Real Estate Deductions: A U.S. CPA’s Guide to Maximizing Your Tax Savings

Real estate investment remains one of the most powerful ways to build wealth in the U.S. However, many investors miss out on significant tax deductions that can dramatically reduce taxable income and improve cash flow.

As a CPA with over 10 years of experience helping real estate investors, developers, and property owners, I’ve seen firsthand how proper planning and strategic utilization of deductions can save thousands every year. This guide breaks down the most important deductions, eligibility rules, and best practices to ensure you stay compliant while maximizing your tax benefits.

1. Mortgage Interest Deduction

One of the most significant deductions for property owners is mortgage interest.

• Who qualifies: Owners of residential or commercial properties with a mortgage.
• How it works: Interest paid on loans secured by the property is deductible on your federal tax return.
• Limits: For mortgages taken after December 15, 2017, interest is deductible on up to $750,000 of mortgage debt ($375,000 if married filing separately).

Pro Tip: Investors with multiple properties can also deduct interest on each qualified loan separately, maximizing their deductions.

2. Depreciation Deduction

Depreciation allows you to recover the cost of income-producing property over time.

• Residential rental property: Typically depreciated over 27.5 years.
• Commercial property: Depreciated over 39 years.
• Bonus depreciation & Section 179: Recent tax laws allow accelerated depreciation on certain property improvements, reducing taxable income in the year of acquisition.

Depreciation can transform a seemingly profitable property into a lower-taxed investment, increasing your net cash flow.

3. Property Tax Deduction

Property taxes paid on real estate are generally deductible:

• Residential properties: Deductible on Schedule A (Itemized Deductions).
• Investment properties: Deductible as an expense on Schedule E.

Note: For high-value properties, the $10,000 SALT cap limits the deduction on state and local taxes for individual filers.

4. Repairs and Maintenance

Expenses necessary to keep your property in working condition are fully deductible in the year incurred.

• Examples: HVAC repair, plumbing fixes, painting, pest control.
• Differentiation: Unlike improvements (which must be depreciated), repairs are immediately deductible.

Tip: Always track and categorize each expense carefully — IRS scrutiny often focuses on distinguishing repairs vs. improvements.

5. Professional Services

The IRS allows deductions for professional services related to your real estate business.

• Accounting, legal fees, property management, appraisal, and brokerage fees are all deductible.
• Working with a qualified CPA not only ensures accurate reporting but can maximize available deductions and maintain compliance.

6. Travel and Vehicle Expenses

If you travel to manage or maintain your properties, associated costs may be deductible:

• Mileage or actual vehicle expenses when used for property management.
• Travel to inspect properties, meet tenants, or consult with contractors.
• Lodging and meals while traveling for business purposes (subject to 50% meal deduction rules).

Documentation is key: Keep logs, receipts, and dates to substantiate your deductions in case of an IRS audit.

7. Home Office Deduction

If you manage real estate as a business, a home office may qualify for deductions:

• Must be exclusively and regularly used for business.
• Deductible expenses include a portion of utilities, mortgage interest, insurance, and depreciation.
• Simplified method: $5 per square foot, up to 300 sq. ft.

8. Passive Activity Losses and Real Estate Professional Status

Real estate investors often face limitations on passive losses:

• Passive losses are deductible against passive income, but not ordinary income, unless you qualify as a real estate professional.
• Real estate professional criteria: >750 hours of real estate services in the year and >50% of personal service time in real estate activities.

Structuring your activities properly can unlock substantial deductions and reduce overall tax liability.

9. Energy-Efficient Property Improvements

The IRS incentivizes green investments:

• Residential Energy Credits: Solar panels, energy-efficient windows, and other qualifying improvements.
• Commercial Energy Incentives: Deduction for installing energy-efficient systems under Section 179D.

These credits directly reduce tax liability dollar-for-dollar, unlike most deductions, which reduce taxable income.

10. Recordkeeping Best Practices

To maximize deductions and remain audit-ready:

1. Keep organized receipts for all expenses, repairs, and improvements.
2. Track mileage and travel logs meticulously.
3. Use accounting software to separate personal vs. investment property expenses.
4. Maintain separate bank accounts for property income and expenses.
5. Work with a CPA specializing in real estate — professional guidance ensures no deduction is missed.

Real estate ownership offers unparalleled opportunities to build wealth, but tax deductions can make or break your investment returns. By understanding and strategically leveraging deductions like mortgage interest, depreciation, repairs, professional fees, and energy credits, investors can increase cash flow, reduce taxes, and grow wealth faster.

As a CPA with over a decade of experience in real estate tax planning, I help clients navigate these deductions efficiently, ensuring they comply with IRS rules while maximizing every legitimate tax benefit.

Smart tax planning isn’t just about compliance — it’s about unlocking the full potential of your investments.