Jess’s insight: One client wasn’t sure her small den qualified because it doubled as storage. Jess explained the exclusive-use rule and helped her reorganize to qualify, securing a $900 deduction that would otherwise be lost.

Day-to-Day Operating Expenses

These are the recurring costs of running rentals—the heart of most landlords’ returns.

6. Mortgage Interest

Fully deductible for rentals with no cap (unlike the personal residence limit). On a $300,000 loan at 7%, that’s about $21,000 of deductible interest in year one.

7. Property Management Fees

Fees paid to a management company (often 8–12% of rents) or tenant-placement contractors are deductible.

8. Repairs and Maintenance

Patching drywall, unclogging drains, repainting between tenants—deduct immediately. Projects that extend life or increase value (e.g., a new roof or HVAC) must be capitalized and depreciated.

9. Property Taxes

Rental property taxes are fully deductible as business expenses. The $40,000 SALT cap applies to Schedule A itemized deductions, not to rental Schedule E expenses.

10. Insurance Premiums

Deduct landlord policies, liability coverage, flood insurance, and rent-guarantee coverage.

11. Utilities You Pay

Water, sewer, trash, gas, electricity—if you pay them for tenants or during vacancies, they’re deductible. Track by property.

12. Landscaping and Snow Removal

Ongoing yard work and seasonal services are current-year deductions (including one-off cleanup).

13. Advertising and Marketing

Listings, professional photos, yard signs, flyers, and business cards are deductible.

Vehicle, Travel, and Technology Expenses

14. Vehicle Expenses

For vehicle expenses, every mile you drive for your rental business counts—whether it’s meeting contractors, showing units, or picking up supplies. For 2025, the IRS standard mileage rate is 70¢ per mile (5,000 miles = $3,500). Alternatively, you can deduct actual costs (gas, insurance, repairs) based on your business-use percentage.

Jess’s tip: One investor was splitting miles between multiple rentals but kept a single lump log. Jess recommended that he use a mileage app that tags trips by property, making deductions easier to substantiate—and protecting him in the event of an audit.

15. Travel Expenses

Overnight, out-of-area trips to manage or acquire properties: airfare/train/car, lodging, and 50% of business meals. If the primary purpose is business, transportation is generally deductible even with some personal sightseeing.

16. Technology and Software

Phones, laptops, tablets, and internet used to manage rentals are deductible, along with: property-management and rent-collection software, accounting tools, and e-signature apps.

17. Tools and Equipment

Pressure washers, lawn equipment, lock sets, and similar items are typically expensed. Larger equipment may qualify for §179 or bonus depreciation (see next section).

Depreciation and Capital Improvement Strategies

Some of the largest real estate deductions don’t come from day-to-day expenses but from how you handle big-ticket property and improvement costs. Depreciation rules can stretch write-offs across decades—or accelerate them into immediate savings if you use the right tools.

18. Building Depreciation

The IRS lets you recover the cost of the building (not the land) over time:

• 27.5 years for residential rental property

• 39 years for commercial property

Example: If 80% of a $400,000 property’s purchase price is allocable to the building, you’ll depreciate $320,000 over 27.5 years, generating about $11,636 in annual deductions.

19. Cost Segregation Studies

A cost segregation study breaks down your building into components, like carpeting, cabinets, or appliances, that can be depreciated over 5–7 years instead of 27.5.

• Typical cost: $5,000–$15,000 for a professional study.

• Typical benefit: $15,000–$50,000 in first-year deductions for mid- to large-sized properties.

Jess’s insight: A client with four rentals assumed everything had to be depreciated over 27.5 years. Jess recommended a cost segregation study, which reclassified $200,000 of components into shorter recovery periods. That produced an extra $45,000 deduction in year one—far exceeding the cost of the study.

20. Bonus Depreciation

Under the OBBBA, 100% bonus depreciation is now permanent for qualifying property acquired after January 19, 2025. This allows you to deduct the entire cost of eligible improvements and personal property in the year placed in service.

• Applies to: appliances, carpeting, furniture, land improvements, and other personal property with a recovery period of 20 years or less.

• Does not apply to: structural components of a building like roofs, HVAC systems, or fire protection systems (those remain 27.5 or 39-year property).

Maria’s example: In 2025, Maria purchased $150,000 of appliances and fixtures across several units. Before OBBBA, she would have depreciated them over 5–7 years. Jess applied the new 100% bonus depreciation rules, allowing Maria to deduct the full $150,000 in 2025—significantly boosting her cash flow.

