The Landlord's Guide to Rental Property Tax Deductions in Orlando

For landlords and real estate investors in Orlando, understanding rental property deductions for taxes is essential to maximizing profitability and maintaining a healthy cash flow. Taxes can significantly impact your bottom line, but with the right knowledge, you can leverage deductions to reduce your taxable income and increase your return on investment.

This guide covers everything you need to know about the property tax deduction on rental property and other key tax strategies. From eligibility criteria to common pitfalls and year-end planning, this resource aims to equip Orlando landlords with practical insights to optimize their tax position.

What Counts as Rental Property Income?

Rental property income generally includes all payments received from tenants in exchange for the use of your property. This primarily consists of monthly rent payments, but it also includes advance rent collected before the rental period begins.

Security deposits can be a bit more complex. Typically, security deposits held as a guarantee against tenant damages are not considered income unless you retain part or all of the deposit to cover unpaid rent or damages. In such cases, the retained amount becomes taxable income.

When calculating taxable rental income, landlords subtract allowable expenses from the gross rental income. This means understanding which expenses are deductible is crucial to accurately reporting income and minimizing tax liability.

What Is Tax Deductible for Rental Property?

Several expenses related to owning and managing rental property are tax-deductible, helping to lower your taxable income. One of the largest deductions is the mortgage interest paid on loans secured by the rental property.

Property taxes are also deductible, though they are subject to certain limits, such as the federal SALT (State and Local Tax) cap, which we’ll discuss later.

For now, it’s vital to distinguish between repairs and improvements. Repairs that keep the property in good working condition, like fixing leaks or repainting, are generally deductible in the year they occur. However, improvements that add value or extend the property's life must be capitalized and depreciated over time.

Other deductible expenses include insurance premiums, property management fees, advertising costs, utilities paid by the landlord, cleaning services, and travel expenses related to managing the property. Keeping detailed records of these expenses ensures you can claim all eligible deductions.

The Property Tax Deduction on Rental Property: Rules, Caps, and Limitations in Orlando

Property tax deduction on rental property is a key benefit for landlords, but it comes with specific rules and limitations. In Orlando, as in the rest of Florida, property taxes are assessed by local municipalities and are generally deductible as an expense against your rental income.

However, the SALT cap limits the total amount of state and local taxes you can deduct to $40,000 for 2025 on your federal tax return. This cap, which increased from $10,000 in 2024, applies to the combined total of property taxes, state income taxes, and local taxes. For landlords with multiple properties or high-value real estate holdings, this cap can reduce the overall tax benefit.

It’s also important to note that property tax rates and assessments can vary across Orlando’s neighborhoods and counties, impacting your deduction amount. Staying informed about local tax changes and consulting with a tax professional familiar with Orlando’s market can help you maximize your rental property tax deduction.

How Depreciation and Major Improvements Work

Depreciation is a key tax benefit that allows landlords to recover the cost of their rental property over time. The IRS permits you to depreciate the building (not the land) over 27.5 years for residential rental properties, which means you can deduct a portion of the property’s value each year as an expense.

Major improvements, such as adding a new roof or remodeling a kitchen, must be capitalized and depreciated rather than deducted immediately. These improvements increase the property's basis and can reduce taxable gains when you sell the property.

To claim depreciation, landlords must maintain accurate records of the property’s purchase price, the value allocated to land versus building, and any improvements made. IRS Form 4562 is used to report depreciation deductions annually.

Common Mistakes and How to Maximize Your Rental Property Deductions

One of the most common mistakes landlords make is misunderstanding the passive activity loss rules. Rental real estate is generally considered a passive activity, and losses may be limited unless you actively participate in managing the property or meet specific income thresholds.

Another frequent error is poor record-keeping. Without detailed documentation, it’s difficult to substantiate deductions if audited. Receipts, invoices, bank statements, and mileage logs for travel related to property management should be meticulously maintained.

To maximize deductions, landlords should separate repair costs from improvements, track all expenses carefully, and consider consulting a tax professional to ensure compliance with IRS rules and to take advantage of all available deductions.

Year-End Tax Planning Checklist for Rental Property Owners

As the year draws to a close, landlords should review their records and plan to maximize deductions. Start by organizing all receipts and invoices related to property expenses, including repairs, utilities, and management fees.

Verify mortgage interest statements and property tax bills to ensure all amounts are accounted for. Review travel logs if you’ve made trips related to property management, as these can also be deductible.

Consider any planned improvements and whether they should be capitalized or expensed. Finally, consult with a tax advisor to review your situation, confirm eligibility for deductions, and prepare for filing.

Frequently Asked Questions About Rental Property Tax Deductions

• Q: Can I deduct the cost of a new appliance for my rental property?
• A: It depends. If the appliance is a repair or replacement, it can often be deducted immediately. If it’s considered an improvement, it must be depreciated over time.
• Q: How do I document travel expenses for managing my rental property?
• A: Keep a mileage log with dates, destinations, and purposes of trips. Also, save receipts for gas, lodging, and meals if applicable.
• Q: Are HOA fees deductible?
• A: Yes, homeowners association fees related to your rental property are generally deductible as an expense.
• Q: Does Florida’s lack of state income tax affect rental property deductions?
• A: While Florida has no state income tax, property taxes and federal tax rules still apply. The absence of state income tax simplifies filing but does not change federal deduction eligibility.

Conclusion

In Orlando, leveraging all available rental property deductions for taxes is crucial for landlords aiming to boost their return on investment. From understanding what counts as rental income to navigating the complexities of property tax deductions and depreciation, informed tax planning can lead to significant savings.

Given the nuances of tax law and local regulations, consulting a qualified tax advisor familiar with Orlando’s real estate market is highly recommended.

Managing a rental property in Orlando can be complicated, but Evernest’s local property management team will make it feel like a breeze. Contact us to learn how we can help you manage your rental with ease.

The content of this blog is intended for general informational purposes only and does not constitute tax advice. No representations are made regarding the tax consequences of any actions taken based on the information provided. Please seek the services of a qualified tax professional to address specific tax-related questions or concerns, particularly regarding the SALT cap and property deductions.