2 Tax Rule Changes That Could Crush Your Rental Home Profits

Renting Your Home Was Once a Great Deal

Landlords have traditionally enjoyed generous tax treatment. When a property is used as a rental, owners can typically deduct costs like mortgage interest, property taxes, repairs, maintenance, insurance, and depreciation. These deductions reduce taxable rental income and can sometimes create a paper loss. For many people, this turned a small amount of cash flow into a low-tax or even no-tax situation.

Two Major Tax Changes That Hurt Landlords

The article highlights two IRS rule changes that directly reduce how much profit a homeowner can keep from renting their house.

1. Tighter limits when the home is used personally

If you live in the home part of the year and rent it out the rest of the year, the IRS now requires stricter prorating of deductions. You can only deduct the portion of expenses that directly applies to rental use. Personal-use days heavily reduce what counts as deductible.
In simple terms: you can no longer treat the whole property like a rental if you also live there. This cuts down how much mortgage interest, property tax, utilities, and maintenance you can deduct.

2. Depreciation and passive-activity limitations now hit harder

Depreciation used to be one of the most powerful benefits of owning rental property. You could deduct a portion of the home’s value each year, often making rental income look smaller on paper.
Under current IRS interpretations, more rental owners fall into passive-activity rules or at-risk limitations. These rules can prevent you from using rental losses to offset other income unless you qualify as a real estate professional or materially participate.
Result: depreciation may not reduce your overall tax bill the way it once did.

What This Means for Homeowners and Small Landlords

If you are thinking about renting out your home, expect leaner margins. Deductions that once shielded much of your income may be smaller or unavailable.
If you already rent out your home, re-run your numbers using the new limitations. Your taxable rental income may be higher than your previous calculations.
If you split your time between living in the home and renting it out, you are the most affected. The personal-use rules can significantly reduce your deductions.

The Bottom Line

The old belief that renting out your home is easy passive income is fading. The tax code is catching up, and the IRS is tightening how much of your expenses you can actually write off.
None of this means renting your property is a bad idea, but it does mean you need to be more careful with projections. Treat your rental like a real business, not a loophole, and make sure the numbers still make sense after these rule changes.