San Diego’s rental market is among the most expensive in the nation, but for landlords, the tax code offers several "silver linings" to offset high carrying costs. As we move through 2026, navigating both federal and unique California-specific deductions is key to protecting your margins.
1. The "Big Three": Interest, Taxes, and Depreciation
For most San Diego investors, mortgage interest is the largest annual write-off. Unlike personal residences, there is no cap on deductible interest for rental properties.
Furthermore, while the SALT (State and Local Tax) cap for personal itemized deductions was recently increased to $40,000 under the One, Big, Beautiful Bill Act, rental property taxes reported on Schedule E remain fully deductible and are not subject to that cap. Finally, depreciation allows you to deduct the cost of the building (excluding land) over 27.5 years—a critical non-cash expense that can often turn a cash-flow positive property into a "paper loss" for tax purposes.
2. Local San Diego Fees & Professional Services
Operating in San Diego comes with specific local costs that are entirely deductible:
• Rental Unit Business Tax: The City of San Diego imposes a flat fee based on the number of units (e.g., $50 base fee + $5 per unit for small complexes).
• Professional Fees: Any fees paid to property managers, San Diego-based attorneys for lease drafting or evictions, and CPAs are fully deductible.
• Repairs vs. Improvements: Routine maintenance (painting, fixing a leaky faucet) is deductible in the year paid. Larger upgrades (e.g., new HVAC or roofing) must typically be capitalized, though the 2026 rules have restored 100% bonus depreciation for certain qualified components.
3. Travel and Home Office
If you drive to your North Park or La Jolla rental for inspections or repairs, you can deduct the standard mileage rate. Additionally, if you manage your portfolio from a dedicated home office, you can write off a portion of your own utilities and insurance.
Contact GoldenWest Management
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