Rental Property Tax Deductions for California Landlords (2026 Guide)

California landlords can deduct nearly every ordinary and necessary cost of running a rental on federal Schedule E: mortgage interest, property taxes, insurance, repairs, management fees, and depreciation. The catch in 2026 is that California doesn't follow every federal rule. The biggest example is bonus depreciation, which is back at 100% federally but disallowed entirely on your California return.

Here's what you can deduct, where the rules split, and how to keep records that survive an audit.

The Core Deductions on Schedule E

If you own rentals in your own name (or through a single-member LLC), you report income and expenses on Schedule E of your federal return. Common deductible expenses include:

• Mortgage interest on loans used to buy or improve the rental
• Property taxes on the rental — fully deductible on Schedule E. The SALT cap that limits personal property tax deductions does not apply.
• Insurance — landlord/dwelling policies, liability, and loss-of-rent coverage
• Repairs and maintenance — plumbing fixes, patching drywall, replacing a broken window
• Property management fees and leasing commissions
• Utilities you pay for the tenant (water, trash, gas, electric)
• Legal and professional fees — eviction attorneys, court filing fees, tax prep for the rental
• Advertising for vacancies and tenant screening costs
• HOA dues for rental condos
• Travel to the property for rental business, using actual costs or the IRS standard mileage rate
• Software and supplies used to manage the rental, including property management apps

If you co-own a rental through a multi-member LLC taxed as a partnership, the LLC files Form 1065 and each member receives a Schedule K-1 instead.

Depreciation: Your Biggest Non-Cash Deduction

You can't deduct the purchase price of a rental in one year. Instead, you depreciate the building (not the land) over 27.5 years for residential rental property. A common way to split land and building value is to use the ratio on your county assessor's tax bill.

Shorter-lived items get their own schedules. Appliances, carpet, and furniture are generally 5- or 7-year property. Land improvements like fencing and paving are generally 15-year property.

Example: you buy a rental for $900,000 and the assessor allocates 60% to the building. That's $540,000 of depreciable basis, or about $19,600 per year over 27.5 years.

Where California and Federal Rules Split

The practical result is that you'll often keep two depreciation schedules, one federal and one California, and your state taxable rental income may be higher than your federal number. California's adjustments are reported on FTB Form 3885A. This is a good reason to work with a CPA who knows California rentals.

Repairs vs. Improvements

This is where many landlords get tripped up.

• Repairs keep the property in working order and are deducted in the year you pay for them. Examples: fixing a leak, replacing a broken tile, repainting a room.
• Improvements make the property better, restore it after major wear, or adapt it to a new use. These are capitalized and depreciated. Examples: a new roof, a kitchen remodel, a new HVAC system.

The IRS de minimis safe harbor lets you expense items costing up to $2,500 each (per invoice or item) instead of depreciating them, if you elect it on your return. That covers many appliance replacements and small projects.

Passive Loss Limits

Rental income is generally passive. If your rental shows a loss (often thanks to depreciation), you may be able to deduct up to $25,000 of it against other income if you actively participate in managing the property. That allowance phases out as modified adjusted gross income rises from $100,000 to $150,000. Losses you can't use carry forward to future years or until you sell.

Recordkeeping That Holds Up

The IRS expects you to prove every deduction. Keep:

• Receipts and invoices for every expense, tied to a specific property
• Closing statements and improvement records for your depreciation basis
• A mileage log for property trips
• Bank records that separate rental money from personal money

The landlords who struggle at tax time usually have the expenses. They just can't find the receipts.

Frequently Asked Questions

Can California landlords use 100% bonus depreciation?

Federally, yes, for qualifying property acquired after January 19, 2025. On the California return, no. You must add it back and depreciate on standard schedules.

Are property taxes on a rental limited by the SALT cap?

No. Property taxes on rental property are a business expense deducted in full on Schedule E. The SALT cap applies to taxes on your personal residence.

Is a new water heater a repair or an improvement?

Replacing a whole unit is generally an improvement you depreciate. But if the cost is $2,500 or less and you've elected the de minimis safe harbor, you can often expense it.

Can I deduct the cost of property management software?

Yes. Software used to run your rental business is a deductible expense.

Bottom Line for Landlords

1. Track every rental expense by property. Most ordinary costs are deductible on Schedule E.
2. Depreciate the building over 27.5 years, and shorter-lived items on their own schedules.
3. Expect separate federal and California depreciation numbers. California doesn't allow bonus depreciation.
4. Know the difference between repairs and improvements, and consider the $2,500 de minimis election.
5. Work with a CPA who knows California rental property.

This article is for general informational purposes and isn't tax or legal advice. Tax rules change and depend on your situation. Consult a CPA or tax professional before filing.