Tag: landlord tax deduction

General Information, REAL ESTATE, RUNNING YOUR BUSINESS

Illinois Just Banned These Landlord Fees — What You Need to Do Before July 1, 2026

Howard Tax Prep LLC

Published: April 10, 2026  |  By Howard Tax Prep LLC  |  Category: Landlord Tax Tips

At our Chicago tax preparation office for landlords, real estate investors, and small business owners, we assist landlords with tax planning to reduce their tax burden. Because we specialize in landlord and real estate investor tax preparation, we must stay abreast of laws affecting landlords. The following are things you need to know about bill HB3564 with amendments 3,7, & 8.

If you own residential rental property in Illinois, a new law just passed that directly affects what you can charge your tenants — and the clock is already ticking.

The law takes effect July 1, 2026. That gives you less than three months to get your leases, your application process, and your fee structures in order.

Here’s exactly what’s banned, what it means for your rental business, and what you need to do right now.

The Fees That Are Now Banned

This is the section most landlords need to read carefully. The following fees are prohibited outright — meaning you cannot charge them under any circumstances once the law takes effect.

Application and Screening Fees

You can no longer charge any fee for processing, reviewing, or accepting a rental application. The only fee related to tenant screening that survives is a background check fee — and that one comes with strict conditions:

  • Fee cap: Cannot exceed $50. If the actual cost from the third-party screening provider exceeds $50, you may charge more — but you must pay the cost upfront, bill the tenant within 14 days, and provide a receipt. Miss that 14-day window and the tenant owes nothing.
  • Waiver required: If an applicant provides a background check from within the past 30 days, you must waive the fee entirely.
  • No eviction for non-payment: Failure to pay the background check fee cannot be used as grounds for eviction.

Maintenance and Service Fees

Every one of the following maintenance-related fees is banned:

  • After-hours maintenance fees: No fee for after-hours service requests
  • Contact fees: No fee for calling or contacting the building owner or property manager — for any reason related to the tenancy
  • Travel fees: No fee for travel to complete repairs or work on the unit
  • Hotline fees: No fee for providing a tenant hotline
  • Routine maintenance fees: No fee for routine upkeep or repairs
  • Pest removal fees: No fee for pest removal or abatement
  • Inspection fees: No fee for an in-person inspection at move-in or move-out

Administrative and Lease Fees

  • Lease modification or renewal fees: No fee for modifying or renewing a lease
  • Eviction notice fees: No fee for serving an eviction notice or filing an eviction action before a court order is granted. Note: courts can still award fees at the conclusion of a case.
  • Ancillary screening fees: No fee that duplicates screening costs or is unrelated to actual screening
The Renaming Loophole Is Closed
The law specifically prohibits landlords from renaming a banned fee to avoid these restrictions. You cannot call a maintenance fee a “resident services fee” or a move-in inspection fee an “administrative fee.” If the substance of the fee is banned, the label doesn’t matter.

Move-In and Move-Out Fees: Not Banned, But Completely Restructured

This one surprises a lot of landlords. Move-in and move-out fees are not outright banned — but the way you can charge them has fundamentally changed.

If you want to charge a move-in or move-out fee, here’s what the law now requires:

  • Itemized list required: You must provide the tenant with a written itemized list of all services included in the fee, broken down individually — including any bundled services.
  • Tenant opt-out right: The tenant can opt out of any individual item on the bundled list. They don’t have to take the whole package.
  • Fee capped at actual cost: The total fee cannot exceed the actual estimated cost of the services on that itemized list.

What this means in plain terms: a flat move-in fee charged as a revenue item is gone. If you charge one, it must reflect real documented costs — and your tenant gets to pick what they want from the menu.

Late Fee Rules Have Changed Too

Late fees were also addressed in the final bill. Here’s what the new rules look like:

  • 5-day grace period: You cannot charge a late fee until rent is at least 5 days past due — the earliest you can charge is day 6.
  • Cap on first $1,000 in rent: Late fees cannot exceed $10 on the first $1,000 in monthly rent.
  • Cap above $1,000: Late fees cannot exceed 5% of any rent amount over $1,000.
  • Cannot be used in eviction calculations: Late fees may not be included in the rent amount for purposes of eviction proceedings.

