Short answer: Ordinary and necessary rental expenses on Schedule E: advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, utilities, depreciation and other costs such as HOA dues (IRS Publication 527).
Definition
Schedule E (Form 1040) is the IRS form where individual landlords report rental income and expenses. Lines 5 to 19 list the deductible expenses (advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, utilities, depreciation and other), and line 21 is the net rental income or loss.
By the numbers: On the US median home with 20% down at 7.32% (Freddie Mac, October 22, 2026) and the US median 3-bedroom rent, year-one deductions total $38,106 against $19,118 of rent collected, a −$18,988 tax loss vs −$11,689 of cash flow (IRS Pub 527; Census ACS 2024; 20% land assumed).
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Starts at the US median home ($360,600) and 3-bed rent ($1,677/mo), Census ACS 2024, at Freddie Mac's 7.32% rate. Assumes tax at 0.89% of price (US median), $1,200/yr insurance, 3% closing costs, 5% vacancy, 5% maintenance and 8% management. Adjust all of these in the full calculator.
The short answer
You can deduct the ordinary and necessary expenses of renting out a property: mortgage interest (not principal), property taxes, insurance, repairs, management fees, utilities you pay, and more. You also deduct depreciation on the building. All of it goes on Schedule E (Form 1040), lines 5 to 19 (IRS Publication 527).
On the US median home ($360,600) rented at the US median 3-bedroom rent ($1,677/mo, Census ACS 2024), with 20% down at 7.32% (Freddie Mac, October 22, 2026), the first full year adds up to $38,106 of deductions against $19,118 of rent collected. That is a −$18,988 tax loss, while the actual cash loss is −$11,689. The difference: depreciation ($10,053) is a deduction with no cash out, and loan principal ($2,754) is cash out with no deduction.
Good to know: This is a plain-English summary of federal rules for a long-term rental, not tax advice. States differ, short-term rentals can follow different rules (see Airbnb vs long-term rental), and a tax pro should look at your own return.
The Schedule E deduction list
Schedule E names the expense lines for you. Here is what goes on each one, with the first-year amount for the US median home example (a dash means the example doesn't assume that cost):
| Line | Expense | What counts | Example, year 1 |
|---|---|---|---|
| 5 | Advertising | Listing fees, signs and ads to find tenants. | — |
| 6 | Auto and travel | Driving and trips to collect rent or manage, conserve or maintain the rental (standard mileage rate or actual costs). | — |
| 7 | Cleaning and maintenance | Cleaning between tenants, lawn care, pest control and routine upkeep. | — |
| 8 | Commissions | Commissions paid to a leasing agent to find a tenant. | — |
| 9 | Insurance | Landlord (dwelling) insurance, liability, flood. A premium paid more than a year ahead is deducted one year at a time. | $1,200 |
| 10 | Legal and other professional fees | Lawyers, accountants, and the cost of preparing the rental part of your return. | — |
| 11 | Management fees | What you pay a property manager. | $1,610 |
| 12 | Mortgage interest paid to banks | Interest on the loan that bought the rental (from Form 1098). Not principal. | $21,026 |
| 13 | Other interest | Interest on other loans used for the rental, like a credit card used for a repair. | — |
| 14 | Repairs | Fixes that keep the property in working order: a leak, a broken window, repainting. | $1,006 |
| 15 | Supplies | Small items used up in running the rental. | — |
| 16 | Taxes | Property taxes on the rental (and other state or local taxes tied to it). | $3,211 |
| 17 | Utilities | Water, trash, gas or electric that you pay, not the tenant. | — |
| 18 | Depreciation | The building (not the land) over 27.5 years, from Form 4562. | $10,053 |
| 19 | Other | Anything else ordinary and necessary, such as HOA dues, plus small purchases expensed under the de minimis safe harbor. | — |
| 20 | Total expenses | $38,106 |
Tip: You can deduct these costs from the time the property is available for rent, including while it sits empty between tenants (Pub 527). Keep receipts and a simple log from day one; it is far easier than rebuilding a year from bank statements.
