Depreciation: The Biggest Missed Deduction
Depreciation lets you deduct the cost of your building (not land) over its useful life, even though you are not writing a check for it each year. In the US, residential rental property depreciates over 27.5 years using the straight-line method under MACRS. In Canada, the equivalent is the Capital Cost Allowance (CCA), which uses declining-balance classes, with Class 1 (most residential buildings) at a 4% annual rate.
Many landlords either skip depreciation entirely or apply it only to the structure while forgetting eligible components. Appliances, carpeting, in-unit HVAC, and even certain land improvements can be depreciated on shorter, more favorable schedules. A cost segregation study on properties above roughly $500K in value often pays for itself many times over.
Depreciation is not optional for US landlords - the IRS requires you to recapture it on sale whether you claimed it or not. Claim it every year. See our guide to depreciation terminology for a plain-language breakdown of the core concepts.
- US: 27.5 years straight-line for residential buildings
- Canada: Class 1 CCA at 4% declining balance (most residential)
- Appliances and flooring often qualify for shorter depreciation schedules
- Cost segregation can accelerate deductions on larger properties
Home Office and Vehicle Expenses
If you manage your own rentals and maintain a dedicated workspace at home, you may deduct a proportional share of rent, utilities, and internet as a home office expense. The space must be used regularly and exclusively for your rental business. For US landlords, the simplified method allows $5 per square foot up to 300 sq ft; the regular method requires tracking actual costs but often yields a larger deduction.
Mileage driven to collect rent, show units, meet contractors, or visit a hardware store for property supplies is deductible. The 2025 IRS standard mileage rate is 70 cents per mile. In Canada, you can deduct actual vehicle costs proportional to rental-related use. The critical requirement in both countries is a contemporaneous log showing dates, destinations, and business purpose - a spreadsheet or app entry made at the time of the trip, not reconstructed months later.
Landlords who use software like Revun to track expenses and mileage throughout the year arrive at tax time with the documentation already in place rather than scrambling through bank statements.
- Home office: exclusive and regular use required
- US simplified rate: $5/sq ft up to 300 sq ft
- Keep a real-time mileage log - reconstruction does not hold up to audits
Repairs vs. Improvements: A Costly Confusion
Repairs are fully deductible in the year you pay for them. Improvements must be capitalized and depreciated over years. The line between the two trips up a surprising number of landlords. Fixing a broken window is a repair. Replacing every window in the building is likely an improvement. Patching a roof leak is a repair. Putting on a new roof is an improvement.
The IRS Tangible Property Regulations introduced a safe harbor for small taxpayers that allows expensing improvements to eligible buildings if the total cost is the lesser of $10,000 or 2% of the unadjusted basis. There is also a de minimis safe harbor that lets you immediately expense any single item costing $2,500 or less (without an applicable financial statement). Electing both safe harbors annually in your tax return requires a formal statement but can save significant depreciation bookkeeping.
In Canada, the distinction between current expenses (deductible now) and capital expenditures (added to CCA class) follows similar logic. CRA guidance focuses on whether the expense restores original condition or creates something of enduring value beyond the original.
- Routine repairs: deduct in full the year paid
- Improvements: capitalize and depreciate
- US de minimis safe harbor: expense items under $2,500 each
- US small taxpayer safe harbor: up to $10,000 or 2% of basis per building
Professional Services, Software, and Management Fees
Accounting fees, legal fees related to your rental activity, and property management fees are fully deductible ordinary business expenses. This includes the cost of a CPA who prepares your Schedule E (US) or T776 (Canada), an attorney who drafts lease agreements, and eviction-related legal costs.
Property management software is also deductible. Revun's flat per-door pricing means the cost is predictable year to year, and the expense is 100% deductible as a business cost. Landlords with one or two units can use Revun free, so the deduction question only arises when the portfolio grows. Either way, tracking it through Revun's built-in accounting tools means it is already categorized when your accountant needs it.
Advertising costs, tenant screening fees, and subscription costs for background check services all qualify as well. Keep receipts and link each expense to the property it serves.
Interest, Insurance, and Taxes You May Be Undercounting
Mortgage interest on a rental property is fully deductible as a business expense, not subject to the $750,000 cap that applies to personal residence mortgages. Points paid to obtain a rental mortgage are deductible but must be amortized over the life of the loan rather than deducted all at once. Interest on a HELOC or second mortgage is deductible if the proceeds were used directly for rental property expenses.
Landlord insurance premiums, umbrella liability policies, and even the rental-use portion of a multi-purpose policy are deductible. Many landlords forget to deduct flood or earthquake insurance purchased separately, or the additional rider cost for a short-term rental endorsement.
Property taxes on rental properties are fully deductible for landlords regardless of the $10,000 SALT cap, which applies only to personal returns. If your jurisdiction charges a special assessment for local improvements, the deductibility depends on whether the assessment is for maintenance (deductible) or a capital improvement (must be capitalized). Keeping your records organized inside an accounting tool purpose-built for landlords, rather than a generic spreadsheet, makes these distinctions easier to document and defend.
- Rental mortgage interest: no $750K cap - fully deductible
- Points on a rental mortgage: amortize over loan term
- Property taxes on rentals: not subject to SALT cap
- Insurance premiums including riders and umbrella policies
Key takeaways
- Depreciation is mandatory for US landlords and often the single largest deduction - claim it every year on the correct schedule for both the structure and individual components.
- The repair vs. improvement distinction determines whether you deduct an expense now or over many years - IRS safe harbors can let you expense smaller items immediately.
- Professional fees, software subscriptions, mileage, and insurance are fully deductible but require contemporaneous documentation to survive an audit.