The Top Arizona Rental Property Tax Deductions to Know

As a landlord in Arizona, a key part of improving your annual returns is understanding how to lower your taxable income through deductions.

While many valuable write-offs are available for expenses like mortgage interest, property taxes, and repairs, Arizona also has its own specific tax rules that every landlord should know.

Let’s explore the tax regulations and deductions available to Arizona property investors to help you keep more of your hard-earned income.

Arizona rental property tax deduction rules

When it comes to tax deductions, Arizona’s approach is straightforward for most landlords.

The state generally conforms to the Internal Revenue Code (IRC). This means if you can deduct a rental property expense on your federal tax return (Schedule E), you can typically deduct it on your Arizona state return as well.

However, while there are no special, state-only deductions available for rental property owners, there are a couple of important state-specific rules that directly impact your rental property accounting.

Elimination of transaction privilege tax (TPT) on residential rentals

One of the most significant recent changes for Arizona landlords is the elimination of the Transaction Privilege Tax (TPT) on residential rentals. As of January 1, 2025, state law prohibits any city or town from charging TPT, which is a form of sales tax, on income from long-term residential leases of 30 days or more.

Previously, landlords in certain cities had to collect this tax from tenants and remit it to the Arizona Department of Revenue (ADOR). This change simplifies tax compliance, as you no longer need to manage and pay sales tax on your rental income for long-term stays.

It is important to note that this change only applies to long-term residential rentals. If you operate a short-term or vacation rental with stays of less than 30 days, you are typically still required to collect and remit TPT under the transient lodging classification.

While you no longer need to file for periods after January 1, 2025, you remain responsible for any outstanding tax liabilities from before this date.

The bonus depreciation adjustment: a key difference from federal rules

Depreciation is one of the most valuable deductions for rental property owners, but it’s also where Arizona’s tax rules differ most from federal guidelines.

With the recent passage of the “One Big Beautiful Bill Act” in July 2025, 100% bonus depreciation was permanently reinstated at the federal level. This allows landlords to deduct the full cost of certain property improvements in the first year, rather than writing them off over time.

However, Arizona does not conform to this rule. This means if you take advantage of 100% bonus depreciation on your federal return, you will need to make an adjustment when you file your state taxes.

The process involves adding the bonus depreciation amount back to your income on your Arizona return and then subtracting the standard depreciation amount you would have taken without the bonus.

Here’s a simple example:

Let’s say you spend $15,000 on a qualifying improvement for your rental property, such as new appliances and carpeting.

On your federal return: You use 100% bonus depreciation and deduct the full $15,000.
On your Arizona return: You must first add back the $15,000 bonus depreciation. Then, you would subtract the standard depreciation amount. If the standard depreciation for that asset in the first year is $1,000, that is the amount you would deduct.

This might sound complicated, but it just means you need to track two different depreciation schedules – one for your federal return and one for your state return.

Using a reliable accounting platform to keep separate and clear records for both can make this adjustment straightforward and prevent headaches at tax time.

Property taxes for Arizona landlords

Deducting your property taxes is one of the most significant ways to lower your taxable rental income. The full amount you pay in state and local property taxes each year is a deductible operating expense on both your federal and Arizona tax returns.

You may have heard that the $10,000 cap on state and local tax (SALT) deductions was temporarily raised to $40,000 for most individual taxpayers, beginning in tax year 2025.

But it’s important to know that this limit does not apply to business activities, including rental properties. The cap applies to homeowners, whereas the property taxes for your rental are considered business expenses and are fully deductible against your rental income.

Because property tax bills can be substantial, keeping accurate records of when and how much you paid is crucial for ensuring you claim the full deduction you are entitled to.

Special rules for short-term and vacation rentals

It is important to distinguish between long-term and short-term rentals in Arizona, as the tax rules are quite different.

While the Transaction Privilege Tax (TPT) was eliminated for residential leases of 30 days or more, it still applies to short-term or vacation rentals like Airbnbs. If you rent your property for stays of less than 30 days, that income is considered “transient lodging” and may be subject to state, county, and city TPT.

These rates can vary depending on the property’s location, so it is important to check with the Arizona Department of Revenue (ADOR) and your local city for the correct rates and licensing requirements.

Additional rental property tax deductions available in Arizona

While Arizona may not offer special state-only tax breaks, landlords can still benefit from a long list of valuable deductions on their federal and state returns. Nearly every expense you incur to operate and maintain your rental property can help lower your taxable income. The key is to keep detailed records of all your spending.

