Renting out a home after a Permanent Change of Station (PCS) move is not just a common practice among service members; it’s a key strategy for building wealth over time. However, this endeavor also brings a host of tax obligations that can easily catch many military landlords off guard. With significant changes coming into effect for the 2025 tax year, it’s crucial for service members engaging in rental properties to familiarize themselves with these updates well ahead of the April 15, 2026, filing deadline. Below, we break down essential information that military landlords need to keep in mind this tax season.

100% Bonus Depreciation Is Back and Here to Stay

The One Big Beautiful Bill Act, signed into law on July 4, 2025, has permanently restored the 100% bonus depreciation for qualified properties purchased after January 19, 2025. This legislative change represents a substantial shift from previous regulations that were poised to diminish bonus depreciation significantly. Prior to this act, the Tax Cuts and Jobs Act had mandated a gradual phase-down, setting the bonus depreciation at 60% for 2024, followed by a decline to 40% in 2025 and an eventual elimination by 2027.

For military landlords, this reinstatement provides an invaluable opportunity. If you acquired appliances, HVAC systems, fencing, flooring, or other qualifying improvements for your rental home after January 19, 2025, you can now deduct the entire cost of these items in the tax year they were placed in service. This method is far more advantageous than dispersing the deduction over multiple years. Generally, qualified properties encompass tangible assets with a recovery period of 20 years or less.

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To further maximize this benefit, you might want to consider a cost segregation study. These studies disaggregate the components of your rental property into shorter-lived asset categories (like five, seven, or 15 years). Such classifications can qualify for accelerated depreciation, including bonus depreciation. On average, for a standard residential rental, approximately 20% to 40% of the property’s total value can be reallocated into these eligible categories. However, it’s important to bear in mind that this does not apply to the building structure itself—still depreciated over 27.5 years, nor to the land, which is not depreciable at all.

Section 179 Deduction Limits Have Been Doubled

The same One Big Beautiful Bill Act has also increased the Section 179 expense deduction limit from $1.25 million to an impressive $2.5 million for tax years commencing in 2025. Additionally, the phase-out threshold has risen to $4 million. Though Section 179 is predominantly acknowledged for business equipment purchases, it can also apply to qualifying enhancements made to nonresidential rental properties. This includes improvements such as roofs, HVAC systems, fire protection setups, and security systems—but only if you qualify as a real estate professional under IRS guidelines.

While it’s true that most military landlords will not meet the qualifications of a real estate professional (750 or more hours per year dedicated to real estate-related activities, and having more than half of your total working hours devoted to these endeavors), those transitioning out of the service or whose spouses manage the rental properties full-time should investigate this avenue more closely.

Read More: The Cost of Skipping Sick Call: How Active-Duty Service Members Can Protect Future VA Claims

The Qualified Business Income Deduction Is Now Permanent

Originally set to expire after the 2025 tax year, the Section 199A Qualified Business Income deduction, which enables eligible taxpayers to deduct up to 20% of their qualified business income, has been made permanent by the One Big Beautiful Bill Act. Starting in 2026, there will also be a new minimum deduction of $400 available for taxpayers who gain at least $1,000 in qualified business income from enterprises in which they materially take part.

When it comes to military landlords, eligibility for this deduction hinges on whether your rental activity qualifies as a “trade or business.” The IRS offers safe harbor guidelines through Revenue Procedure 2019-38, under which a rental real estate enterprise is considered a trade or business if the following three conditions are met: you maintain distinct books and records for every rental enterprise; you perform a minimum of 250 hours of rental services annually; and you maintain accurate records to show the hours worked, types of services provided, dates of work, and who performed the work.

Qualifying rental services encompass maintenance and repairs, rent collection, tenant screening, advertising vacancies, property management, and even travel between your home and the property. However, time spent on financing arrangements or shopping for new rental properties is excluded from the 250-hour count.

The 250-hour requirement applies to your rental enterprise as a whole, not on an individual property basis. If you own multiple residential rentals, you can group them together. For enterprises that are less than four years old, you need to hit 250 hours of service every year. On the contrary, for those that have been around for four years or more, you should reach 250 hours in at least three of the past five years to meet the requirement.

