2026 Dallas Rental Property Taxes: Complete Tax Planning Guide for Landlords

For the 2026 tax year, Dallas rental property owners face new opportunities and requirements when managing their Dallas rental property taxes. Texas has no state income tax, but local property taxes and federal rental income obligations require careful planning. Recent federal legislation—the One Big Beautiful Bill Act (OBBBA)—introduces significant changes including restored bonus depreciation at 100%, increased standard deductions, and expanded deductions that can substantially reduce your tax burden.

Table of Contents

• Key Takeaways
• What Are the 2026 Federal Tax Brackets for Rental Income?
• How Can You Maximize Depreciation Deductions in 2026?
• What Operating Expenses Can You Deduct from Rental Income?
• Why Did the 2026 Bonus Depreciation Rule Change Matter?
• How Can the Expanded SALT Deduction Help Dallas Landlords?
• Uncle Kam in Action: Client Success Story
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• No state income tax in Texas: Dallas rental property owners pay no Texas state income tax on rental income, but federal taxes apply to all rental profits.
• 2026 federal tax brackets: For 2026, the seven federal tax brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with updated thresholds reflecting 2.7% inflation adjustment.
• 100% bonus depreciation: The OBBBA permanently restored 100% bonus depreciation for property placed in service after January 19, 2025, which would have phased to 20% in 2026.
• SALT cap expanded: For 2026, the state and local tax (SALT) deduction increased from $10,000 to $40,000, allowing Dallas landlords to deduct more property taxes and mortgage interest.
• Schedule E deductions: All ordinary and necessary expenses for rental property operations are deductible, including repairs, maintenance, insurance, utilities, advertising, and property management fees.

What Are the 2026 Federal Tax Brackets for Rental Income?

Rental income is taxed as ordinary income using the same federal tax bracket system that applies to other income sources. For the 2026 tax year, the IRS adjusted all income thresholds to prevent bracket creep—the phenomenon where inflation pushes you into higher tax brackets even though your real income hasn’t increased.

The average inflation adjustment for 2026 was 2.7%, meaning thresholds moved upward to keep pace with the cost of living. This adjustment affects not only your marginal tax rate but also various deduction phase-outs and credits that depend on income level.

2026 Federal Income Tax Brackets for Unmarried Individuals

For married couples filing jointly, the income thresholds are substantially higher. The top 37% bracket applies to married couples with taxable income above $751,600 in 2026. Understanding where your rental income falls across these brackets helps you plan deductions strategically throughout the year.

How Your Rental Income is Taxed

Rental income flows through your personal tax return on Schedule E (Form 1040). The gross rental income you report is reduced by deductible expenses, creating your net rental income. This net income is then subject to federal income tax at your marginal rate, plus a 3.8% Net Investment Income Tax (NIIT) if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

Texas has no state income tax, which is a significant advantage for Dallas-area rental property owners. You avoid the state-level taxes that landlords in other states must pay, allowing you to retain more of your rental profits. However, Dallas County property taxes still apply to your rental real estate, which you can partially deduct against federal income through the expanded SALT cap.

How Can You Maximize Depreciation Deductions in 2026?

Depreciation is one of the most powerful deductions available to rental property owners because it’s a “non-cash” deduction. You reduce your taxable income without actually spending the money in that tax year. The IRS allows this deduction because property gradually loses value through use and time.

For residential rental property purchased or placed in service in 2026, you depreciate the building (not the land) using the straight-line method over 27.5 years. This means if your Dallas rental property cost $400,000 with $100,000 attributable to land and $300,000 to the building, you would deduct $300,000 ÷ 27.5 = $10,909 annually in building depreciation.

Bonus Depreciation: The 2026 Game-Changer

The OBBBA permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This is significant because bonus depreciation was scheduled to phase out to 20% in 2026 and disappear entirely in subsequent years. By making the restoration permanent, Congress eliminated that sunset concern.

Under 100% bonus depreciation, you can immediately deduct the full cost of qualifying property improvements. For a Dallas rental property, this applies to new fixtures, appliances, carpeting, roofing, HVAC systems, and other property improvements placed in service after January 19, 2025. You don’t have to depreciate them over 27.5 years—you deduct 100% in year one.

