As a Eureka landlord, you’ll have to comply with all of the state and federal tax laws that govern your income. According to California’s Franchise Tax Board (FTB), all rental income and losses are generally treated as passive activities. This is a key distinction, as California does not recognize the federal "Real Estate Professional" exception, meaning rental losses often cannot be used to offset other types of California income.

The rental income you receive from renting out a home is fully taxable. You must declare it on your tax return unless you’ve rented out the property for fewer than 15 days in the calendar year. Note that if you utilize this "14-day rule," you cannot deduct any expenses associated with those rental days.

Luckily, some of your tax liability can be offset by deductions, depreciation, and new permanent credits. Reach out to your CPA for specific advice; we’re offering these resources as professional property managers.

Paying Rental Property Income Taxes

Tax payments depend on your earnings and your tax bracket. On your federal return, you’ll report income and expenses on Schedule E (Form 1040). Your state filing in California will essentially roll over from your federal return. Any rental income after expenses will be included in your adjusted gross income (AGI).

What is considered income?

• Monthly rental payments and advanced rental payments.
• Security deposits only if you keep them (e.g., for repairs or lease breaks).
• Tenant-paid expenses: If a tenant pays a $100 HOA fee and deducts it from the rent, that $100 is still income for you (though you can then deduct it as an expense).
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Strategic Deductions: More Than Just Interest

As a rental property owner, you can deduct the interest paid on your mortgage. Unlike primary homeowners, landlords are not subject to the same $750,000 debt cap for interest deductions. You can also deduct:

• Interest on loans for renovations and repairs.
• Interest on business credit card purchases.
• Interest on formal, documented loans from family or friends used for property improvements (ensure you have a written agreement with a market-rate interest).

The $25,000 Passive Loss Allowance: If you "actively participate" in managing your Eureka rental (making decisions on tenants and repairs), you may be able to deduct up to $25,000 in rental losses against your W-2 or other income, provided your AGI is under $100,000 (phasing out up to $150,000).

Enjoying Depreciation & New 100% Bonus Rules

The IRS allows you to depreciate the value of your physical building (excluding land) over 27.5 years.

Important 2026 Update: Under the OBBBA, 100% bonus depreciation has been restored for qualified property. While the building itself still follows the 27.5-year rule, "land improvements" (like new fences or driveways) and internal assets (like appliances or carpets) may now qualify for an immediate 100% write-off in the first year.

Improvements vs. Repairs:

• Repairs: (e.g., fixing a leak) are fully deductible in the year they occur.
• Improvements: (e.g., a new roof or a garage) must be depreciated. However, certain accessibility updates, like wheelchair ramps, may qualify for immediate expensing or specific tax credits rather than the 27.5-year stretch.

The QBI Deduction (Now Permanent)

One of the most significant benefits for Eureka landlords is the Qualified Business Income (QBI) deduction (Section 199A). As of 2026, this deduction is permanent. It allows eligible landlords to deduct up to 20% of their net rental income right off the top of their federal taxes, regardless of whether they itemize.

Deducting Professional Expenses

The IRS sees your rental as a business. You should always deduct:

• Professional Fees: Eureka property management fees, accounting, and legal costs.
• Operating Costs: Landlord insurance, advertising, and utilities.

Travel & Office: Costs involved in visiting your properties or maintaining a dedicated home office.



Eureka Rental Tax Prep Checklist

• Schedule E (Form 1040) - Income and Expenses
• 1098 Mortgage Interest Statement
• Property Tax Bills (Eureka/Humboldt County)
• Property Management Year-End Statement (from Rentor)
• Receipts for Repairs and Maintenance
• Invoices for Major Improvements (Roof, AC, etc.) for Depreciation
• Records of Business Travel Mileage to/from Property
• Utility Bills (for periods of vacancy)
• Landlord Insurance Policy Premiums
• Legal and Accounting Professional Fees
• Lease Agreements for all active tenants
• Records of Security Deposits kept/returned