A first rental's year one, in numbers
The same US median home, placed in service in January, first full year. Rent is what you actually collect: FirstDoor's 5% vacancy is lost income, not a deduction.
| Rents received (line 3), $1,677 × 12 less 5% vacancy | $19,118 |
| Mortgage interest, year 1 | −$21,026 |
| Property taxes (US median) | −$3,211 |
| Insurance (assumed) | −$1,200 |
| Repairs (5% of rent) | −$1,006 |
| Management (8% of rent) | −$1,610 |
| Depreciation: $288,480 building ÷ 27.5, January start (3.485%) | −$10,053 |
| Net rental income or loss (line 21) | −$18,988 |
Cash flow for the same year is −$11,689 (−$974 a month). If you can use the whole loss and your top federal rate is 22% (assumed), it cuts your tax by about $4,177, so the after-tax cost of the year is about $7,512. Taxes soften a loss; they don't turn it into a profit.
The land share matters, because land isn't depreciable. The example assumes 20% land; Pub 527 says you can use the split on your property tax assessment:
| Land share | Building basis | Year-1 depreciation | Net rental income or loss |
|---|---|---|---|
| 10% | $324,540 | $11,310 | −$20,245 |
| 20% | $288,480 | $10,053 | −$18,988 |
| 30% | $252,420 | $8,796 | −$17,731 |
| 40% | $216,360 | $7,540 | −$16,475 |
Good to know: Closing costs that go into basis, loan points, HOA dues and state taxes are left out to keep the example simple. For the full depreciation math, use the rental depreciation calculator.
What you can't deduct
These are the common mistakes. Each comes from Pub 527:
- Loan principal. Only the interest part of the payment is deductible.
- Improvements. A new roof, a furnace, an addition, a new deck or fence must be capitalized and depreciated, not deducted in one year. Repairs that keep the place working are deducted.
- Lost rent. You can't deduct rent you didn't get while the unit was empty. On the usual cash basis, unpaid rent isn't deductible either, because you never counted it as income.
- Costs of getting the mortgage. Mortgage commissions, abstract fees and recording fees go into the property's basis. Points are prepaid interest and are generally deducted over the life of the loan.
- Local benefit charges for new streets, sidewalks or water and sewer lines. They are added to basis.
- Driving from home to the rental is generally commuting, unless your home is your principal place of business. A trip whose main purpose is to improve the property isn't a travel deduction either; it becomes part of the improvement's cost.
- A premium paid more than a year ahead. Deduct only the part for each year of coverage.
Red flag: Deducting a whole renovation in the year you pay for it. If the work betters, restores or adapts the property, it is an improvement. Getting this wrong can shift years of deductions.
Repairs vs improvements: two shortcuts
The line between a repair and an improvement is the most common gray area. Pub 527 points to two safe harbors in the IRS tangible property rules:
- De minimis safe harbor. If you elect it for the year, small purchases you would otherwise capitalize can be deducted as rental expenses on line 19.
- Routine maintenance safe harbor. Recurring work to keep a building or system in its normal operating condition can be deducted even if it would otherwise look like an improvement.
The IRS FAQ on the tangible property regulations has the dollar limits and conditions. Either way, keep repair and improvement costs separate in your records: you need the improvement totals for depreciation and when you sell.
For how much to budget for both, see rental property maintenance costs.
Car and travel
Local driving to collect rent or manage, conserve or maintain the rental can be deducted with actual costs or the standard mileage rate: 70 cents a mile for 2025 (Pub 527) and 72.5 cents a mile for 2026 (IRS). Overnight trips count if their main purpose is managing the rental, split between rental and personal parts.
Tip: Log the date, miles and purpose of each trip as you go. The IRS recordkeeping rules for car and travel deductions (Pub 463, chapter 5) are stricter than for most expenses.
