Start tax prep in November. Reconcile each property's books monthly, keep rental money in its own bank account, and save every receipt as it happens. For 2026 payments, you send a 1099-NEC only to contractors paid $2,000 or more (it was $600 for 2025), mileage is 72.5 cents a mile through June and 76 cents from July 1, and 100% bonus depreciation is back for items like appliances acquired after January 19, 2025.
If your rental records live in bank statements, receipts and email threads, tax season means a weekend rebuilding the year. This guide covers the forms you'll file, what changed for 2025 and 2026, what you can deduct, and how to keep records so the work is done before January.
The Forms You Need to Know
Schedule E (Form 1040)
This is the main form individual landlords use to report rental income and expenses.
What it captures:
- Rental income received
- Operating expenses
- Depreciation
- Net profit or loss
You'll need a separate section for each property you own.
Form 4562 (Depreciation)
Required when:
- Claiming depreciation on a rental or an improvement first placed in service this year
- Claiming bonus depreciation or a Section 179 deduction
- Claiming car expenses (Part V), whether you use actual costs or the standard mileage rate
1099-NEC
You must issue this form to any independent contractor you paid $2,000 or more during 2026 for services ($600 for payments made in 2025).
This includes:
- Handymen and repair workers
- Property managers
- Landscapers
- Any other non-employee service provider
Deadline: January 31st (to the contractor) and to the IRS. When January 31 falls on a weekend, the deadline moves to the next business day, so forms for 2026 payments are due February 1, 2027.
The One Big Beautiful Bill Act raised the threshold from $600 to $2,000 for payments made in 2026 and later, adjusted for inflation starting in 2027. Payments made in 2025 still used $600.
What Changed for 2025 and 2026
- Bonus depreciation: 100% bonus depreciation is back for qualifying property acquired and placed in service after January 19, 2025 (IRS Notice 2026-11). For a rental, that covers items like appliances, carpet, and fencing. The building itself still depreciates over 27.5 years.
- Mileage: 70 cents a mile for 2025. For 2026, 72.5 cents through June 30 and 76 cents from July 1.
- QBI deduction: The 20% qualified business income deduction is now permanent. Rental income qualifies only when your rental counts as a trade or business. The IRS safe harbor (Rev. Proc. 2019-38) asks for 250 or more hours of rental services a year, among other conditions.
- SALT cap: The Schedule A cap on state and local taxes rose to $40,000 for 2025 and $40,400 for 2026. It doesn't apply to rental property taxes on Schedule E.
Two rules that didn't change: residential buildings still depreciate over 27.5 years, and the $25,000 allowance for rental losses (if you actively participate) still phases out between $100,000 and $150,000 of modified AGI.
What You Can Deduct
Major Deductions
Mortgage Interest
- Often your largest deduction
- Your lender sends Form 1098 showing the amount
- Rental mortgage interest is fully deductible as a business expense on Schedule E. The $750,000 acquisition-debt cap (Schedule A) applies only to your personal residence, not to rental properties.
Property Taxes
- Fully deductible as a business expense
- Rental property taxes on Schedule E are not subject to the SALT cap ($40,000 for 2025 and $40,400 for 2026 under OBBBA, through 2029, with a phasedown at high incomes), which applies only to personal-residence taxes on Schedule A.
Depreciation
- Residential property: 27.5 years
- A $275,000 building = $10,000/year deduction
- Required: depreciation you skip is lost
Insurance Premiums
- Landlord insurance
- Liability coverage
- Flood insurance
- Umbrella policies (rental portion)
Operating Expenses
Repairs and Maintenance
- Plumbing, electrical, HVAC repairs
- Painting and cosmetic fixes
- Appliance repairs
- Pest control
- Lock replacement
Property Management
- Property management fees
- Software subscriptions (like Rentra)
- Tenant screening costs
Utilities (if you pay)
- Electricity, gas, water
- Trash collection
- Internet (if provided)
Professional Services
- Accountant/CPA fees (rental portion)
- Attorney fees (lease prep, evictions)
- Real estate agent commissions for tenant placement
Travel Expenses
Mileage
- 2025 rate: 70 cents/mile
- 2026 rate: 72.5 cents/mile for January through June; 76 cents/mile from July 1
What counts:
- Trips to show property
- Maintenance and inspection visits
- Picking up supplies
- Meeting with vendors
Keep a mileage log. Record date, destination, purpose, and miles.
Often Overlooked Deductions
Home Office
- If you have dedicated space for rental management
- Simplified method: $5/sq ft, up to $1,500
Education
- Landlord courses and seminars
- Real estate investing books
- Professional memberships
Bank Fees
- Account fees on rental business account
Repairs vs. Improvements
Misclassifying these means either overpaying tax or drawing IRS scrutiny.
