What can I deduct as a landlord on my Texas rental property?

The Core Operating Expense Deductions

The core operating deductions, line by line:

• ·Mortgage interest: typically the largest deduction. The full interest portion of your monthly payment is deductible for a rental property, with no $750,000 loan cap that applies to primary residences.
• ·Property taxes: deductible in full for rental properties. The $40,000 SALT cap ($20,000 married filing separately) is a Schedule A itemized-deduction limit and does not reach property tax deducted as a rental expense on Schedule E. The carve-out is in the statute: 26 U.S.C. section 164(b)(6) exempts taxes paid or accrued in carrying on a trade or business or an activity described in section 212, which is where rental activity sits. That cap is currently scheduled to step back down to $10,000 after 2029.
• ·Landlord insurance premiums: deductible in the year paid.
• ·Property management fees: the monthly management percentage, placement fees, and renewal fees paid to your PM are fully deductible as operating expenses.
• ·Advertising and screening: MLS listing fees, online rental platform costs, signage, and tenant screening fees (background check, credit report costs) are deductible.
• ·HOA dues: deductible on a rental property if you are required to pay them as the owner.

Repairs vs. Capital Improvements: the Distinction That Matters

A repair restores the property to its original condition. A capital improvement adds value, extends useful life, or adapts the property to a new use. Repairs are deducted in the year the expense is incurred. Capital improvements are capitalized and depreciated over their useful life, which can be 5, 7, 15, or 27.5 years depending on what the improvement is. Painting interior walls: repair. Replacing a broken HVAC unit: repair. Installing a new HVAC system where none existed before: improvement. Replacing a broken fence section: repair. Replacing the entire fence: potentially an improvement. The line is not always clear, and the IRS has detailed regulations on this distinction. When in doubt, document the condition before and after, note that you were restoring a broken system rather than upgrading it, and let your CPA make the call.

Depreciation: Your Largest Non-Cash Deduction

Depreciation allows you to deduct the cost of your rental building (not the land) over 27.5 years. On a $300,000 property where the land is valued at $60,000, the depreciable basis is $240,000. Divide by 27.5 and you get an annual depreciation deduction of approximately $8,727. This is a non-cash deduction. You are not spending $8,727; you are recognizing the theoretical wear on the asset over time. Depreciation frequently turns a property that has positive cash flow into a tax-paper loss, reducing your ordinary income. It is one of the primary reasons experienced investors hold rental real estate. The catch: depreciation recapture at sale. When you sell, the IRS recaptures the depreciation you claimed at a 25% rate. Your CPA can model this for you before you decide whether to sell or hold.

Professional Fees and Travel

Attorney fees related to the rental (a lease dispute, eviction, contract review) are deductible as operating expenses. CPA or tax preparation fees specifically related to your rental property are deductible. Property management software subscriptions or landlord apps are deductible. Travel to your rental property for legitimate business purposes (an inspection, meeting a contractor, evaluating a repair) is deductible at the IRS standard mileage rate. You must document the purpose of each trip. Travel from your home to your rental is not automatically deductible if you live nearby. It must be for a specific business purpose, not just to drive by the property. Keep a simple log: date, mileage, purpose.

2026 has two business mileage rates, and most tax guides you will find online quote only one of them. Trips from January 1 through June 30 are deducted at 72.5 cents per mile (IRS release IR-2025-128). Trips from July 1 through December 31 are deducted at 76.0 cents per mile (IRS release IR-2026-29). A mid-year change is rare, the last one was 2022, so an owner who drives to their own property all year has to split the log at June 30. Using one rate for the whole year makes the return wrong for half of it.

100% Bonus Depreciation Is Back

Bonus depreciation lets you deduct the full cost of qualifying property in the year it is placed in service rather than spreading it over the asset's life. It had been phasing down for several years, and most landlord tax content still describes that phase-down. It no longer applies. 100% bonus depreciation is restored for qualified property that is both acquired and placed in service after January 19, 2025 (IRS Publication 527, What's New). Both conditions have to be met, not either one. This changes the timing math on appliance and systems replacement, and it changes whether a cost segregation study is worth commissioning on a larger property. It does not apply to the building itself, which stays on the 27.5-year schedule. Section 179 expensing sits alongside it with a $2,500,000 maximum for tax years beginning in 2025. Which of the two is better for a given purchase is a CPA question, and the answer depends on your income picture, not just on the asset.

