Tax Checklist for Rental Property: Income, Deductions, and Records to Track All Year

Rental property taxes are much easier when you track things all year instead of reconstructing them in March. This tax checklist for rental property covers the income to report, the deductions owners commonly claim, and the records worth keeping. It is general information, not tax advice, so review your specific situation with a CPA.

What Rental Income Do You Need to Report?

Report all rent you receive on IRS Schedule E, including the following:

• Regular monthly rent, including any paid late
• Advance rent, meaning rent paid for a future period, which is income in the year you receive it
• Lease cancellation fees and late fees
• Any part of a security deposit you keep for unpaid rent or other charges

A security deposit you plan to return is not income, because it still belongs to the tenant. It becomes income only when you keep it.

Which Deductions Do Owners Commonly Claim?

Ordinary and necessary rental expenses reduce your taxable income. Common ones include mortgage interest, property taxes, landlord insurance, property management fees, advertising and tenant screening costs, utilities you pay, repairs, legal and accounting fees, and mileage or travel to the property. Property taxes on a rental are deducted on Schedule E as a business expense, separate from the limit on state and local tax deductions that applies to your personal return. Keep a receipt or invoice for each item.

What Is the Difference Between a Repair and an Improvement?

This is the most common mistake. A repair keeps the property in its current condition (fixing a leak, patching drywall) and is generally deducted in the year you pay for it. An improvement adds value, extends the property’s life, or adapts it to a new use (a new roof, a kitchen remodel), and must be capitalized, which means you recover the cost over time through depreciation rather than deducting it all at once. When in doubt, ask your CPA before you file.

How Does Depreciation Work?

Depreciation is a yearly deduction for the gradual wear on the building. For residential rental property, the IRS spreads the building’s cost over 27.5 years. Land is never depreciable, so you need to separate the value of the land from the building, often using your property tax assessment. Depreciation is claimed whether or not you actually take it, and when you sell, the IRS treats it as taken, so skipping it only costs you.

What About 1099s and Passive Loss Rules?

If you pay a contractor or vendor for services, you may need to send them a Form 1099-NEC. The reporting threshold was $600 for years, but it rises to $2,000 for payments made after December 31, 2025, so check the current rule with your CPA. Also be aware of the passive activity loss rules: rental losses are usually limited, though many owners can deduct up to $25,000 against other income if their adjusted gross income is under $100,000, with the allowance phasing out entirely at $150,000.

Which Records Should You Keep All Year?

Set up a separate bank account for the rental, save every receipt and invoice, and keep leases, closing statements, and depreciation schedules together. As a general rule, keep tax records for at least three years after filing, and keep purchase and improvement records until at least three years after you sell the property. A simple monthly habit, such as logging income and expenses on the first of each month, turns tax season into a short job.

What Does a Simple Monthly Routine Look Like?

On the first of each month, log the rent you received, record the expenses you paid, and match both against your rental bank account. Photograph or scan receipts as they arrive instead of saving them in a drawer. If your rental produces taxable income, remember that federal estimated tax payments are generally due in April, June, September, and January, so build that into your cash planning rather than facing a surprise bill at filing time.