Rental Property Tax Deductions in Texas: What Actually Comes Off (2026)
2026 handed landlords something unusual: two different mileage rates in the same tax year. If you drove to your rental in March and again in September, those trips are worth different amounts, and most of the tax articles you will find on this were written years ago and quote one number for the whole year. That is a small thing. It is also a decent test of whether the advice you are reading was checked this year or just republished.
As of August 2026, ordinary operating costs come off this year: mortgage interest, insurance, property taxes, management fees, repairs, advertising, legal and professional fees, utilities, and travel. Improvements do not. They get capitalized and depreciated over 27.5 years. The two rules that cost Texas owners the most money are the line between a repair and an improvement, and the assumption that the $40,000 SALT cap limits the property tax on a rental. It does not.
⚠️ We are a REALTOR® and property management team, not CPAs or enrolled agents. Nothing here is tax advice. What follows is the map: the rules that decide the size of your Schedule E, cited to primary source so you can put them in front of your CPA and ask the right question. The return itself is their job, and worth what they charge.
What Can You Deduct on a Texas Rental? Straight From the Source
IRS Publication 527 is the governing document for residential rental property, and it prints the list plainly: advertising, auto and travel expenses, cleaning and maintenance, commissions, depreciation, insurance, interest, legal and other professional fees, local transportation, management fees, mortgage interest, points, rental payments, repairs, taxes, and utilities.
Yes, management fees are on that list. We charge one, so treat that sentence with the skepticism it deserves and go verify it. We would rather say it plainly than pretend we have no stake in you knowing it.
Is It a Repair or an Improvement? That Line Is Where the Money Is
A repair is deducted the year you pay it. An improvement is capitalized and depreciated over 27.5 years. Same invoice, same contractor, wildly different tax outcome, and this is the single most common place a self-managing owner gets it wrong.
Publication 527 gives the test: an expense is for an improvement if it "results in a betterment to your property, restores your property, or adapts your property to a new or different use." Patching the roof is a repair. Replacing the roof is an improvement. Fixing the dishwasher is a repair. Renovating the kitchen around it is not.
Two safe harbors soften this, and both are worth asking your CPA about by name:
The de minimis safe harbor. $2,500 per invoice or item for a taxpayer without an applicable financial statement, $5,000 with one. Below that, elect it and deduct it rather than fighting about whether a $900 water heater was a betterment.
The safe harbor for small taxpayers. Average annual gross receipts of $10 million or less, building unadjusted basis under $1 million, and total annual repairs plus improvements at or under the lesser of 2% of that unadjusted basis or $10,000. Most single-property Texas owners clear the first two tests without thinking about it and get decided by the third.
Depreciation, and the Thing That Changed
Residential rental property depreciates over 27.5 years under the General Depreciation System. Land does not depreciate, only the building, which is why the land-to-improvement split on your purchase matters more than most owners realize.
The change worth knowing: 100% bonus depreciation is back. Publication 527 states the 100% special depreciation allowance "is restored for qualified property acquired and placed into service after January 19, 2025." Both conditions, acquired and placed in service. This is the kind of provision that changes the math on replacing systems and appliances, and on whether a cost segregation study pays for itself. A lot of landlord content still describes the phase-down schedule that no longer applies.
📍 The Texas point: we have no state income tax, so for an owner here the entire tax conversation is federal plus the county. That makes property tax the biggest line on most local Schedule E filings, and it makes the next section the most valuable paragraph on this page.
The SALT Cap Does Not Reach Your Rental
Here is the one we get asked about most, usually by an owner who just watched their personal deduction hit a ceiling and assumed the rental was capped too.
The $40,000 SALT cap ($20,000 married filing separately) limits state and local taxes claimed as an itemized deduction on Schedule A. Property tax on a rental is not an itemized deduction. It is an ordinary business expense on Schedule E, and the statute carves it out explicitly. From 26 U.S.C. §164(b)(6):
"The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212."
Section 212 is the income-producing activity provision that rental activity falls under. So the cap that squeezes your homestead does not squeeze the rental down the street. Worth noting: that $40,000 figure steps back down to $10,000 after 2029, so this is a rule with a countdown on it.
