Real estate and rental property tax for Portland area landlords

Rental property tax starts with good records

Most individual landlords report rent and expenses on Schedule E of their federal Form 1040, and mortgage interest on a rental goes there too. What trips people up is the split between a repair, which you can usually deduct in the year you pay it, and an improvement or addition, which IRS Publication 527 says is depreciated over many years.

Owners of a single condo in the Pearl or a duplex in Montavilla tend to keep receipts in a shoebox until tax season. That is when missed depreciation shows up, along with personal and rental costs mixed together on one card. A CPA will sort these out and set up a simple system for next year.

Tell us what you need and a licensed CPA who works with people like you gets in touch with a clear, fixed quote.

Depreciation: the deduction you cannot skip

Residential rental property is depreciated over 27.5 years under the general depreciation system, according to IRS Publication 527 for 2025 returns. The IRS defines residential rental property as a building where 80% or more of the gross rental income for the year comes from dwelling units. Land is never depreciated, because, as the IRS puts it, land does not wear out, become obsolete or get used up.

That means the purchase price has to be split between the building and the land, and the split you use affects every year of depreciation that follows. Improvements made later, such as a new roof or a remodeled kitchen, start their own depreciation schedules.

If past returns left depreciation out, do not just start taking it this year and hope it evens out. A CPA can look at whether a change in depreciation accounting method or amended returns is the right fix.

Passive loss rules and the $25,000 allowance

Rental losses are usually passive, which limits how much you can use against wages or business income. There is an important exception for owners who actively participate in running their rentals.

For tax year 2025, the IRS instructions for Form 8582 allow up to $25,000 of rental losses for single filers and married couples filing jointly who actively participate. That allowance phases out between $100,000 and $150,000 of modified adjusted gross income and disappears above $150,000. Married people filing separately who lived apart all year get up to $12,500, and those who lived together at any time during the year get no allowance at all.

Many tech employees in Hillsboro and Beaverton earn too much to use the allowance, so their rental losses carry forward. A CPA will track those disallowed losses from year to year so they are not forgotten when they can finally be used.

City of Portland and Multnomah County taxes on rentals

Portland landlords often do not realize that renting property counts as business activity for local tax. The City of Portland Revenue Division includes net income from renting residential and commercial real property in the City Business License Tax base, and owning or renting property in the jurisdiction triggers registration.

Small landlords may still be exempt from paying. For tax year 2025, the City exemption covers gross receipts under $50,000, rising to $75,000 for tax years beginning in 2026. The Multnomah County Business Income Tax has its own exemption for individuals whose only business activity is renting nine or fewer residential units. That County exemption does not apply if you have ten or more units, rent commercial space, or have other business activity.

On top of that, all owners of residential rental property in the City of Portland must register their units and may owe the Residential Rental Registration fee. The fee was $70 per unit for tax years 2023 through 2025. It is reported on Schedule R attached to the combined City and County business tax return and is due by the return's original due date, generally 4/15.

Selling a rental, and property in Washington

The sale of a rental is where years of tax decisions come together. Your gain depends on what you paid, what you put into the property and the depreciation taken over the years, and any passive losses you have been carrying need to be accounted for. Planning the sale a year ahead gives you more options than calling a CPA after closing.

Some Portland area investors own rentals across the river. Washington does not currently have an individual income tax, and its capital gains tax lists real estate as an exempt asset. Rental income from Washington property is still reported on your federal return, so the paperwork does not go away just because the property is in Clark County.

Short term rentals, LLCs and growing portfolios

Landlords with several doors often ask whether to hold properties in an LLC. The answer depends on lending, liability and how you want the income reported, and it is worth getting both a CPA and an attorney involved before you retitle anything.

Short term rentals have their own tax treatment, and the federal rules for them can differ from long term rentals depending on how long guests stay and how much you do for them. A CPA will review your booking data and tell you how your income should be reported.

As a portfolio grows, cash flow tracking, entity returns and quarterly estimated taxes start to matter. Our pages on bookkeeping and quarterly estimated taxes cover those pieces.

Common questions