New Transparency Requirements: Your Leases and Listings Must Change

Beyond the fee bans, the law adds disclosure requirements that affect every new lease you sign after July 1, 2026.

  • First-page disclosure: Every non-optional fee — whether one-time or recurring — must be explicitly listed on the first page of the lease. If a fee is not on page one, the tenant is not legally obligated to pay it.
  • Utility disclosure in listings: When advertising a unit for rent, you must clearly state whether utilities are included in the rent.
  • Lease waiver clauses are void: Any clause in a lease that tries to waive these tenant protections is void and unenforceable as a matter of public policy.

If your current lease template was drafted before this law, it almost certainly needs to be updated.

What Happens If You Violate the Law?

Tenants can file a civil lawsuit for violations. Courts can award:

  • Monetary damages
  • Injunctive relief
  • Attorney’s fees and court costs

That last one matters. When attorney’s fees are on the table, it becomes much easier for tenants to find an attorney willing to take a case — including on contingency. This is not a law you want to test.

Who Is Exempt?

Not every landlord is covered. The law does not apply to:

  • Owner-occupied buildings with 6 or fewer units: If you live in the building and it has 6 or fewer units total, you are exempt.
  • Nursing homes and similar institutions: Entrance fees for these facilities are exempt.
  • Existing leases: The law only applies to new or renewed leases entered into after July 1, 2026. Your existing leases are not retroactively affected.

Your Action Checklist: What to Do Before July 1, 2026

Here’s what you should be working on right now:

Update Your Lease Templates

  1. Remove all banned fees — Go through your lease line by line and eliminate any fee that appears on the banned list above: after-hours fees, maintenance fees, contact fees, travel fees, pest removal fees, inspection fees, and lease renewal fees.
  2. Restructure your move-in fee — If you charge one, convert it to an itemized list of actual services and costs. The flat move-in fee as a revenue item is no longer compliant.
  3. Add a first-page fee disclosure section — Create a dedicated section on page one of your lease listing every non-optional fee. If it is not listed there, you cannot collect it.
  4. Update your late fee language — Make sure your lease reflects the new caps and the 5-day grace period requirement.
  5. Remove lease waiver clauses — Delete any language asking tenants to waive their rights under this law. It is void anyway and could create liability.

Update Your Application Process

  1. Eliminate application processing fees — Any fee for reviewing or accepting an application — separate from a background check — must go.
  2. Revamp your background check process — Cap at $50 (or actual cost if higher — but you pay upfront and must bill within 14 days with receipt). Build a process to accept applicant-provided background checks from the past 30 days and waive the fee accordingly.

Update Your Listings

  1. Add utility disclosure to all listings — Every rental listing, online or print, must state whether utilities are included in the rent.

Get Professional Help

  1. Have your updated lease reviewed by an Illinois real estate attorney — Before July 1, 2026, have a licensed attorney review your revised lease template to confirm compliance. This article is informational — not legal advice.

A Note on the Tax Side — This Is Where We Come In

If you have been collecting move-in fees, application fees, or maintenance-related fees as rental income, your revenue picture changes starting July 1, 2026. For cash basis landlords — which describes most of our clients — fees collected are income in the year received. Losing those fee streams means lower gross rental income going forward.

At the same time, costs you previously recovered through fees — pest control, maintenance, after-hours repairs — are now unrecovered expenses. They are still deductible on Schedule E, but now there is no offsetting income. Depending on your passive activity situation, that shift could actually improve your tax position.

If you are planning to raise rents to offset lost fee income, that decision has tax implications worth considering — particularly if you have Section 8/HCV tenants (rent increases require Housing Authority approval and must meet “reasonable rent” standards per HUD guidelines). You also need to consider whether higher rents affect tenant income-qualifying ratios or whether you are near the passive activity loss thresholds under IRC Section 469.

This is exactly the kind of mid-year planning conversation we have with our landlord clients. Reach out if you want to talk through how HB 3564 affects your specific portfolio and tax situation.