The honest caveat: whether your specific activity is a trade or business, or a Section 212 activity, or something else, is a facts-and-circumstances question. That is exactly the question to walk into your CPA's office with. And if you are protesting your Tarrant County assessment, the two halves connect: protest the number, then deduct what you actually paid.
Mileage: Two Rates, One Year
Driving to your own rental is deductible. In 2026 it is deductible at two different rates:
January 1 through June 30: 72.5 cents per mile. (IRS release IR-2025-128, see the IRS standard mileage rates page)
July 1 through December 31: 76 cents per mile. (IRS release IR-2026-29)
Mid-year splits are rare. The last one was 2022. If your mileage log is one running total for the year, it needs to be split at June 30 before it goes to your preparer.
⚠️ The trap almost nobody flags: those same drives may be deductible as mileage and still not count toward the 250-hour test for the qualified business income safe harbor. Revenue Procedure 2019-38 excludes "hours spent traveling to and from the real estate" from rental services. Two rules, one drive, opposite directions.
Can a Rental Loss Offset Your W-2 Income?
Rental losses are generally passive, and passive losses do not offset your W-2 income without a door. The usual door is active participation, which carries a $25,000 special allowance.
It phases out fast. Per Publication 925, the allowance "is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000," which zeroes it out at $150,000 MAGI. Married filing separately and living apart all year: $12,500, phasing from $50,000 to $75,000.
This is why two owners with identical properties and identical repair bills can have completely different returns. The property did not decide it. Their income did.
The 20% Deduction, and an IRS Page That Is Out of Date
The qualified business income deduction under Section 199A is worth up to 20% of qualified business income, and rental real estate can qualify.
Check the date on anything you read about this. The IRS's own explainer page still describes the deduction as running "for tax years beginning after December 31, 2017, and ending on or before December 31, 2025." That sunset was removed. Public Law 119-21 struck the old termination language and replaced subsection (i) with a minimum deduction provision, a floor of $400 for taxpayers with at least $1,000 of qualified business income from an active trade or business they materially participate in, inflation-adjusted after 2026. There is no expiration date in the statute now.
Revenue Procedure 2019-38 provides a safe harbor that treats a rental real estate enterprise as a trade or business for this purpose. The requirements: separate books and records, 250 or more hours of rental services per year (or in any three of five consecutive years, for enterprises at least four years old), contemporaneous records of hours, descriptions, dates and who performed the work, and a statement attached to a timely filed return each year you rely on it.
Two details that matter locally. First, those hours can be performed by "owners, including owners of an RPE, or by employees, agents, and/or independent contractors of the owners," so hours worked by a management company count toward your total. Second, the safe harbor excludes real estate the taxpayer used as a residence under Section 280A(d), and excludes triple net leased property. Plenty of our owners are renting out a house they used to live in, which puts them straight into that first exclusion and straight into a conversation with a professional.
The Short Version
Deduct the operating costs. Capitalize the improvements, and know which is which before the invoice gets filed, not after. Depreciate over 27.5 years and check whether restored bonus depreciation changes your timing on a big replacement. Do not assume the SALT cap touches the rental, because the statute says it does not. Split the mileage log at June 30. And know your MAGI, because it quietly decides whether any of the losses are usable this year.
None of that is a return. It is the list of questions that make an hour with a CPA worth paying for. If the record-keeping side is what is actually breaking down, that is the part we do: documented repairs, categorized expenses, and a year-end statement that does not require a weekend to reconstruct. If you want that handled by a Tarrant County property management team, text us the address.
Andrew Chavis · Century 21 Alliance Properties · License #0845090 · IABS Notice · Consumer Protection Notice. This article is general information, not tax or legal advice, and no reader should act on it without consulting their own CPA, enrolled agent, or attorney. Figures and rules summarized from IRS Publication 527, IRS Publication 925, IRS standard mileage releases IR-2025-128 and IR-2026-29, the IRS tangible property regulations, Revenue Procedure 2019-38, and 26 U.S.C. §§164 and 199A, all as published and verified August 2026. Tax law changes. View sources and disclaimers.