Property Taxes on Rental Properties: What Every Landlord Should Know

11 November 2025

Owning rental property is a fantastic way to generate passive income, but it also comes with its fair share of responsibilities—one of the biggest being property taxes. If you're a landlord, understanding how property taxes work is essential to managing your finances efficiently and avoiding unpleasant surprises.

This guide will break down everything you need to know about property taxes on rental properties—what they are, how they're calculated, and ways you might be able to reduce your tax burden.

What Are Property Taxes on Rental Properties?

Property taxes are levies imposed by local governments on real estate. These taxes help fund essential public services like schools, roads, and emergency services. As a landlord, you're responsible for paying property taxes on any rental property you own, just like you would with a primary residence.

However, there’s a key distinction—since your rental property generates income, it can also offer tax deductions that might ease the financial load. But before we dive into the ways you can save, let’s first look at how property taxes are calculated.

How Are Property Taxes Calculated?

Property tax amounts aren’t arbitrary—they’re based on a few key factors:

1. Property Value Assessment

Local tax authorities assess the value of your rental property, typically using one of the following methods:

- Market Approach: Compares the value of your property to similar properties that have recently sold in the area.
- Income Approach: Considers the rental income the property generates.
- Cost Approach: Evaluates what it would cost to replace the property if it were newly built.

2. Local Tax Rate (Mill Rate)

Once the property’s value is determined, it’s multiplied by the local tax rate, often referred to as the mill rate. The mill rate is a percentage set by local authorities and varies from one area to another.

For example, if your property is valued at $300,000 and the local tax rate is 2%, your annual property tax bill would be:
$300,000 × 2% = $6,000

When Are Property Taxes Due?

Due dates for property taxes vary by location. Most municipalities bill property taxes annually or semi-annually, while others may allow quarterly payments. Failing to pay on time could result in penalties, interest, and even a lien on your property.

To avoid these hassles, check with your local tax office to confirm deadlines and payment options. Many areas offer online payments or automatic deductions, making it easier to stay on top of your tax obligations.

Can You Deduct Property Taxes on Rental Properties?

Yes! Property taxes on rental properties are 100% tax-deductible. Since your rental property is considered an investment, you can write off the amount you pay in property taxes when filing your income tax return.

But that’s not all—there are other tax deductions landlords can take advantage of to minimize financial strain.

Other Tax Deductions for Landlords

Owning a rental property comes with several tax-saving opportunities. In addition to property taxes, here are some other deductible expenses:

1. Mortgage Interest

If you have a mortgage on your rental property, the interest portion of your monthly payments is tax-deductible.

2. Repairs and Maintenance

Fixing a leaky roof? Replacing a broken water heater? Routine repairs and upkeep are deductible expenses—as long as they directly relate to maintaining the property's functionality.

3. Depreciation

The IRS allows landlords to deduct a portion of their property’s cost each year through depreciation. This helps offset wear and tear over time.

4. Insurance Premiums

Landlords can deduct the cost of property insurance, including liability coverage and landlord-specific policies.

5. Property Management Fees

If you hire a property management company to handle tenants and maintenance, those fees are also deductible.

6. Utilities (If Paid by the Landlord)

If you cover utilities like water, electricity, or gas on behalf of your tenants, these costs can be deducted as business expenses.

All these deductions add up, making it easier to balance the costs of owning and managing a rental property.

What If Property Taxes Increase?

Property taxes can increase over time, depending on factors like rising home values and changes in local tax policies. As a landlord, sudden tax hikes can eat into your rental profits, so it's important to be prepared.

How to Handle Rising Property Taxes:

- Appeal Your Tax Assessment: If you feel your property has been overvalued, you can contest the assessment with your local tax office.
- Pass Some Costs to Tenants: In markets where it’s feasible, landlords may be able to adjust rent prices to offset tax increases.
- Claim All Available Deductions: Ensure you're taking full advantage of the tax breaks available to landlords.
- Consider Moving Investments: If a certain area becomes too expensive, selling and reinvesting elsewhere may be a viable option.

How to Lower Your Property Tax Bill

Nobody enjoys paying taxes, but there are a few strategies that might help reduce your property tax burden:

1. File for Homestead Exemptions (If Eligible): Some areas offer tax reductions for property owners—though in most cases, this only applies if you live on the property.
2. Ensure Assessments Are Accurate: Make sure your property isn't overvalued when assessed—errors can inflate your tax bill.
3. Invest in Tax-Friendly Areas: Some cities and states offer lower property tax rates, making them more attractive investment locations.
4. Limit High-Value Renovations: Upgrading your property too much could increase its taxable value.

Final Thoughts

Understanding property taxes on rental properties is crucial for any landlord. While taxes are unavoidable, knowing how they're calculated and what deductions are available can help you save money and maximize your rental earnings.

By staying informed, planning ahead, and taking advantage of tax breaks, you can ensure that property taxes don’t become a financial burden. And remember—when in doubt, consulting with a tax professional or accountant is always a smart move to avoid costly mistakes.