2026 Taxes: This Is What Military Landlords Need to Know

Renting out a home after a PCS move is one of the most common ways service members build wealth, but it also creates a new set of tax obligations that catch many military landlords off guard. With several major changes hitting the books for the 2025 tax year, now is the time to get up to speed before the April 15, 2026, filing deadline.

Here is what military landlords need to know this tax season.

100% Bonus Depreciation Is Back and Permanent

The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualified property acquired after Jan. 19, 2025. This is a significant shift. Under the prior phase-down schedule established by the Tax Cuts and Jobs Act, bonus depreciation had dropped to 60% in 2024 and was set to fall to 40% in 2025 before disappearing entirely by 2027.

For military landlords, the practical impact is this: If you purchased appliances, HVAC systems, fencing, flooring or other qualifying improvements for a rental property after Jan. 19, 2025, you can deduct the full cost of those items in the year they were placed in service rather than spreading the deduction over several years. Qualifying property generally includes tangible assets with a recovery period of 20 years or less.

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To maximize this benefit, consider a cost segregation study. These studies break down the components of your rental property into shorter-lived asset categories (five, seven or 15 years) that qualify for accelerated depreciation, including bonus depreciation. For a typical residential rental, roughly 20 to 40 percent of the property's value may be reclassified into bonus-eligible categories.

Keep in mind that this does not apply to the structure itself, which is still depreciated over 27.5 years, or to the land, which is never depreciable.

Section 179 Deduction Limits Have Doubled

The One Big Beautiful Bill Act also raised the Section 179 expense deduction limit from $1.25 million to $2.5 million for tax years beginning in 2025. The phase-out threshold increased to $4 million. While Section 179 is most commonly associated with business equipment purchases, it can apply to certain qualifying improvements made to nonresidential rental property, such as roofs, HVAC systems, fire protection systems, and security systems, if you qualify as a real estate professional under IRS rules.

Most military landlords will not meet the real estate professional threshold (750 or more hours per year devoted to real estate activities and more than half of your total working hours), but those who are transitioning out of the service or whose spouses manage the properties full time should take a closer look.

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The Qualified Business Income Deduction Is Now Permanent

The Section 199A Qualified Business Income deduction, which allows eligible taxpayers to deduct up to 20% of their qualified business income, was originally scheduled to expire after the 2025 tax year. The One Big Beautiful Bill Act made it permanent. Starting in 2026, a new minimum deduction of $400 will also be available for taxpayers with at least $1,000 in QBI from a business in which they materially participate.

For military landlords, claiming this deduction requires that your rental activity qualifies as a "trade or business." The IRS provides a safe harbor under Revenue Procedure 2019-38 that treats a rental real estate enterprise as a trade or business if you meet three conditions: You maintain separate books and records for each rental enterprise; you perform at least 250 hours of rental services per year; and you keep contemporaneous records documenting the hours, services performed, dates and who did the work.

Qualifying rental services include maintenance and repairs, collecting rent, screening tenants, advertising vacancies, managing the property and traveling to and from the property. Time spent arranging financing or shopping for new properties does not count.

The 250-hour requirement applies to the enterprise as a whole, not to each individual property. If you own multiple residential rentals, you can group them as a single enterprise (commercial and residential properties must be tracked separately). For enterprises in existence less than four years, you must hit 250 hours every year. For enterprises that have been around four or more years, you need 250 hours in at least three of the past five years.

If your rental activity does not meet the safe harbor, it may still qualify under the general Section 162 trade or business standard, though that path is less clear cut.

1099-K Reporting Thresholds Reverted to the Higher Standard

If you collect rent through third-party payment platforms such as Venmo, PayPal or Zelle, you may have been tracking the IRS's years-long push to lower the 1099-K reporting threshold to $600. That plan has been abandoned. The One Big Beautiful Bill Act reverted the threshold to the original standard: You will only receive a 1099-K if you collected more than $20,000 in gross payments and had more than 200 individual transactions during the tax year. This is a meaningful relief for small-scale landlords who were concerned about the lower threshold triggering additional paperwork.

That said, the reporting threshold only affects whether you receive a form. You are still required to report every dollar of rental income on your tax return regardless of whether a 1099-K is issued.

Standard Mileage Rate Increased to 70 Cents

If you drive to check on your rental property, meet contractors, show units or handle other landlord duties, you can deduct those miles. The IRS standard mileage rate for business use of a vehicle increased to 70 cents per mile for 2025, up from 67 cents the prior year. You must maintain a contemporaneous mileage log that includes dates, destinations and the business purpose of each trip. Estimates reconstructed at the end of the year will not hold up under audit.

Note that commuting from your home to a rental property is generally considered a nondeductible commuting expense unless your home qualifies as your principal place of business under IRS rules.

Rental Income and State Tax Obligations

This is a trap that catches military landlords every year. Many states exempt military pay from income tax, which means service members stationed in those states often file returns showing zero tax liability. However, rental income is almost never covered by military pay exemptions. If your rental property is in a state other than your state of legal residence, you are generally required to file a nonresident return in that state and report your rental income there. Your home state may allow a credit for taxes paid to the other state, but that does not eliminate the filing requirement.

The Veterans Auto and Education Improvement Act allows military spouses to retain their home state tax residency, but that provision does not shield rental income earned in another state from taxation.

Deductions Every Military Landlord Should Be Claiming

The IRS allows you to deduct all ordinary and necessary expenses associated with renting your property. If you are not claiming the following, you may be leaving money on the table:

• Mortgage interest
• Property taxes (no SALT cap applies to rental properties, unlike your personal residence), 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 27.5 years

Repairs are deductible in the year they occur. Improvements that add value to the property, such as a kitchen renovation or a new roof, must be capitalized and depreciated over time. The line between repair and improvement is not always clear, so consult a tax professional when in doubt.

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

Passive Activity Loss Rules Still Apply

Rental income and losses are generally classified as passive under IRS rules. If your rental expenses exceed your rental income, your ability to deduct that loss against other income (like your military pay) depends on your level of involvement and your adjusted gross income.

If you actively participate in managing the rental (making decisions about tenants, approving repairs, setting rent) and your AGI is below $100,000, you can deduct up to $25,000 in passive losses against your ordinary income. That allowance phases out between $100,000 and $150,000 in AGI and disappears entirely above $150,000.

Unused passive losses are not lost. They carry forward indefinitely and can be applied against future passive income or deducted in full when you sell the property.

Free Tax Help for Military Families

You do not have to navigate this alone. MilTax, offered through Military OneSource, provides free tax preparation software and access to trained tax consultants who specialize in military-specific situations, including rental properties. MilTax can handle federal and up to three state returns at no cost and has no income limit.

The Volunteer Income Tax Assistance program also offers free in-person tax preparation at many military installations, though VITA sites can generally only handle returns with one rental property.

The filing deadline for 2025 tax returns is April 15, 2026. Service members deployed to combat zones receive an automatic 180-day extension.

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