Most tax posts for hosts stick to the easy stuff — fees, cleaning, supplies. This one goes one level deeper, into the two deductions that move real money and that most small owners under-use because they sound intimidating: depreciation and the QBI deduction. You don't need to become an expert. You need to know they exist and to bring them up with your accountant.
Depreciation: deducting the building over time
When you buy a rental, you didn't just buy a yearly expense — you bought an asset that the tax code lets you deduct a piece of every year. That's depreciation.
The basics worth knowing:
- You depreciate the building, not the land — land isn't depreciable, so the purchase price gets split between the two.
- Residential rental property is depreciated over 27.5 years on a straight-line basis.
- Furniture, appliances, and improvements depreciate on their own (often shorter) schedules — and some can be deducted much faster.
- Cost segregation studies can accelerate depreciation by breaking the property into faster-depreciating components. Powerful for larger portfolios, and worth a CPA conversation.
One thing to know going in: when you sell, some depreciation gets "recaptured" and taxed. That's not a reason to skip it — the time value of the deduction almost always wins — just a reason to plan.
The QBI deduction: potentially 20% off qualified income
The Qualified Business Income (QBI) deduction under Section 199A can let eligible owners deduct up to 20% of qualified business income. Rentals can qualify when the activity rises to the level of a trade or business — and the IRS created a rental real estate safe harbor (Revenue Procedure 2019-38) that gives a clear (if demanding) path:
- 250+ hours of rental services performed during the year,
- separate books and records for the rental activity, and
- contemporaneous records (logs) of the hours and work.
Meet the requirements and the rental can be treated as a business for QBI. Notice the theme: separate books and good records are the price of admission — the same habit that makes everything else easier.
The honest advice
These two deductions are where "call a CPA" stops being a cop-out and becomes the right move. The rules have real conditions and real dollars attached. Your job as the owner isn't to master them — it's to keep clean, separate records all year so your accountant can actually use them.
This is general education, not tax advice. Depreciation, cost segregation, recapture, and QBI eligibility are complex and fact-specific — work with a qualified tax professional.