Real estate tax education
Rental income tax planning
Good rental tax planning starts with complete records and a realistic view of deductible expenses, depreciation and loss limits. A cash-flow loss is not automatically a currently deductible tax loss.
Sources checked November 2, 2026. IRS publications linked below may cover earlier tax years; verify current-year guidance before filing.
What counts as rental income?
Rent, advance rent and payments to cancel a lease generally count as income. Tenant-paid owner expenses may also count as income, with a corresponding deduction when allowable. A refundable security deposit generally is not income when received if you intend to return it; amounts retained or applied to rent can be treated differently.
Separate expenses from capital improvements
Ordinary rental expenses may include eligible maintenance, insurance, management fees and interest. Mortgage principal is not a rental expense deduction. Improvements generally add to basis and are recovered through depreciation rather than deducted as ordinary repairs.
A planning example with explicit assumptions
Assume $30,000 of rent, $12,000 of deductible operating expenses and $8,000 of allowable depreciation, with no personal use or other adjustments. The initial net figure is $10,000 before other applicable items and limitations. Mortgage principal paid is not subtracted as an expense. This is a reporting illustration, not a calculation of tax due.
Will you be able to use a rental loss?
At-risk and passive-activity rules can limit or suspend losses. Real estate professional status alone does not automatically make every rental nonpassive; participation requirements and other facts matter. Personal use, short-term arrangements and substantial services can also change the analysis.
Schedule E or Schedule C?
Real estate rental income is generally reported on Schedule E. Providing substantial services primarily for the tenant's convenience may change reporting to Schedule C. Check the current IRS instructions and your facts rather than classifying solely by length of stay.
Records to keep before a sale or exchange
Maintain leases, income and expense records, improvement invoices, depreciation schedules, land allocations, purchase and closing documents, and placed-in-service dates. Before selling, consider adjusted basis, disposition consequences and whether a properly structured 1031 exchange may apply. Consult a CPA and Qualified Intermediary before taking receipt of proceeds.
Frequently asked questions
- Can I deduct my whole mortgage payment?
- No. Principal repayments are not a rental expense deduction; eligible interest is evaluated separately.
- Are all rental losses deductible now?
- No. At-risk, passive-activity and other limits can defer or restrict deductions.
- Do these pages include a personal rental tax consultation?
- No. They are educational. The currently offered personal consultation request is for 1031 exchange questions.
Primary sources and IRS guidance
Considering a 1031 exchange?
Request a personal 1031 consultation with , or start with your preliminary deadlines.
General U.S. federal tax education, not individualized tax, legal or investment advice. Examples use stated assumptions and do not promise deductions or savings. A consultation requires separate agreement; submitting a request does not establish a CPA-client relationship.