Can a rental loss lower your other taxes?
Rental losses are passive, so normally they only offset passive income. The big exception: if you actively participate (you own at least 10% and make real management decisions, like approving tenants, setting the rent and approving repairs), up to $25,000 of rental losses a year can offset your salary and other income. That allowance shrinks by half of your modified AGI above $100,000 and is gone at $150,000 (half those amounts if married filing separately and living apart). Losses you can't use carry forward to later years (Pub 527, Pub 925).
What that means for the $18,988 example loss:
| Modified AGI | Special allowance | Loss you can use this year | Carried forward |
|---|---|---|---|
| $90,000 | $25,000 | $18,988 | $0 |
| $100,000 | $25,000 | $18,988 | $0 |
| $110,000 | $20,000 | $18,988 | $0 |
| $125,000 | $12,500 | $12,500 | $6,488 |
| $140,000 | $5,000 | $5,000 | $13,988 |
| $150,000 | $0 | $0 | $18,988 |
Real estate professionals who materially participate follow different rules, and Form 8582 is where the limits are worked out. Suspended losses are released when you sell the property in a fully taxable sale.
Good to know: Depreciation you deduct now comes back when you sell, taxed at up to 25% as unrecaptured section 1250 gain (IRS Topic 409). Estimate it with the capital gains tax calculator.
What to do with this
1. Judge the deal on pre-tax cash flow first. FirstDoor's cash flow, cap rate and DSCR are all before taxes, so a tax loss is a bonus on a deal that already works, not a reason to buy one that doesn't.
2. At closing, get the property tax assessment's land and building split and keep the settlement statement; both set your depreciation.
3. Open a separate bank account for the rental and keep every receipt, sorted by Schedule E line.
4. Know your modified AGI. Above $150,000, a paper loss usually waits until later years or a sale.
5. Take the numbers to a tax pro before you file the first year.
Related: property taxes on a rental, negative cash flow rentals and how to analyze a rental property.
Worked example
The US median home ($360,600, Census ACS 2024) bought as a rental with 20% down at 7.32% for 30 years (Freddie Mac average, October 22, 2026). Rent is the US median 3-bedroom gross rent ($1,677/mo), the US median property tax ($3,211/yr), $1,200/yr insurance (assumed), 5% vacancy, 5% maintenance, 8% management. For taxes: placed in service in January, land assumed at 20% of value, closing costs left out of basis, 22% federal rate assumed.
| Rents received / yr | $19,118 |
| Deductions, year 1 | −$38,106 |
| Net rental income (loss) | −$18,988 |
| Cash flow / yr | −$11,689 |
Frequently asked questions
What expenses can I deduct on a rental property?
Ordinary and necessary rental expenses on Schedule E: advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, utilities, depreciation and other costs such as HOA dues (IRS Publication 527).
Can I deduct my whole mortgage payment on a rental?
No. Only the interest is deductible. Principal is not, and points are generally spread over the life of the loan. Property taxes and insurance paid through escrow are deducted on their own lines.
Can I deduct a new roof on a rental property?
Not all at once. A new roof is an improvement, so it is capitalized and depreciated, generally over 27.5 years for a residential rental. Repairs that keep the roof in working order, like replacing some shingles, are deducted in the year paid.
What is the mileage rate for rental property in 2026?
The IRS business standard mileage rate is 72.5 cents a mile for 2026, up from 70 cents for 2025. Driving between your home and the rental is generally nondeductible commuting unless your home is your principal place of business.
Can rental property losses offset my W-2 income?
Up to $25,000 a year if you actively participate, phased out by 50% of modified AGI above $100,000 and gone at $150,000 (half those amounts for married filing separately and living apart). Unused losses carry forward. On the US median home example, year one shows a −$18,988 loss.
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Sources
Educational content, not financial advice. Loan programs and requirements change; confirm with a lender.