5 Common Tax Mistakes Rental Property Owners Should Avoid


It’s 2023, and owning an attractive real estate rental property has become a solid investment. Rental real estate owners have to report their entire rental income and cover the tax amount. But not all rental property owners understand the taxation requirements and responsibilities. And this translates into mistakes at the time of reporting rental income.

Making mistakes in this area can be costly and may lead to penalties or missed opportunities for deductions. The focus of this article is to touch on the five most common tax mistakes that real estate rental property owners can avoid:

1. Failing to Report Rental Income

The most common mistake rental property owners make is that they don’t report their entire rental income. Your tax return should cover your entire rental income for reporting purposes. If you rent your real estate property for mere weeks, you should still follow the same requirements. Conversely, when you don’t report rental income – it triggers the wrath of the IRS in the form of penalties and fines.

Neglecting Proper Record-Keeping

You’d be surprised how many rental real estate property owners don’t maintain accurate records of their expenses and income. Good record-keeping is essential for claiming deductions, calculating taxable income, and providing documentation during audits. Without proper records, you may miss out on eligible deductions. You’ll also find it more challenging to substantiate your claims.

Now, establish a system for documenting rental income, expenses, repairs, and improvements. Make sure to keep all bank statements, invoices, receipts, and rental agreements accessible and secure. Consider using accounting software or hiring a professional property manager to help you maintain accurate records.


Overlooking Deductible Expenses

Whether you realize it or not, understand that rental real estate property owners can cut several expenses that tie together with rental property. It can include insurance, repairs, maintenance, and rental property taxes.

Many owners overlook or underestimate these deductible expenses. In some cases, they fail to keep proper records. And when rental property owners don’t take advantage of this tax strategy, they miss out on significant savings.

If you don’t want to deal with this issue, consult a real estate expert to determine the actual property value. You can then use this information to calculate the depreciation deductions correctly. Remember that depreciation methodologies can, in fact, vary.

It usually comes down to tax laws in different countries. It makes more sense to get a professional consultation. Tax experts will help you understand the big picture around recording and deducting expenses from tax returns. And this will help you cut back on your overall tax liabilities and get higher returns.

2. Neglecting Depreciation Expenses

You don’t have to have a technical mindset to understand depreciation. It represents the decrease in rental property’s value over the years.

Your goal should be to claim depreciation expense and add it to your tax return. It will significantly lower your taxable income. But if you fail to claim your depreciation expenses and don’t indulge in calculations, it is bound to build up higher taxes.

Rental Property Refund conducts depreciation studies as per IRS tax rules and regulations. The tax landscape is more complicated than ever, and we have tax specialists aware of the latest tax regulations and give you a transparent and accurate assessment.

3. Misclassifying Rental Property Expenses Correctly

Another common tax mistake is misclassifying expenses related to your rental property. Rental property owners should spot the difference between capital adjustments and deductible expenses. These expenses include maintenance and repairs.

What’s more, rental property owners can deduct these expenses in the same year of their occurrence and minimize their taxable income. Conversely, capital improvements bump up the useful value of a rental property and get depreciated over time.

These capital improvements can include an HVAC system or a brand-new roof. These are capital expenses, and rental property owners cannot 100% deduct them from their year-end taxable income. The worse thing about misclassifying expenses is that they can over-report or underreport your deductions.

It leads to inaccurate and unreliable tax returns. Your objective should be to properly classify your expenses. Remember that you can always get a tax professional’s help when you’re unsure about how tax categorization works.

4. Ignoring State and Local Tax Requirements

Rental property owners need to be compliant with local and federal taxation requirements. But understand that these tax requirements depend on your locality and state.

Tax laws are constantly changing, and the nuances can be challenging to understand fully. Rental property owners can avoid common tax mistakes if they remain informed about ever-changing tax laws and ensure compliance with all IRS tax laws.

Usually, the variability comes into play when some states or localities ask you to cover sales taxes on top of income taxes. In any case, when you’re not compliant with local, state, or federal tax requirements, it triggers penalties on top of outstanding taxes.

5. Failure to Seek Professional Guidance

Rental property owners are often reluctant to seek out professional consultation. And this might be the most common mistake that rental real estate property owners make. If you want to seamlessly navigate the taxation landscape, you’ll need expert tax guidance.

Not engaging a qualified tax advisor or CPA risks overlooking potential deductions, committing errors on your tax returns, or failing to comply with the latest regulations. You want to handle your rental property tax strategies like a pro. So, get in touch with an experienced and expert tax professional.

A tax expert can help you navigate the intricacies of rental property tax laws, identify all eligible deductions, and ensure compliance with reporting requirements. You can also count on a tax specialist for strategic tax planning to reduce your tax liability and reap consistent financial benefits.


Avoiding Costly Tax Mistakes

It’s crucial to avoid common tax mistakes that can result in hefty penalties or missed opportunities.  Pay close attention and try to understand different facets of depreciation.

But if you do it on your own – you’ll get caught in the cobweb of technicalities and calculations. And this is where Rental Property Refund comes into play. It’s your best shot to simplify and organize the process.

It involves performing accurate and comprehensive depreciation studies, which makes it easier to spot every deduction you can claim. This is a great way to save a lot of money on taxes.

Don’t let common tax mistakes hinder your profitability. Don’t delay – secure your financial future today with Rental Property Refund.


All it takes is to be aware of common tax errors and take action. If you want to leverage the most tax perks, then you should comply with the current tax rules and regulations. It’s your best shot to avoid potential IRS-bound fines and penalties.

When you own one or more rental properties – it is bound to be a beneficial and high-yield investment. However, know that it also requires you to fulfill your tax obligations. So, take your time and learn about the most common tax issues you might run into and then take suitable measures.

By neglecting proper record-keeping, misclassifying expenses, overlooking depreciation benefits, mishandling rental property losses, or failing to seek professional guidance, you risk missing out on deductions, incurring penalties, or altogether encountering compliance issues.

Once you stay informed about changing tax dynamics and regulations, you will be able to improve your rental property owner position. It will help you confidently navigate the complex world of rental property taxes and maximize your financial benefits.

Rental Property Refund is Here to the Rescue!

Rental property owners can now minimize their property taxes with an IRS-accelerated depreciation study. Rental Property Refund has automated what used to be a costly manual process that only a tax specialist could do, and made it available to you for a fraction of the cost – and time. Wondering how much an IRS-accelerated depreciation study can save you? Use our free refund calculator to get an estimate of how much you’ll save on taxes. 



About Author

Richard Bourgault

Graduating from Georgia Tech with a degree in Electrical Engineering, Richard has gained over a decade of expereince in Cost Segregation coupled with software UX.

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