Here are some of the most common and significant deductions to be aware of:

Maximizing deductions with Schedule E

The IRS Form 1040, Schedule E, is where you will report your annual rental income and list your deductible expenses. This form serves as a helpful guide to the costs you can write off to reduce your taxable profit. For Arizona landlords, these deductible expenses include:

Mortgage interest: The interest you pay on your rental property’s mortgage is fully deductible. Unlike the mortgage on your personal home, there is no dollar limit on this deduction for a rental property.
Other interest: If you use a credit card or take out a loan specifically for rental property expenses, the interest paid on that debt is also deductible.
Insurance premiums: You can deduct the premiums for all insurance policies related to your rental, including landlord, hazard, flood, and liability insurance.
Property management fees: If you hire a property manager to handle the day-to-day operations of your rental, their fees are a fully deductible operating expense.
Professional and legal services: Fees paid to accountants, tax preparers, and attorneys for work related to your rental property are deductible. This also includes state fees for forming or maintaining an LLC for your rental business.
Commissions: Any commission fees you pay to a real estate agent or leasing agent for finding and placing a new tenant are deductible.
Cleaning and maintenance: The costs of routine cleaning and maintenance that keep your property in good condition are deductible. This includes expenses like landscaping services, pest control, and janitorial services.
Repairs: The costs of ordinary and necessary repairs are deductible in the year they are paid. This includes expenses like fixing a leaky faucet, patching a wall, or servicing the HVAC system.
Supplies: You can deduct the cost of necessary supplies for the operation and maintenance of your rental, such as smoke detector batteries, furnace filters, lightbulbs, and cleaning products.
Utilities: If you pay for any utilities at your rental property such as water, gas, electricity, or trash collection, those costs are deductible.
Travel expenses: You can deduct the cost of travel to your rental property for management or maintenance purposes. This can include the standard IRS mileage rate for using your personal vehicle.
Advertising costs: Any money you spend to find tenants is deductible, including the cost of online listings, yard signs, or print advertisements.
Home office: If you use a specific area of your home exclusively and regularly to manage your rental business, you may be able to claim a deduction for your home office expenses.
Depreciation: This is often the largest deduction a landlord can take. It allows you to write off the value of your rental building (not the land) over 27.5 years for a residential property.

Why depreciation is so valuable

Depreciation is often the largest single deduction a real estate investor can take. It’s particularly powerful because it is a “non-cash” expense, meaning you get the tax benefit without having to spend any money.

To calculate it, you first need to determine your property’s cost basis. This includes the purchase price plus certain closing costs, but it excludes the value of the land, which cannot be depreciated. You then write off this basis over 27.5 years for a residential property.

Here’s how the math works:

Property purchase price: $350,000
Value of the land: $75,000
Depreciable basis (building value): $350,000 – $75,000 = $275,000
Annual depreciation deduction: $275,000 / 27.5 years = $10,000 per year

For a landlord in the 24% tax bracket, that $10,000 annual deduction could translate to $2,400 in tax savings every year, significantly improving your property’s cash flow.

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

Staying organized is the key to a stress-free tax season and maximizing your deductions. With a solid system in place, you can ensure you are capturing every available write-off and are prepared for state-specific rules.

Stessa’s platform offers specialized tools designed to make this simple:

Automatic transaction categorization: Stessa can link directly to your rental property’s bank, credit card, and mortgage accounts, automatically importing and categorizing transactions. This creates a real-time, accurate record of your spending, helping you capture more deductible expenses with a clean audit trail.
Arizona-ready financial reporting: Generate professional income statements and Schedule E worksheets that align with IRS requirements. These reports make tax preparation straightforward, whether you’re filing yourself or working with a CPA.
Receipt scanning on the go: The next time you buy supplies or pay for a repair, simply snap a photo of the receipt using the Stessa mobile app. The receipt is digitized, linked to the correct property, and stored securely for your records, eliminating the need for shoeboxes full of paper.
Custom expense tracking: Unlike generic accounting software, Stessa is built specifically for rental property owners. You can easily track payments for property taxes, insurance premiums, and professional fees with categories that match your Schedule E.
Tax-time preparation: When tax season approaches, Stessa provides a comprehensive Tax Package with all the necessary reports and documentation to help you file accurately. This can save you hours of sorting through spreadsheets and bank statements.

Proper documentation is about much more than compliance. It’s about making sure you claim every possible deduction you are entitled to as an Arizona landlord. With a tool like Stessa helping you manage day-to-day operations, you can focus more on growing your portfolio and less on paperwork. Go here to get started for free.

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