Rental property tax deductions: A practical guide for owners

In short: Rental property tax deductions are the ordinary and necessary costs, such as mortgage interest, repairs and depreciation, that owners can subtract from rental income to lower their taxable earnings. The tax rules differ between short-term and long-term rentals and knowing the difference can help you plan more confidently and reduce surprises at tax time.

This guide breaks down how the IRS classifies rental activity, what you can deduct on short-term and long-term rentals, how the 14-day rule works and what to consider when you sell.

Note: This article is for general information only and isn’t tax or legal advice. Tax rules can be complex and change over time. Consult with your tax or legal advisor about your situation.

What are the benefits and risks of owning rental property?

Rental property pays off in many ways at once: recurring income, long-term appreciation and meaningful tax advantages. Here’s what each benefit brings.

• Recurring income: Rent can provide ongoing cash flow.
• Appreciation: Property values may rise over time.
• Tax deductions: Operating costs, mortgage interest and depreciation may offset rental income.
• Diversification: Real estate adds a different asset class into your mix.

“Rental properties are an important part of many of our clients' overall wealth strategies,” says Daniel Willing, senior vice president and managing director of wealth planning with U.S. Bank Private Wealth Management. “Real estate is a strong hedge within a portfolio, as it gives exposure to a different type of risk.”

It’s important to consider the potential downsides as well. Risks include:

• Vacancies and uneven cash flow
• Ongoing repairs and maintenance
• Tenant management responsibilities
• Changing property values
• Complex tax rules

Rental property can provide value, but owning it requires planning and good record keeping.

How does the IRS classify rental income: short-term vs. long-term?

The IRS classifies rental activity based on how long guests stay, how much you use the property yourself and the services you provide. This classification can affect the forms you file, the expenses you can claim and whether self-employment tax applies. IRS Publication 527 covers the details.

What is a short-term rental?

A short-term rental is a property you rent for brief stays, often through platforms like Airbnb, VRBO or HomeAway. Think a vacation cottage, spare bedroom or a condo booked by the night or week.

What sets it apart is the length of stay. Bookings run in days, not months. That fast turnover, paired with the active hosting it usually demands, may change how the IRS treats the income.

What is a long-term rental?

A long-term rental is typically a property leased for longer periods, often a year or more. It's the familiar landlord setup: a tenant signs the lease, settles in and sends rent each month.

These rentals run on a steadier rhythm. You collect rent and pay the bills. The IRS treats many long-term rentals as passive activity, though losses and deductions still follow specific rules.

What can you deduct on a rental property?

You can write off the ordinary and necessary operating costs of your rental if it produces reportable income. Those deductions can shrink, or sometimes eliminate, the tax on your earnings.

Common rental property deductions include:

• Mortgage interest
• Property taxes
• Insurance
• Cleaning and upkeep, including supplies
• Utilities such as water, gas, electricity and internet
• Repairs
• Advertising
• Property management fees
• Platform service fees (short-term rentals)
• Depreciation

Depreciation is often one of the biggest tax benefits of owning a long-term rental. The IRS generally allows you to depreciate residential rental property (excluding land) over a 27.5-year period.

It’s important to remember that repairs and improvements are different, as is the tax treatment. A repair keeps the property in good working order and is often deductible the year you pay it. An improvement generally raises the property's value or stretches its useful life. Improvements are typically capitalized and recovered over time through depreciation.

If you split the property between personal time and rental use, you may need to allocate certain costs, such as mortgage interest, property taxes and utilities, across both uses.

How does the 14-day rule work?

If you rent a home for 14 days or fewer during the year and meet IRS personal-use requirements, you may be able to exclude that rental income from your tax return. This exception is widely known as the “short-term rental tax loophole.”

“Rent your property for 14 days or less in a year and use it yourself for the rest of the time – or 10% of the days it's rented at fair value – and the income may stay off your return,” says Willing. “So for example, you rent your ski cabin over the holidays at peak rates, keep it under 14 rental days, and that income lands tax-free.”

Here, fair rental value means the amount a comparable property would rent for on the open market.

There’s a tradeoff, however. If you don’t report the income under this rule, you generally can’t deduct rental expenses related to those rental days. The exception works both ways. Because the details can be nuanced, confirm how the rule applies to your situation with a tax professional.

How much depreciation can you deduct on a rental property?

You can generally depreciate long-term residential rental property, excluding the land value, over 27.5 years. To estimate your annual deduction, divide the building's depreciable basis by 27.5. Land isn't depreciable, so its value stays out of the basis.

You’ll want to confirm the calculation on your long-term rental property with a tax professional.

How do passive activity loss rules limit rental deductions?

Passive activity loss rules can limit how you use rental losses, because the IRS treats many rental activities as passive. Rental losses don't always reduce taxes in the year they occur.

“Under the passive activity loss rules, passive losses can generally only offset passive income,” says Willing. “If your rental shows a loss and you have no other passive income, that loss may be suspended and carried forward.” In some cases, you may be able to use suspended losses when you sell or otherwise dispose of the property.

A separate allowance may let some real estate investors deduct up to $25,000 (as of 2026) of passive rental losses against non-passive income, subject to IRS rules and income limits.

When can short-term rental losses offset W-2 or business income?