21. Section 179 Deduction

Section 179 also allows immediate expensing of qualifying property. The OBBBA doubled the limits to:

• $2.5 million deduction cap

• $4 million phase-out threshold

This makes Section 179 more useful for investors with large portfolios and substantial equipment purchases.

Key differences from bonus depreciation:

• Section 179 has dollar limits; bonus depreciation does not.

• Section 179 applies to tangible personal property and certain improvements to nonresidential real property (like roofs, HVAC, fire protection, and alarm systems).

• Residential rental property owners generally cannot use §179 for structural improvements such as a new roof or HVAC system—those must be depreciated over 27.5 years.

• Both provisions can be combined strategically: bonus for personal property, Section 179 for qualifying commercial improvements.

High-Impact and Less Common Deductions

Not every deduction applies to every landlord, but this final item can make a huge difference if you qualify.

22. Qualified Business Income (QBI) Deduction

If your rental activity rises to a trade or business, you may qualify for up to 20% of net rental income as a deduction under §199A. OBBBA extended QBI beyond 2025 and raised certain thresholds. Key rules:

• Show a profit motive and adequate participation.

• Aggregating multiple rentals can help qualification.

• REIT dividends and certain PTP income may also generate a QBI deduction.

Jess’s client case: A couple with five rentals had inconsistent records that jeopardized eligibility. Jess aggregated their rentals into a single activity and tightened documentation—unlocking an $18,000 QBI deduction in 2025.

23. Bad Debt

A bad debt deduction applies when income was reported but ultimately never received. This deduction is available only if you use the accrual method and already reported rent as income. If a tenant never pays, you can claim a deduction. Most small landlords use cash accounting, so this rarely applies.

Note on Casualty Losses 

Losses from fire, storm, or flood are deductible only if tied to a federally declared disaster (and certain state-declared disasters starting in 2026). Without that designation, no deduction is allowed. Always subtract any insurance reimbursements.

Note on Startup Expenses

The rule for startup expenses applies when you’re launching your rental business (before the first property is available for rent). Up to $5,000 can be deducted in the first year once business actually starts; the rest is amortized over 15 years. Established landlords generally won’t have startup costs unless they form a brand-new entity with its first property.

Example: An investor spent $6,800 in 2025 on entity setup, property inspections for two failed deals, and pre-opening advertising. They deducted $5,000 immediately and amortized the remaining $1,800.

Maximizing Your 2025 Tax Strategy

Knowing the deductions is only half the battle — the real savings come from when and how you use them. With the OBBBA making several key tax breaks permanent, 2025 is a year where planning ahead can put real dollars back in your pocket.

1. Time major purchases and improvements: With 100% bonus depreciation now permanent , there’s no risk of the phase-outs we’ve seen in past years. Still, timing matters: buying appliances, fixtures, or equipment in a high-income year maximizes the impact.

2. Pair Section 179 and bonus depreciation strategically: Section 179 is capped at $2.5M (with a $4M phase-out) , while bonus depreciation has no dollar limit. Jess often advises clients to use §179 for qualifying nonresidential improvements (like HVAC or roofs) and bonus depreciation for personal property — squeezing every drop of value out of both.

3. Don’t overlook the QBI deduction: If your rental activity qualifies as a trade or business, the 20% QBI deduction can be one of your largest tax benefits. Careful recordkeeping of hours and participation can make or break eligibility.

4. Watch your SALT exposure: The OBBBA raised the SALT cap to $40,000 , but that only applies to itemized deductions on your personal return. Rental property taxes are still fully deductible against rental income — an easy win many landlords forget.

5. Keep passive activity limits in mind: High-income investors may hit the excess business loss limitation, which OBBBA made permanent . Losses above the threshold get carried forward — not wasted, but delayed. Planning large deductions across multiple years can smooth the effect.

6. Invest in your books: Almost every strategy above — QBI eligibility, cost segregation, proof of repairs vs. improvements — depends on documentation. Cloud-based property management and accounting tools pay for themselves when it’s time to prove your case to the IRS.

Jess Holt sums it up: “OBBBA gave us stability. Now it’s about execution — lining up deductions in the right year and keeping records clean so nothing gets left on the table.”

Common Mistakes That Cost Money

Even seasoned landlords miss deductions or claim them incorrectly. Here are the pitfalls Jess sees most often:

1. Mixing personal and business expenses: That run to Home Depot may include both personal items and property supplies. Without a clean split and receipts, you risk losing the deduction. Keep separate business accounts and cards to avoid blending.

