From mortgage interest to maintenance costs, North Carolina offers a range of tax breaks that can significantly boost your investment returns.

Before you file your next tax return, let’s break down which deductions you may be able to take advantage of so you don’t leave money on the table.

North Carolina rental property tax deduction rules

While the state’s tax system is relatively straightforward, there are several important items to be aware of:

State income tax structure

North Carolina uses a flat income tax system, which means everyone pays the same rate regardless of income bracket. This simplifies calculations but doesn’t eliminate the need for careful record-keeping.

All rental income received from properties within the state is subject to North Carolina income tax—even if you live out of state. If you’re a nonresident earning rental income from North Carolina properties, you’re still required to file a North Carolina state income tax return and report your rental earnings.

No SALT limitation

For North Carolina homeowners, the SALT (state and local tax) deduction on federal taxes is limited to $10,000. However, this cap does not apply to rental property owners.

Property taxes paid on your rental are treated as business expenses and are fully deductible on your federal tax return, reported on Schedule E—not as personal itemized deductions.

Rental property loss deduction

If your rental property expenses exceed your income, you may be eligible for a valuable tax break.

North Carolina landlords can deduct up to $25,000 in rental losses if their modified adjusted gross income (MAGI) is $100,000 or less. If your losses exceed this amount, the excess can be carried forward to future tax years.

Keep in mind, though, that this benefit phases out as your income rises above $100,000, so higher-earning landlords may have different deduction limits.

County-level property tax variations

Property taxes in North Carolina are determined by each county. This means tax rates can vary significantly from one area to another, which can impact both your annual expenses and deductions, as well as your overall investment strategy.

Before purchasing a rental property, it’s wise to research local property tax rates and factor them into your calculations. Even within the same city, rates can differ depending on the county or municipality, so doing your homework up front can help you avoid surprises down the road.

Other rental property tax deductions in North Carolina

In addition to the state-specific rules, many North Carolina landlords can take advantage of a wide range of tax deductions that mirror those allowed at the federal level. These deductions are typically reported on Schedule E of your federal tax return, and North Carolina follows the same guidelines.

Here are some of the most common deductible expenses:

• Advertising: Costs for marketing your rental property, such as online listings or print ads.
• Auto and travel expenses: Mileage and travel costs related to managing or maintaining your property.
• Cleaning and maintenance: Payments for cleaning services, landscaping, pest control, and routine upkeep.
• Commissions: Fees paid to rental agents or property managers.
• Insurance: Premiums for property, liability, or landlord insurance policies.
• Legal and professional fees: Attorney or accountant fees related to your rental activities.
• Management fees: Payments to property management companies.
• Mortgage interest: Interest paid on loans secured by your rental property.
• Repairs: Expenses for fixing or restoring the property to good condition (not improvements).
• Supplies: Items used for the maintenance or operation of the rental.
• Taxes: Property taxes and other local assessments.
• Utilities: Costs for water, electricity, gas, and other services if paid by the landlord.
• Depreciation: Annual deduction for the wear and tear on your rental property and certain improvements.

Remember, these deductions can add up quickly and significantly reduce your taxable rental income. Keeping thorough records and tracking all eligible expenses throughout the year will help ensure you don’t miss out on valuable tax savings.

Tips for managing your rental property taxes, income, and expenses

Staying organized is the key to maximizing your tax deductions and making the most of your rental property investment. Keeping thorough records of every deductible expense—from repairs to insurance premiums—helps at tax time and also gives you a clearer picture of your property’s financial performance throughout the year.

Here are a few best practices to help you stay on top of your rental property finances:

• Keep personal and rental finances separate: Open a dedicated bank account for your rental property to make tracking income and expenses much easier.
• Track every expense in real time: Save receipts and document all payments as they happen, so nothing falls through the cracks.
• Automate your bookkeeping: Use software or apps to categorize transactions, generate reports, and simplify your record-keeping.
• Review financial statements regularly: Set aside time each month to review your income and expenses, spot trends, and plan for upcoming costs.
• Consult with a tax professional: If you’re unsure about a deduction or want to optimize your tax strategy, seek guidance from a qualified CPA familiar with North Carolina rental properties.

Managing all these details on your own can be overwhelming, especially if you’re new to real estate investing. That’s where purpose-built tools like Stessa can make a real difference.

Stessa is designed specifically for landlords, making it easy to scan receipts, categorize income and expenses, and generate reports that keep you organized and ready for tax season.

With Stessa, you can spend less time on paperwork and more time focusing on growing your investment portfolio.

The information contained in this article is provided for informational purposes only and should not be construed as legal, tax, or financial advice on any matter. Stessa is not liable for any actions taken or not taken based on the contents of this article and advises readers to seek professional legal, tax, or financial advice on which to base their decisions.