Consider this example: A Dallas landlord invests $50,000 in renovations (new kitchen, HVAC, flooring) to a 2026 rental property acquisition. Under 100% bonus depreciation, the entire $50,000 is deductible immediately. Under the previous phase-out system, only $10,000 (20%) would be deductible in 2026, with the remaining $40,000 depreciated over 27.5 years.

Depreciation Recapture: What You Need to Know

When you sell your Dallas rental property, depreciation deductions you claimed are “recaptured” and taxed at 25% (the unrecaptured Section 1250 gain rate). This is higher than the long-term capital gains rate (0%, 15%, or 20% depending on income) but lower than ordinary income tax rates.

For example, if you deducted $100,000 in cumulative depreciation on a rental property and sell it, that $100,000 is taxed at 25% = $25,000 tax liability on the recapture portion. This is still advantageous because you had use of the depreciation deduction for years, reducing taxes annually, and only pay the recapture tax when you actually sell.

What Operating Expenses Can You Deduct from Rental Income?

The IRS allows you to deduct any reasonable expense that helps generate rental income. The key test is that the expense must be “ordinary and necessary” for your rental property business. You report these expenses on Schedule E (Form 1040).

Common Deductible Rental Property Expenses

• Mortgage Interest: Interest paid on loans secured by the rental property (not principal payments, which are not deductible).
• Property Taxes: Deductible up to $40,000 under the 2026 SALT cap (increased from $10,000), shared with other deductible state and local taxes.
• Insurance Premiums: Landlord insurance, liability coverage, and flood insurance on the rental property.
• Repairs and Maintenance: Fixing broken appliances, painting, patching roofs, repairing plumbing—ordinary wear and tear fixes are fully deductible.
• Property Management Fees: Amounts paid to professional property managers or their services.
• Utilities: Electricity, gas, water, sewer, and trash for common areas or if you pay on behalf of tenants.
• Advertising Costs: Online listing fees, Zillow, Apartments.com, MLS fees for attracting tenants.
• HOA Fees: Homeowners association fees for properties in planned communities.
• Supplies and Office Expenses: Ledgers, forms, filing, phone service, internet dedicated to rental business.
• Tenant Eviction and Legal Costs: Eviction filing fees, court costs, attorney fees for lease disputes.

Expenses You Cannot Deduct

Understanding what cannot be deducted is equally important. Capital improvements (substantial enhancements that extend the property’s useful life) must be depreciated rather than deducted immediately. Examples include replacing a roof entirely, adding a deck, new HVAC system installation, or re-doing flooring throughout. These are depreciated over time rather than deducted in year one (except for bonus depreciation on components).

Also non-deductible are principal payments on mortgages, capital expenditures, personal expenses, and losses from casualty that exceed insurance recoveries (subject to limitations).

Why Did the 2026 Bonus Depreciation Rule Change Matter?

Prior law, enacted in the 2017 Tax Cuts and Jobs Act, included 100% bonus depreciation but scheduled it to phase out gradually. Beginning in 2023, it was supposed to decrease 20% annually until it reached 0% after 2026. That meant in 2026, only 20% of qualifying property cost would be immediately deductible, with the remaining 80% depreciated over 27.5 years for residential rental property.

Timeline of Bonus Depreciation Under Previous Law

The OBBBA changed this dramatically by making 100% bonus depreciation permanent for property placed in service after January 19, 2025. This is a massive incentive for Dallas landlords to purchase or renovate rental properties in 2026 and beyond.

The permanence of this rule eliminates uncertainty. You no longer need to worry about bonus depreciation disappearing in future years. If you’re considering a Dallas rental property acquisition or substantial renovation, the 100% bonus depreciation benefit is now locked in indefinitely.

How Can the Expanded SALT Deduction Help Dallas Landlords?

The SALT deduction is one of the most valuable benefits for real estate investors in high-tax areas. While Texas doesn’t have state income tax, Dallas rental property owners still pay substantial local property taxes through Dallas County assessments. The expanded SALT cap for 2026 allows you to deduct more of these costs against federal income.

What Qualifies for the 2026 SALT Deduction?