Some short-term rentals may fall outside the default passive rental rules, depending on how the property is used, the average length of guest stays and how involved you are in managing the activity. If the rental qualifies as a non-passive activity and you materially participate, losses from the rental may be deductible against other ordinary income, such as W-2 wages or income from a business you materially participate in—a potentially significant tax advantage.

That distinction can make a meaningful difference. Typically, rental losses are deductible only to the extent you have rental or other passive income. But when a short-term rental is treated as non-passive, expenses and depreciation that exceed rental income may be available to offset other income on the return, subject to IRS rules, basis limits, at-risk limits and excess business loss limits.

“We often see this become relevant for married couples filing jointly, where one spouse has W-2 or business income and the other spouse has the time and responsibility to manage the short-term rental,” says Willing. “If the spouse managing the property meets the material participation requirements, the losses may be able to offset the couple’s other ordinary income.”

Because the rules are detailed and documentation matters, property owners should confirm the details with a tax professional.

What happens when you sell a rental property?

When you sell, two tax items come into focus: capital gains on your profit and depreciation recapture on the deductions you've claimed over the years. Here's how they compare.

How is capital gains tax calculated on a rental property?

If you sell for more than your adjusted basis (roughly your purchase price plus improvements, minus depreciation), the profit may be taxed as a capital gain. If you held the property more than a year, that gain typically falls under long-term capital gains rates.

What is depreciation recapture when selling rental?

When you sell, the IRS may reclaim depreciation benefits you’ve claimed over the years. This is depreciation recapture, and the recaptured amount can be taxed up to 25%. In many cases, the IRS treats depreciation as claimed even if you didn’t take it, so skipping depreciation often doesn’t avoid recapture.

One strategy some investors consider is an IRC Section 1031 like-kind exchange. This approach may allow you to defer certain taxes when you exchange investment property for another qualifying investment property and follow strict IRS rules and deadlines. Because the requirements are detailed, talk with a tax professional well before you list the property.

There's another option to consider too. “If you hold onto a property until death, the basis may step up. That can reduce or eliminate capital gains tied to the prior appreciation and reset depreciation for heirs,” says Willing. “This is a fairly common and strategic way to approach multi-generational estate planning.”

Frequently asked questions

How does the “short-term rental tax loophole” work?

If you rent your property for 14 days or fewer in a year, while using it yourself for more than 14 days or 10% of rental days (whichever is greater), you may be able to exclude that rental income from your return.

If you use this 14-day rule, you generally can’t deduct rental expenses tied to those rental days. Confirm the details with a tax professional.

What rental property tax write-offs can I claim?

If your rental income is reportable, you may be able to deduct mortgage interest, property taxes, insurance, advertising, cleaning, maintenance, utilities, repairs, property management fees, platform service fees and depreciation.

Repairs often qualify in the year you pay them. Improvements generally get capitalized and recovered through depreciation over time. Personal use of the property can limit or require you to allocate certain expenses.

Can I deduct rental losses against my salary?

Usually not. Most rental activity is treated as passive, which means losses generally offset only passive income, not salary, wages or other ordinary income.

There are exceptions. Some investors may qualify for a limited passive-loss allowance of up to $25,000 (in 2026), subject to income limits and other IRS rules.

In addition, some short-term rental owners who materially participate may be able to treat the activity as non-passive, allowing losses from rental expenses and depreciation to offset ordinary income such as W-2 wages or business income. Consult a tax professional before claiming the deduction.

Do I pay self-employment tax on Airbnb income?

Often, short-term rental income is reported on Schedule E and isn’t subject to self-employment tax. But if you provide substantial, hotel-like services, daily cleaning during a stay, meals, concierge help or transportation, the IRS may treat the activity as a business and self-employment tax may apply. That could shift reporting to Schedule C. Confirm the rules with a tax professional.

How do you document rental activity for tax purposes?

Good documentation is essential no matter which route you take. Track rental days, personal-use days and every expense, with receipts, invoices and bank statements to back it up. Platforms like Airbnb, VRBO and HomeAway may report your earnings on Form 1099-K. Even if an exception applies, clean records help you reconcile what was reported and support your position if questions come up.

What happens if I sell my rental at a loss?

If you sell for less than your adjusted basis, you may have a deductible loss, since rental property is generally treated as a business asset. That loss could offset other income, subject to IRS rules. Any suspended passive losses may also become available when you dispose of the property. Because the outcome depends on your basis and prior deductions, confirm the details with a tax professional.

What happens if I receive a 1099-K?

A Form 1099-K reports the gross payments processed by a platform. Your taxable amount may differ, since it leaves out refunds, service fees and adjustments. You’ll typically capture those through your reporting as deductions.

Report the income as required, even when you also qualify for the 14-day exception. If you meet that exception, your records can prove the income qualifies. Keep clear documentation and confirm reporting requirements with a tax professional.

How can a financial professional help?

A financial professional can help you connect real estate decisions to your broader wealth strategy, including liquidity needs, risk management and legacy planning. A qualified tax professional can help you apply the rules correctly, document your position and build a strategy that fits your broader goals.

Rental tax rules reward precision. Between classification decisions, the 14-day rule, passive loss limits and sale planning, there's plenty to manage, and the smartest moves hinge on your specific circumstances.

“At U.S. Bank, we can help you look across your balance sheet and bring more coordination to your planning,” says Willing. “That includes how real estate fits into your long-term goals.”

Learn how we can help you design a tax-efficient strategy  to grow and protect your wealth.