The IRS classifies rental income as passive activity under IRC 469. Passive losses can only offset passive income - not your W-2 salary or business income. This is why TurboTax/CPA shows your rental losses as "suspended."
Three ways to unlock your rental losses:
All ordinary and necessary expenses for managing, conserving, and maintaining rental property are deductible. This includes property management fees (typically 8–12% of rent), repairs and maintenance, landscaping, snow removal, pest control, cleaning between tenants, locksmith fees, and any other costs directly related to keeping the property in rentable condition.
A landlord paying $4,800/year in property management fees on a $4,000/month rental deducts the full amount, saving $1,440–$1,920 in taxes.
Repairs are immediately deductible; improvements must be depreciated. The line between repair and improvement matters — a new roof is an improvement, patching a roof is a repair.
Property managers can deduct every mile driven to inspect properties, meet tenants, handle maintenance calls, and visit suppliers. At 70 cents per mile in 2026, a property manager driving 12,000 business miles deducts $8,400. Track from your first property visit to your last stop using MileIQ or Everlance.
A property manager driving 20,000 business miles/year for property inspections and tenant meetings deducts $13,400 (20,000 x $0.67), saving $4,958 at 37%.
Property managers drive extensively for property inspections, maintenance oversight, tenant meetings, and vendor coordination. Every mile driven to inspect properties, meet tenants, coordinate repairs, or attend property-related meetings is deductible. At 67 cents/mile, 20,000 miles = $13,400 deduction. Use MileIQ or Stride to automatically track mileage. If your home is your principal place of business (home office), all miles from home to properties are business miles.
Property management software like AppFolio, Buildium, Rent Manager, and TenantCloud is fully deductible as a business expense. These platforms typically cost $1,200–$6,000 per year and are 100% deductible under IRC §162. Also deduct QuickBooks, DocuSign, and any tenant screening service subscriptions.
A property manager paying $3,600/year for AppFolio, $1,200 for DocuSign, $600 for QuickBooks, and $480 for tenant screening tools deducts $5,880, saving $2,176 at 37%.
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Cost Segregation generates more first-year deductions than any other strategy in the tax code.
REPS status can turn passive losses into unlimited active deductions — but requires 750+ hours documented.
The 1031 exchange can be chained indefinitely — some investors have deferred gains for 30+ years.
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