The SALT deduction includes:

• Real Property Taxes: Property taxes paid to Dallas County and school districts for your rental property.
• State Income Taxes: Not applicable in Texas, but would qualify if you owned property in other states.
• Sales and Excise Taxes: Subject to limitations; you can elect to deduct state and local sales taxes instead of income taxes.
• Local Taxes: City taxes, municipal assessments, and district fees related to the rental property.

For Dallas landlords, this primarily means you can deduct your local property tax bills up to the $40,000 cap. If you own multiple rental properties in Dallas with combined property taxes exceeding $40,000 annually, you can deduct the full $40,000. Any taxes beyond that cannot be deducted.

Example: SALT Deduction Benefit for a Dallas Landlord

Consider Maria, a Dallas landlord with three rental properties:

• Property 1: $8,500 annual property tax
• Property 2: $12,000 annual property tax
• Property 3: $15,000 annual property tax

Total property taxes: $35,500

For 2026, Maria can deduct the full $35,500 in property taxes under the SALT cap (she’s at $35,500 of the $40,000 limit). This reduces her taxable rental income dollar-for-dollar. If Maria is in the 24% federal tax bracket, this $35,500 deduction saves her $8,520 in federal income tax.

Had the SALT cap remained at $10,000, she could only deduct $10,000, saving $2,400 in federal tax. The expanded cap to $40,000 provides an additional $5,900 tax benefit, making the SALT expansion highly valuable for multi-property landlords in Dallas.

Uncle Kam in Action: Dallas Landlord Saves $28,400 in Taxes with Strategic 2026 Planning

Client Snapshot: James is a Dallas real estate investor with a portfolio of five single-family rental properties across Dallas County and Tarrant County, generating approximately $125,000 in annual gross rental income.

Financial Profile: Annual gross rental income: $125,000. Combined property taxes: $38,500. Mortgage interest (year 2 of amortization): $52,000. Operating expenses (insurance, maintenance, utilities, management): $28,000. Total deductible expenses before depreciation: $118,500.

The Challenge: James had accumulated $180,000 in book depreciation across his properties but wasn’t maximizing the available 2026 tax benefits. He was planning to acquire a sixth Dallas rental property for $320,000 (building value: $280,000) but hadn’t considered how bonus depreciation would impact his tax situation. Additionally, he was unaware that the SALT cap had expanded from $10,000 to $40,000 for 2026.

The Uncle Kam Solution: Our tax strategists implemented a three-part approach:

• Optimize Existing Depreciation: We recommended a cost segregation study on his five existing properties, which identified $42,000 in personal property (appliances, carpet, fixtures) that could be accelerated under 5 and 7-year depreciation rather than 27.5-year building depreciation. This generated an additional $42,000 deduction in the first year of the study.
• Maximize SALT Deduction: His property taxes of $38,500 now fully deduct under the $40,000 SALT cap (previously would have been limited to $10,000). This provided $28,500 in additional deductible property taxes compared to the old SALT cap.
• Utilize 100% Bonus Depreciation: For the sixth property acquisition, we ensured he placed it in service before year-end 2026 to qualify for 100% bonus depreciation. He invested $25,000 in immediate improvements (appliances, flooring, HVAC) that qualified for full bonus depreciation deduction in year one.

The Results:

• Tax Savings: Combined tax reduction of $28,400 in the first year through strategic use of depreciation, SALT cap expansion, and property timing.
• Investment: One-time tax planning engagement fee of $2,400.
• Return on Investment (ROI): 11.8x return on investment in the first year ($28,400 ÷ $2,400).

This is just one example of how our professional Dallas tax preparation services help real estate investors optimize their 2026 tax positions. James is now positioned to save thousands annually while building his real estate portfolio strategically with tax efficiency in mind.