Repairs (Deduct Immediately)
Repairs maintain the property in its current condition:
- Fixing a leaky faucet
- Replacing broken window glass
- Patching a roof leak
- Repainting a room
- Fixing appliances
Improvements (Must Depreciate)
Improvements add value or extend the property's useful life:
- New roof
- Kitchen renovation
- Adding a bathroom
- Replacing all windows with upgrades
- New HVAC system
The test: Does it fix what's broken (repair) or make it better than before (improvement)?
Example:
- Replacing a few worn shingles = repair (deduct now)
- Replacing the entire roof = improvement (depreciate over 27.5 years)
Depreciation
Depreciation is a deduction you take without spending cash that year, and you're required to take it.
How It Works
Formula: (Building Value) ÷ 27.5 years = Annual Depreciation
Example:
- Purchase price: $300,000
- Land value: $60,000 (land doesn't depreciate)
- Building value: $240,000
- Annual depreciation: $8,727
Rules
Start date: When property is "placed in service" (available for rent), not when purchased
Land exclusion: Only the building depreciates. Separate land value using your tax assessment or an appraisal
Recapture: When you sell, the IRS taxes your depreciation at up to 25%. This happens whether you claimed it or not, so always claim it.
Record-Keeping
What to Keep
Income Records
- Lease agreements
- Rent payment records
- Security deposit documentation
- Late fees and other income
Expense Records
- Receipts for all expenses
- Bank and credit card statements
- Contractor invoices
- Mileage log
Property Records
- Purchase documents (keep forever)
- Improvement receipts (keep for ownership + 7 years)
- Insurance policies
How Long to Keep Records
| Record Type | Retention Period |
|---|---|
| Tax returns and supporting docs | Minimum 3 years |
| All rental property records | 7 years recommended |
| Property purchase documents | Until the limitations period ends for the year you sell (generally 3 years after that return); many landlords keep them 7 |
| 1031 exchange documents | Records for both the old and the new property, until the limitations period ends for the year you sell the new one |
The Monthly Habit
Spend 30 minutes at the end of each month:
- Categorize all income and expenses
- Save digital copies of receipts
- Update your mileage log
- Note any repairs or improvements
Common Tax Mistakes to Avoid
1. Not Claiming Depreciation
Depreciation is often your largest deduction, and the IRS will recapture it whether you claimed it or not.
2. Confusing Repairs and Improvements
Deducting an improvement immediately (instead of depreciating) is a red flag. So is depreciating a repair.
3. Missing Deductible Expenses
Common oversights:
- Professional services
- Travel and mileage
- Home office
- Small supplies and tools
4. Poor Record-Keeping
If you can't prove an expense, you can't deduct it. Keep receipts.
5. Filing Schedule C Instead of Schedule E
Schedule C subjects income to self-employment tax (15.3%). Rental income belongs on Schedule E. Even real estate professionals report rental income on Schedule E (the status only makes losses non-passive). Schedule C only applies if you provide substantial services beyond housing, e.g., a hotel or B&B operation.
6. Not Separating Land Value
Land doesn't depreciate, so subtract its value from the purchase price before you calculate depreciation.
When to Hire a CPA
DIY tax filing works for many landlords, but consider professional help if:
You have multiple properties
- Complexity compounds with each property
- More opportunity for errors and missed deductions
You did a 1031 exchange
- Basis calculations are complex
- Mistakes are expensive
You're audited or have IRS issues
- CPAs can represent you before the IRS
You don't have the time
- Complex returns take 10-20+ hours
Cost: Expect $300-$600 for a simple rental return; $500-$1,500+ for complex situations.
Finding a Good CPA
Look for:
- Experience with rental properties specifically
- Real estate investor clients
- Tax planning during the year as well as filing
Ask: "How many landlord clients do you have?" and "What's your experience with real estate taxation?"
The Tax Season Timeline
October - November
- Review year-to-date income and expenses
- Identify missing documentation
- Plan year-end purchases if deductions needed
December
- Complete any deductible repairs
- Gather W-9s from contractors for 1099s
- Total each contractor's payments for the year; only those paid $2,000 or more in 2026 need a 1099-NEC
- Finalize expense categorization
January
- January 31 (February 1 in 2027): Send 1099-NECs to contractors and file them with the IRS
- Collect tax documents (1098s, 1099s you receive)
- Begin organizing for filing
February - March
- Prepare Schedule E
- Calculate depreciation
- Review for errors
- Meet with CPA if using one
April 15
- Filing deadline (or file extension)
- Pay any taxes owed
Rentra logs rent as tenants pay and keeps the expenses you record in Schedule E categories. At tax time it exports a Schedule E report and a Form 4562 depreciation PDF, and it helps with 1099 prep and status tracking (you file the 1099s yourself). See how it works.