Guide
Best Tax Deductions for Real Estate Investors
The biggest deductions for most rental property investors are depreciation of the building, mortgage interest, repairs and maintenance, property taxes and insurance, and operating costs such as management fees and travel. Newer or larger investors can also benefit from permanent 100% bonus depreciation on shorter-lived property acquired after January 19, 2025, the permanent 20% qualified business income deduction when the rental rises to a trade or business, and the $25,000 passive loss allowance. South Carolina does not follow federal bonus depreciation or the QBI deduction, so state results differ.
Rental income is reported on Schedule E for most individual investors, and nearly every ordinary and necessary cost of owning and running the property can be deducted against it. The list below covers the deductions and rules that most often change an investor's tax bill, updated for the federal law changes in P.L. 119-21 and for South Carolina's treatment. It is general information, not advice for your situation.
Depreciation of the building
Best for: Every investor who owns a rental building
You cannot deduct the purchase price of a rental building in one year, but you can recover its cost through depreciation. IRS Publication 527 says residential rental buildings are depreciated over 27.5 years using the straight-line method and mid-month convention. Land is never depreciable, so the purchase price must be split between land and building.
- Residential rental buildings: 27.5 years, straight line
- Land is not depreciable
- Depreciation allowed reduces your basis and can be recaptured on sale
100% bonus depreciation on shorter-lived property
Best for: Investors buying appliances, furnishings, land improvements or doing cost segregation
P.L. 119-21 made a 100% additional first-year depreciation deduction permanent for qualified property acquired after January 19, 2025, and the IRS issued Notice 2026-11 on it. Bonus depreciation applies to qualifying shorter-lived property, not to the 27.5-year building itself, which is why some investors use a cost segregation study to separate out components. South Carolina does not adopt federal bonus depreciation, so the state return adds it back and depreciates the property on a regular schedule.
- Permanent 100% for qualified property acquired after January 19, 2025
- Election to take less is available in some cases
- South Carolina requires an add-back
Mortgage interest
Best for: Leveraged investors
Interest on a loan used to buy or improve a rental property is a rental expense. Publication 527 notes that points paid on a rental loan are generally treated as prepaid interest and deducted over the life of the loan rather than all at once.
- Deducted on Schedule E, not as an itemized deduction
- Points are amortized over the loan term
Repairs and maintenance, using the IRS safe harbors
Best for: Investors with older properties or frequent turnovers
Repairs are deductible in the year paid, while improvements that better, restore or adapt the property must be capitalized and depreciated. The tangible property regulations give three safe harbors: a de minimis election to expense items up to $2,500 per invoice or item for taxpayers without audited financial statements, a routine maintenance safe harbor, and a small taxpayer safe harbor for buildings with an unadjusted basis of $1 million or less that allows repairs up to the lesser of $10,000 or 2% of basis each year.
- De minimis safe harbor: $2,500 per invoice or item without an AFS
- Routine maintenance safe harbor
- Small taxpayer building safe harbor: lesser of $10,000 or 2%
Property taxes and insurance
Best for: All rental owners, especially in high-tax or coastal-insurance areas
Real estate taxes and insurance premiums on a rental are rental expenses on Schedule E. Because they are expenses of the rental activity rather than personal itemized deductions, they are not limited by the SALT cap that applies to personal state and local taxes. Keep the county tax bills and insurance declarations with your rental records.
- Reported with the rental, not on Schedule A
- Prepaid insurance covering future years is deducted year by year
Travel, mileage and local transportation
Best for: Self-managing investors who drive to properties
Trips to collect rent, show units, meet contractors or maintain the property are deductible. You can use actual vehicle costs or the IRS standard mileage rate for the year; the rate changes annually, so use the current year's figure published by the IRS. Keep a log with dates, destinations and purposes.
- Standard mileage rate or actual expenses
- A contemporaneous mileage log is the key record
Management, professional and operating costs
Best for: Investors using property managers or outside help
Publication 527 lists advertising, cleaning and maintenance, commissions, legal and other professional fees, and utilities among deductible rental expenses. Property management fees, bookkeeping and tax preparation fees for the rental, HOA dues and pest control fall into the same family of ordinary operating costs.
- Management fees and commissions
- Legal, accounting and tax preparation fees for the rental
- Utilities you pay as landlord
The qualified business income (QBI) deduction
Best for: Investors whose rentals operate as a trade or business
Section 199A allows eligible owners to deduct up to 20% of qualified business income, and P.L. 119-21 made the deduction permanent. Rental income qualifies only if the activity rises to a trade or business; Revenue Procedure 2019-38 offers a safe harbor for rental real estate enterprises, which requires separate books and records, 250 or more hours of rental services a year (or in three of the last five years for enterprises in existence at least four years) and contemporaneous time records; triple net leases are excluded from it. South Carolina does not adopt the federal QBI deduction.
- Up to 20% of QBI, now permanent at the federal level
- Rev. Proc. 2019-38 safe harbor, including the 250-hour test
- Not adopted by South Carolina
Passive loss relief: the $25,000 allowance and real estate professional status
Best for: Investors whose rentals show a tax loss after depreciation
Rental losses are generally passive, but Publication 925 allows individuals who actively participate to deduct up to $25,000 of rental losses against other income; the allowance phases out by 50 cents per dollar of modified adjusted gross income above $100,000 and is gone at $150,000. Taxpayers who spend more than half their working time and more than 750 hours a year in real property businesses in which they materially participate can qualify as real estate professionals, making materially participated rentals nonpassive.