2. Misclassifying improvements as repairs: A patched roof leak is a repair. A new roof is a capital improvement. Confusing the two can trigger IRS pushback and delay your deductions. When in doubt, document the purpose and scope of the work.

3. Forgetting cost segregation opportunities: Too many landlords depreciate everything over 27.5 years. A professional cost segregation study can shift thousands into 5–7 year property — accelerating write-offs. On properties over $500,000, this often pays for itself several times over.

4. Ignoring vehicle deductions: Even a few thousand business miles add up. At 70¢ per mile, 3,000 miles = $2,100 in deductions. Skipping mileage logs is like leaving free money on the table.

5. Missing QBI eligibility: The 20% QBI deduction can be massive, but only if you meet the trade-or-business standard. Poor records of hours or participation are the #1 reason landlords lose it.

6. Not planning around passive activity and loss limits: Large paper losses from depreciation may be limited by passive activity rules or the excess business loss cap (made permanent under OBBBA). Without planning, those losses may carry forward instead of offsetting current income.

7. Weak documentation: Receipts, mileage logs, and clear books aren’t optional. The IRS can disallow deductions if you can’t prove them — even if the expense was legitimate.

Jess’s tip: “It’s not usually that investors aren’t spending the money — it’s that they can’t prove it later. A $50 app for mileage or bookkeeping often saves thousands in deductions that would otherwise get tossed.”

Documentation That Protects Your Deductions

The IRS doesn’t just want to know you spent the money — they want to see proof. Strong records are your best defense and can turn a stressful audit into a quick win.

1. Keep supporting documentation: For big-ticket items like appliances, HVAC systems, or roof work, save invoices, contracts, or digital payment records. For smaller day-to-day expenses, a clear entry in your accounting or property management software is usually enough. The key is being able to show what you bought, when, and for which property.

2. Keep a mileage log: A simple record showing the date, destination, purpose, and miles driven is enough. Apps that track trips automatically make compliance effortless and protect thousands in vehicle deductions.

3. Track repairs vs. improvements: For each property expense, note whether it maintained the current condition (repair) or extended value or life (improvement). Clear notes help prove why an expense was deducted immediately or capitalized.

4. Separate your accounts: A dedicated checking account and credit card for rental activities create a clean paper trail. It’s the easiest way to keep personal and business expenses from getting tangled.

5. Document participation for QBI and passive activity rules: Keep logs of hours spent managing your rentals, meetings with tenants, or work on the property. These records can be critical in proving “material participation” for QBI eligibility and in navigating passive activity rules.

6. Maintain depreciation schedules: Track the basis, placed-in-service date, and depreciation method for each asset. Accurate schedules ensure you don’t miss deductions — and avoid double-counting when you sell.

Jess’s insight: “Think of documentation as an insurance policy for your deductions. If the IRS ever asks, the goal is to be able to hand them a file and say, ‘Here’s everything you need.’ The stronger your records, the shorter the conversation.”

The Bottom Line for Real Estate Investors

Real estate isn’t just about rental checks — it’s about keeping as much of those checks as possible after taxes. The difference between a landlord who casually files their return and one who actively plans around deductions can be tens of thousands of dollars each year.

The OBBBA changes — permanent 100% bonus depreciation, doubled Section 179 limits, and an extended QBI deduction — make 2025 one of the most favorable years in decades for investors who know how to play the rules.

But the real key is execution:

• Classify repairs and improvements correctly.

• Time major purchases to years with higher income.

• Leverage cost segregation and depreciation to accelerate write-offs.

• Keep clean records so no deduction is lost in an audit.

Whether you’re managing a single duplex or a growing portfolio, the message is the same: use every tool available, document it well, and build a plan that compounds your after-tax cash flow year after year.

Jess Holt, Town’s Sr. Tax Manager, puts it this way: “Most landlords don’t miss deductions because the law isn’t there. They miss them because they don’t line things up the right way or can’t prove them later. The ones who treat tax planning like part of their investment strategy consistently come out ahead.”

Learn more about Town's specialized real estate tax services and see how our real estate-focused CPAs can help you claim every legitimate deduction while staying compliant with changing tax laws.

Whether you're buying your first rental property or managing a growing portfolio, understanding these deductions helps you keep more of what you earn. And with 2025's expanded limits and permanent bonus depreciation, the tax advantages of real estate investing just got significantly better.

For more insights on real estate tax strategies, check out our guide on rental property closing costs and tax implications.

Disclaimer: This content is for educational purposes only and does not constitute personalized tax advice. Tax laws are complex and subject to change. Individual circumstances can vary significantly, and strategies that work for one taxpayer may not be suitable for another.