Some of Pennsylvania’s tax rules for landlords are different from those in neighboring states and the federal government. 

It’s fairly common knowledge that you can write off things like repairs or mortgage interest. But, what about Pennsylvania-specific deductions like the local income tax or unique municipal requirements? 

Many landlords in the Keystone State miss out on money-saving opportunities simply because the rules can be confusing or easy to overlook.

In this post, we’ll break down the essential deductions for Pennsylvania landlords, highlight state-specific taxes, and offer practical strategies to help you maximize your tax savings this year.

Pennsylvania rental property tax deduction rules

Tax season can bring more than a few surprises for Pennsylvania landlords, especially when state and local rules don’t line up with what you’re used to on your federal return. 

Whether it’s the ability to fully deduct rental losses, unique depreciation calculations, or working through city-specific taxes, understanding these details can make a measurable difference in your tax bill. 

Let’s break down the Pennsylvania-specific rules that matter most for rental property owners.

Key Pennsylvania-specific differences from federal tax treatment

1. No passive loss rules—a major advantage for landlords

Unlike federal tax law, Pennsylvania does not restrict your ability to deduct rental property losses against other income. The absence of passive loss limitations (IRC Section 469) means that if your rental property operates at a loss—which could occur in the early years—you can fully offset those losses against other Pennsylvania income sources. 

2. No at-risk rules for most landlords

Federal tax law limits your rental loss deductions to the amount you have personally invested or are liable for in the property. Pennsylvania does not have this restriction. As an individual landlord, you can usually deduct your entire rental loss from your other Pennsylvania income, even if most of your investment was financed with a loan. This can be a big advantage for small investors, especially when starting out.

3. Pennsylvania depreciation rules differ from federal

If you claim accelerated or bonus depreciation at the federal level, you cannot use those same accelerated methods for your state return. Instead, you must recalculate depreciation using Pennsylvania’s allowable methods, which typically means smaller annual deductions spread out over more years. The total amount you can deduct over the life of the property is generally similar; it’s just the timing that changes.

So, you don’t lose the ability to deduct depreciation in Pennsylvania—you just have to follow the state’s schedule and method, which may result in a different deduction amount each year than what appears on your federal return.

Special considerations for short-term and long-term rentals

Short-term rentals (less than 30 days)

If you rent out property for less than 30 days at a time (such as through Airbnb, VRBO, or similar platforms) Pennsylvania treats this as business income rather than rental income. You’ll need to:

• Report income as “Net Income from the Operation of a Business, Profession or Farm” on Line 4 of the PA-40.
• Collect and remit hotel occupancy tax.
• Register for a sales tax license.

These rentals may qualify for business expense deductions instead of traditional rental property deductions, and you’ll face different reporting and recordkeeping requirements. For more, see the Pennsylvania Department of Revenue’s guidance on short-term rentals.

Traditional long-term rentals (30+ days)

Long-term residential rentals are reported as rental income and follow the standard deduction rules outlined in Pennsylvania Code Sections 140.285 and 181.135. You can deduct necessary expenses for producing rental income, such as mortgage interest, insurance, repairs, maintenance, and property management fees.

Pennsylvania municipal tax rules for rental property

Pennsylvania’s local tax rules for rental income can vary dramatically by municipality:

1. Local earned income tax (EIT) treatment varies by region

In some areas (like Cumberland County), rental income is considered “net profits” and subject to local EIT, but only if you’re actively managing your properties.

In others (such as the York Adams Tax Bureau area), rental income is explicitly exempt from local EIT.

2. Major city-specific requirements

• Philadelphia: Landlords face both the Net Profits Tax (NPT) and the Business Income and Receipts Tax (BIRT). The NPT applies to all unincorporated rental businesses, with rates of 3.74% for residents and 3.43% for non-residents. The BIRT is a dual tax: 0.1410% on gross receipts plus 5.71% on net income. Even if your rental business operates at a loss, you must file. See the City of Philadelphia’s tax guide for more details.
• Reading: The city imposes a business privilege tax on rental income at a rate of 0.225%. Payment deadlines and revenue allocation differ from other cities.

3. Short-term rental taxes in major counties

Allegheny County (Pittsburgh area) and Erie County both impose a 7% hotel room rental tax on short-term rentals. Registration is required, even if platforms like Airbnb collect the tax on your behalf.

4. Registration and filing requirements

Many municipalities require rental property registration, business licenses, and tax account setup. Local tax returns are often due at different times than your state and federal returns, and local tax collectors may be third-party agencies.

Other rental property tax deductions in Pennsylvania

In addition to Pennsylvania’s unique tax rules, landlords can take advantage of a range of federal tax deductions that help offset the costs of owning and managing rental property. Deductions are reported on IRS Schedule E and are available to all residential rental property owners, regardless of location.

Here are some of the most common federal deductions you can claim as a Pennsylvania landlord:

• Mortgage interest paid on loans used to purchase or improve your rental property
• Real estate property taxes
• Depreciation on the property’s structure and qualifying improvements
• Repairs and maintenance costs that keep the property in rentable condition
• Insurance premiums for landlord, liability, or hazard insurance
• Utilities paid by you as the landlord (such as water, gas, or electricity)
• Property management fees or commissions
• Advertising expenses for finding tenants
• Professional fees, such as legal or accounting services related to the rental
• Supplies and materials used for the property
• Travel expenses related to managing or maintaining the property
• Homeowners association (HOA) fees, if applicable
• Losses from theft or casualty, subject to IRS limits

While this list covers the most common deductions, always keep detailed records and consult IRS Schedule E instructions or a tax professional to ensure you’re maximizing your eligible write-offs.

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

Managing rental property finances doesn’t have to be overwhelming, even if you manage just one property. Consider using a tool like Stessa, a free software purpose-built to help property owners stay on top of everything.

Stessa is designed specifically for landlords, making it easy to track income and expenses, scan receipts, and generate detailed reports that simplify tax time:

• Automatic transaction categorization: Stessa connects directly to your bank accounts and mortgage providers, automatically importing and categorizing transactions by property. This helps you capture more deductible expenses while creating a clean audit trail if the IRS has questions.
• Receipt scanning on the go: The next time you make an emergency repair or buy supplies for your property, simply snap a photo of the receipt using Stessa’s mobile app. The receipt is automatically linked to the property and available at tax time.
• Custom expense tracking: Unlike generic accounting software, Stessa is built specifically for rental property owners. Track Illinois property tax payments, insurance premiums, and HOA dues with customized categories that match your Schedule E.
• Tax-time preparation: When April approaches, Stessa provides a detailed Tax Package with reports and documentation to help you file accurately, potentially saving hours of sorting through paperwork and spreadsheets.

Plus you get access to a suite of other tools to help you draft leases, screen tenants, collect rent online, and use real-time dashboards to manage smarter and faster.

Sign up for a free Stessa account and see how easy managing your rental properties can be.