What rental expenses are deductible in the US?
IRS-allowed rental deductions include: mortgage interest, property taxes, insurance premiums, repairs and maintenance (not capital improvements), property management fees, advertising, professional fees, utilities paid by you, travel to the property for management, and depreciation. Capital improvements (new roof, HVAC, appliances) are capitalized and depreciated over 5, 7, or 27.5 years depending on the asset — not immediately deducted.
What are passive activity loss rules for rental property?
Under IRC §469, rental activities are generally considered passive. Passive losses can only offset passive income — not wages or business income. Exception: if your AGI is $100,000 or less and you actively participate in managing the rental, you can deduct up to $25,000 of rental losses against ordinary income. This allowance phases out between $100,000 and $150,000 AGI. Real estate professionals (750+ hours/year in real estate) can deduct losses without limit.
How is rental property depreciated in the US?
Residential rental property is depreciated over 27.5 years using straight-line depreciation (divide the building value by 27.5 for the annual deduction). Land is not depreciable. Example: a building purchased for $300,000 yields a $10,909 annual depreciation deduction. When you sell the property, depreciation taken is recaptured and taxed at a maximum rate of 25% (Section 1250 recapture) — this is often the most overlooked tax in real estate sales.