Two Safe Harbors That Save Small Landlords Real Paperwork

The repairs-versus-improvements line is where most small landlords lose time, and the IRS tangible property regulations provide two shortcuts that cut through a lot of it. The de minimis safe harbor lets you expense items costing $2,500 or less per invoice or per item without arguing about whether they are improvements. That threshold rises to $5,000 if you have an applicable financial statement, which most individual owners do not. The safe harbor for small taxpayers is the second one: if your gross receipts are $10 million or less and the building's unadjusted basis is under $1 million, you can expense repairs and improvements in a year as long as the total stays under the lesser of 2% of that unadjusted basis or $10,000. For a typical single-family rental in Tarrant County, that second harbor covers a great deal of ordinary make-ready work. Both require electing them properly on the return, which is exactly the kind of thing that gets missed when someone self-prepares the first year.

The 20% QBI Deduction and the 250-Hour Safe Harbor

Separate from the expense deductions above, Section 199A allows a deduction of up to 20% of qualified business income. Two things about it are commonly reported wrong. First, it did not expire. The IRS newsroom page still says the deduction applies to tax years ending on or before December 31, 2025, but Section 199A(i) was struck and replaced by Public Law 119-21, and the replacement contains no termination provision. It now sets a minimum deduction of $400 for a taxpayer with at least $1,000 of qualified business income from an active trade or business in which they materially participate, both figures inflation-adjusted after 2026. Second, your rental only qualifies if it rises to the level of a trade or business. That is a facts-and-circumstances test, so the IRS published a safe harbor in Revenue Procedure 2019-38. Meet all four conditions and the enterprise is treated as a trade or business for this purpose:

• ·Separate books and records are maintained for each rental real estate enterprise.
• ·250 or more hours of rental services are performed during the year. For an enterprise less than four years old, that is 250 hours in the current year; for one four years or older, 250 hours in any three of the five consecutive tax years ending with the current one.
• ·Contemporaneous records are kept showing hours of all services performed, a description of those services, the dates, and who performed them.
• ·A statement is attached to a timely filed original return for each year you rely on the safe harbor.

The third condition is the one that quietly disqualifies people. Contemporaneous means kept as you go. Reconstructing a plausible 250 hours the following March does not satisfy it, and that reconstruction is exactly what an examiner is looking for.

Whose Hours Count, and the Drive That Counts Two Ways

The revenue procedure lists the qualifying rental services: advertising to rent or lease, negotiating and executing leases, verifying prospective tenant applications, collection of rent, daily operation and maintenance and repair including purchasing materials, management of the real estate, and supervision of employees and contractors. Critically, those hours may be performed by owners or by employees, agents, and independent contractors of the owners. Your property manager's hours count toward your 250. So do your plumber's, your make-ready crew's, and your leasing agent's. Owners who assume only their own hours count often conclude they are nowhere near the threshold when they actually cleared it during the first turn of the year. Since we manage property, this is a place we have obvious self-interest, so treat it as a prompt for your CPA rather than a conclusion: ask whether your manager can produce an hours record for the year, because hours you cannot document are hours you cannot count.

Now the contradiction worth carrying into that meeting. Driving to your rental for a legitimate business purpose is deductible mileage at the rates above. But the revenue procedure explicitly excludes hours spent traveling to and from the real estate from the 250-hour count. The same trip is a deductible expense and a non-qualifying hour. Also excluded from the hour count: financial and investment management such as arranging financing, procuring property, and reviewing financial statements, along with hours spent improving the property. Certain property is excluded outright regardless of hours, including real estate you used as a residence under Section 280A(d), triple net leased property, and real estate rented to a commonly controlled trade or business. That first one matters locally, since an owner who moved out and rented their former home may have used it as a residence during part of the same tax year.

What You Cannot Deduct

The purchase price of the property is not deductible. It is capitalized and recovered through depreciation over time. The principal portion of your mortgage payment is not deductible; only the interest is. If you use the property for personal use (staying there for any period) you must pro-rate deductions based on the rental-use percentage of the year. The homestead exemption loss (see the homestead answer) is not a deduction; it is simply a higher tax bill, which is then deductible as a rental property expense. Improvements made before you converted the property to a rental are not immediately deductible. They are added to your cost basis.