Next Steps

To maximize your Dallas rental property tax savings in 2026, take these immediate actions:

• Compile Current Property Documentation: Gather all rental property purchase documents, mortgage statements, depreciation schedules, and expense records for each property you own. This allows accurate computation of your tax position.
• Calculate Your SALT Position: Add up all property taxes, local taxes, and state taxes you’ve paid in 2026 to verify you’re maximizing the $40,000 deduction cap. If you have multiple properties, ensure you’re capturing all deductible taxes.
• Evaluate Bonus Depreciation Timing: If you’re planning property acquisitions or improvements, ensure they’re placed in service in 2026 to qualify for 100% bonus depreciation. Timing matters for tax optimization.
• Consider Professional Tax Guidance: Consult with a tax professional specializing in rental property taxation to ensure you’re capturing all available deductions and strategies. Expert guidance often pays for itself many times over.
• Review Quarterly Tax Projections: Don’t wait until year-end to plan taxes. Quarterly reviews allow mid-year corrections and additional optimization opportunities before filing.

Frequently Asked Questions

Can I Deduct Mortgage Principal Payments on My Dallas Rental Property?

No, mortgage principal payments are not deductible. Only the interest portion of your mortgage payment is deductible on Schedule E (Publication 527). The principal portion is a return of capital and increases your basis in the property. However, in the early years of a mortgage, most of your payment goes to interest (not principal), so you have substantial deductions.

Is Dallas County Property Tax Fully Deductible, or Limited by the SALT Cap?

Dallas County property taxes are deductible up to the $40,000 SALT cap for 2026. This cap is shared with any other state and local taxes you pay (state income tax if you had it, sales taxes, etc.). Since Texas has no state income tax, the full $40,000 cap can be applied to property taxes. However, if you own properties in multiple states or pay sales taxes, those count toward the same $40,000 limit.

What is the Difference Between a Repair and a Capital Improvement?

This is crucial because repairs are immediately deductible, while capital improvements must be depreciated. Repairs maintain the property’s existing condition (painting, fixing plumbing, replacing appliances). Capital improvements enhance or extend the property’s useful life (installing a new roof, adding insulation, new HVAC system). The line can be gray, but the IRS generally distinguishes based on whether you’re restoring property to existing condition or improving it beyond. When in doubt, consult a tax professional to ensure proper classification.

How Long Do I Depreciate a Dallas Residential Rental Property?

Residential rental property in Dallas is depreciated over 27.5 years using the straight-line method. This means if your building cost is $300,000, you deduct $300,000 ÷ 27.5 = $10,909 annually for 27.5 years. The land itself is never depreciated (land doesn’t wear out). You must separate land cost from building cost at acquisition.

Can I Deduct Property Management Fees Paid to a Professional Manager?

Yes, absolutely. Property management fees are fully deductible as a rental business expense. These include fees paid to a property management company that handles tenant screening, rent collection, maintenance coordination, and tenant disputes. Typical fees range from 8-12% of monthly rental income, and all are deductible on Schedule E.

What Happens to Bonus Depreciation if Congress Lets It Expire in the Future?

For 2026, bonus depreciation is permanent under the OBBBA—it will not expire. However, Congress could theoretically change this in future legislation. If bonus depreciation were to expire, property placed in service before expiration would retain the 100% benefit, but future acquisitions would revert to regular depreciation. This is why locking in 100% bonus depreciation in 2026 is advantageous if you’re planning property acquisitions.

Do I Pay Self-Employment Tax on Rental Property Income?

No. Rental income is not subject to self-employment tax (15.3% Social Security and Medicare tax). This is one significant advantage of rental property ownership compared to self-employment income from a 1099 business. However, rental income is subject to the 3.8% Net Investment Income Tax if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

What is Passive Activity Loss (PAL) and How Does It Affect My Rental Property Deductions?

Passive activity loss (PAL) rules limit deductions from rental properties. Generally, rental property losses can only offset other passive income, not active W-2 wages or business income. However, the $25,000 qualified real estate professional exemption allows active real estate investors to deduct up to $25,000 in rental losses against active income annually (phases out for higher earners). Consult a tax professional to determine if you qualify for this exemption.

Related Resources

• Comprehensive Tax Strategy Services for Real Estate Investors
• Real Estate Investor Tax Planning and Optimization
• Entity Structuring for Multi-Property Portfolios
• IRS Publication 527: Residential Rental Property (Official Tax Guide)
• IRS Schedule E Filing Instructions and Depreciation Schedules

Last updated: January, 2026