- $25,000 allowance, phased out between $100,000 and $150,000 MAGI
- Real estate professional: more than half of services and more than 750 hours
- Disallowed losses carry forward
When each deduction hits your return
| Cost | When you deduct it | South Carolina |
|---|---|---|
| Repairs and maintenance | Year paid | Follows federal |
| Mortgage interest, taxes, insurance, fees | Year paid (prepaid amounts spread) | Follows federal |
| Building | Over 27.5 years (residential) | Follows federal regular depreciation |
| Appliances, furnishings, land improvements | Up to 100% in year one with bonus | Bonus added back; regular depreciation instead |
| QBI deduction | Computed each year on the federal return | Not adopted |
Deferral, not deduction: the 1031 exchange
A like-kind exchange under section 1031 does not create a deduction, but it can defer gain when you sell one investment property and buy another. Both properties must be held for business or investment use. The replacement must be identified in writing within 45 days of the sale and received within 180 days of the sale or by the due date (with extensions) of that year's return, whichever is earlier, and the proceeds are normally held by a qualified intermediary. Depreciation you have taken carries over into the new property's basis, so the exchange postpones rather than erases the tax. Our article on 1031 exchange timelines walks through the dates.
Records that protect these deductions
- Closing statements for every purchase and sale, and the allocation between land and building.
- Invoices that show what work was done, so repairs can be separated from improvements.
- A fixed asset list with the date each item was acquired and placed in service, needed for both the federal bonus rules and the South Carolina add-back.
- Mileage logs and a record of hours if you rely on the 250-hour safe harbor or real estate professional status.
- IRS guidance says to keep property records until the limitations period expires for the year you dispose of the property.
Haigler CPA Group prepares returns and plans for rental real estate owners. If you are comparing firms, see our ranked list of CPAs for real estate investors in Charleston.
Sources
- IRS Publication 527, Residential Rental Property
- IRS Publication 925, Passive Activity and At-Risk Rules
- IRS: Tangible property final regulations
- IRS: Guidance on the additional first year depreciation deduction (Notice 2026-11)
- IRS: Qualified business income deduction
- IRS: Understanding the Working Families Tax Cuts, business provisions
- SC Department of Revenue: SC Tax Incentives for Economic Development, Chapter 2 (2025)
- IRS: Instructions for Form 8824, Like-Kind Exchanges
The information on this site is general in nature and is not tax, legal, or accounting advice for your situation. Tax law changes and the right answer depends on facts we would need to review with you. Please speak with a qualified professional before acting on anything you read here.
Questions people ask about this
Can I take 100% bonus depreciation on a rental house?
Not on the building itself, which is 27.5-year property. Bonus depreciation can apply to qualifying shorter-lived property such as appliances, furnishings and some land improvements acquired after January 19, 2025. South Carolina does not follow federal bonus depreciation.
Are rental property taxes limited by the SALT cap?
Taxes on a rental are deducted as a rental expense on Schedule E, not as a personal itemized deduction, so the SALT cap that applies to personal state and local taxes does not limit them.
Does rental income qualify for the 20% QBI deduction?
Only if the rental activity rises to a trade or business. Revenue Procedure 2019-38 provides a safe harbor that requires separate books and records, 250 or more hours of rental services per year and contemporaneous time records. The deduction is permanent federally but not adopted by South Carolina.
What if my rental shows a loss?
Rental losses are generally passive. If you actively participate, up to $25,000 may offset other income, phasing out between $100,000 and $150,000 of modified AGI. Disallowed losses carry forward and are released when you sell the property.
Keep reading
- Best CPAs for Real Estate Investors in Charleston (2026)Haigler CPA Group's 2026 list of Charleston-area CPA firms for rental property owners and real estate investors, with what each firm offers and how to choose.
- Best Tax Records to Keep and for How LongHow long to keep tax records: the IRS 3, 6 and 7-year rules, 4 years for payroll, 5 for FBAR, property basis records and South Carolina's 36-month limit.
- Best Business Entity Types for South Carolina BusinessesSole proprietorship, partnership, LLC, S corp or C corp? How each is taxed in South Carolina, including the 3% pass-through election and 5% corporate rate.
- Rental Real EstateSchedule E, depreciation, 1031 exchanges, and the short-term rental loophole.
- Real Estate InvestorsRental portfolios, short-term rentals, 1031 exchanges and how the losses actually work.
- Rental Property Tax in South CarolinaThe federal side of a rental is the same in Charleston as it is anywhere. What is different — and what costs Lowcountry owners the most money — is the layer underneath it: the assessment ratio, the accommodations taxes, and which jurisdiction you are actually in.
- 1031 Exchange Timeline and RulesA 1031 exchange defers capital gains tax when you sell investment real estate and reinvest. The deadlines are unforgiving, they start before most people start planning, and one of them is shorter than almost everyone thinks.
- Section 179 and Bonus DepreciationBoth write-offs are larger and more permanent than they have been for years. Neither of them is a reason to buy something, and one of them does considerably less in South Carolina than it does on the federal return.
- All Charleston tax & accounting guidesEvery list, choosing a CPA and the tax reference lists.
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