⚠ Status Update
As of April 9, 2026, HB 3564 has passed both the Illinois House and Senate and is awaiting Governor Pritzker’s signature. It is expected to be signed. The effective date is July 1, 2026.

Questions? Let’s Talk.

Howard Tax Prep LLC works with Illinois landlords on tax planning, rental income strategy, Schedule E preparation, and the tax implications of legislative changes like this one.

We are not attorneys and this article is not legal advice — for lease compliance questions, please consult a licensed Illinois real estate attorney. But for the tax side of your rental business, we are here.

📧 info@howardtaxprep.com  | 
📞 (855) 743-5765  | 
1800 Ridge Road, Suite 204-2, Homewood, IL 60430

This article is provided for general informational purposes only and does not constitute legal or tax advice specific to your situation. Consult a licensed Illinois real estate attorney for lease compliance questions and a qualified tax professional for advice on your rental tax strategy.

General Information, REAL ESTATE, RUNNING YOUR BUSINESS, Self Employed, tax deductions, TAXES

How to write off startup cost/ expenses on a rental property.

Howard Tax Prep LLC

In our South Loop of Chicago Tax Preparation office, and our Homewood, Il tax preparation office, we often encounter taxpayers who want to generate additional revenue without having to take on a second job or a time-consuming activity. In most cases, taxpayers express an interest in becoming a commercial or residential landlord; however, prior to becoming a rent-collecting landlord, you’ll likely have to spend a lot of money researching and preparing the property for rental. The good news is that the tax code treats some of those monies as start-up expenses.

What Are Start-Up Expenses?
“Start-up expenses” are certain costs (money spent) you incur before a new business begins. In the case of a rental property business, these are costs incurred before you offer the property for rent.

Unlike operating expenses (the cost you spend on monthly bills such as internet, rent, office software etc.) for an existing business, start-up expenses can’t automatically be deducted in a single year because the money you spend to start a new rental (or any other) business is a capital expense—a cost that will benefit you for more than one year.

Normally, you can’t deduct start-up expenses until you sell or otherwise dispose of the business. But a special tax rule allows you to deduct up to $5,000 in start-up expenses the first year you are in business, with the remaining cost being deducted over the next 15 years.

There are two broad categories for startup cost:

  1. Investigatory–Cost incurred as part of a general search to determine whether to acquire or enter a new business and which new business to enter. For example, you may deduct fees paid to a market research firm to analyze the demographics, traffic patterns, and general economic conditions of a neighborhood.
  2. Pre-opening costs, such as advertising, office expenses, salaries, insurance, and maintenance costs.

Your cost of purchasing a rental property is not a start-up expense. Rental property and other long-term assets, such as furniture, must be depreciated (cost spread out over time) once the rental business begins.

On the day you start your rental business, you can elect to deduct your start-up expenses.

The deduction is equal to

  • the lesser of your start-up expenditures or $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, plus
  • amortization of the remaining start-up expenses over the 180-month period beginning with the month in which the rental property business begins.

When you file your tax return, you automatically elect to deduct your start-up expenses when you label and deduct them on your Schedule E (or other appropriate return).

Additionally, travel expenses to get your rental business going are deductible start-up expenses with one important exception: travel costs to buy the targeted rental property are not start-up expenses. Instead, they are capital expenses that must be added to the cost of the property and depreciated.

Costs you pay to form a partnership, limited liability company, or corporation are not part of your start-up expenses. But under a different tax rule, you can deduct up to $5,000 of these costs the first year you’re in business and amortize any remaining costs over the first 180 months you are in business.

Note that the cost of expanding an existing business is a business operating expense, not a start-up expense. As long as business expansion costs are ordinary, necessary, and within the compass of your existing rental business, they are deductible.

The IRS and tax court take the position that your rental business exists only in your property’s geographic area. So, a landlord who buys (or seeks to buy) property in a different area is starting a new rental business, which means the expenses for expanding in the new location are start-up expenses.

You can’t deduct start-up expenses if you’re a mere investor in a rental business. You must be an active rental business owner to deduct them.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.