If your rental activity does not meet the safe harbor standards, it may still qualify under the general Section 162 trade or business criteria, albeit this method is less straightforward.

1099-K Reporting Thresholds Reverted to a Higher Standard

If you are collecting rent through third-party payment platforms such as Venmo, PayPal, or Zelle, you are likely aware of the IRS’s attempt to lower the 1099-K reporting threshold to $600. Fortunately, that plan has been dismissed. The One Big Beautiful Bill Act has reverted the threshold back to its original requirement: you will only receive a 1099-K if your gross payments exceed $20,000 and you have more than 200 individual transactions within the tax year. This is a considerable relief for smaller scale landlords who were anxious about the influx of paperwork due to a lower threshold.

However, it is essential to understand that this reporting threshold only determines the issuance of a form; you still need to declare the total rental income on your tax return—regardless of whether a 1099-K was provided.

Standard Mileage Rate Increased to 70 Cents

If you frequently drive to your rental property for checks, meetings with contractors, showing units, or managing other landlord responsibilities, the new IRS standard mileage rate for business use of vehicles has increased to 70 cents per mile for 2025, which is a rise from the previous rate of 67 cents. You must keep a detailed mileage log documenting the dates, destinations, and business purpose of each trip, as estimates created at the year’s end are not reliable under audit scrutiny.

Note that commuting from your residence to your rental property is generally considered a nondeductible commuting expense unless your home meets the IRS criteria to be classified as your principal place of business.

Rental Income and State Tax Obligations

A recurring trap for military landlords occurs when considering state tax obligations. Many states exempt military pay from their income tax, resulting in service members stationed in those states often filing returns showing zero tax dues. Nevertheless, rental income typically does not fall under the exemptions applicable to military pay. If your rental property is situated in a state other than your legal residence, you may need to file a nonresident return in that state and report your rental income there. Your home state might extend a credit for taxes paid to another state, but it does not exempt you from the filing requirement.

It’s important to note that the Veterans Auto and Education Improvement Act permits military spouses to maintain their home state tax residency; however, it does not shield rental income earned from taxation in another state.

Deductions Every Military Landlord Should Be Claiming

The IRS allows military landlords to deduct all the ordinary and necessary expenses involved in renting their property. If you aren’t taking advantage of the following deductions, you could be leaving money unclaimed:

• Mortgage interest
• Property taxes (no SALT cap for rental properties, as opposed to personal homes)
• Insurance premiums
• HOA fees
• Property management fees
• Advertising costs
• Repairs and maintenance
• legal and professional fees (including tax preparation costs for Schedule E)
• Local transportation expenses
• Depreciation of the building over a 27.5-year period

Repairs are generally deductible in the year they are incurred, whereas improvements—like a kitchen remodel or roof replacement—must be capitalized and depreciated gradually. The distinction between a repair and an improvement can sometimes be ambiguous, so consulting a tax professional when unsure can be beneficial.

All rental income and expenses should be reported on Schedule E (Form 1040).

Passive Activity Loss Rules Still Apply

Typically, rental income and losses are classified as passive under IRS guidelines. If your rental expenses exceed your income, your capacity to deduct those losses against other income (including military pay) largely depends on your level of engagement and adjusted gross income (AGI).

If you take an active role in property management (making tenant decisions, approving repairs, and determining rent levels) and your AGI is below $100,000, you may deduct up to $25,000 in passive losses against your ordinary income. This allowance phases out between $100,000 and $150,000 in AGI and is entirely eliminated beyond $150,000.

Unused passive losses don’t disappear; they roll over indefinitely, applicable against future passive income or fully deductible in the event of a property sale.

Free Tax Help for Military Families

You certainly don’t have to navigate this complex tax landscape by yourself. MilTax, provided through Military OneSource, offers free tax preparation software and access to knowledgeable tax consultants who specialize in military-specific situations, such as those involving rental properties. MilTax covers federal taxes and up to three state returns at absolutely no cost, with no income limitations.

Furthermore, the Volunteer Income Tax Assistance (VITA) program provides free in-person tax help at many military installations; however, it’s worth mentioning that VITA sites generally can only handle returns involving a single rental property.

Remember, the deadline for filing 2025 tax returns is April 15, 2026. Service members deployed to combat zones will receive an automatic extension of 180 days.

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