What Is Rental Property Depreciation?

Rental property depreciation can help you deduct property-related costs to lower your taxable income for the year. Tax professionals typically help in calculating depreciation for your properties, but there are benefits to knowing what rental property depreciation is and what to keep track of as a landlord.

Here’s everything you need to know about rental property depreciation and how to calculate depreciation for your properties.

What Is Rental Property Depreciation?

Rental property depreciation describes a property’s reduction in value due to wear and tear or property damage. Depreciation can help landlords recover the costs associated with income-producing properties (such as buying, improving, and managing costs) and must be taken over the expected life of the property.

How Does Rental Property Depreciation Work?

According to the Internal Revenue Service (IRS), you can begin to depreciate your property once it’s ready to rent and available to tenants. Depreciation ends once you’ve fully recovered your costs or when the property is no longer a rental, whichever comes first.

An example of rental property depreciation is as follows: You purchased a rental property on June 20 and published a rental listing for the rental property on August 15. You’ve completed the tenant screening process and found your next tenant set to move in by September 1. Depreciation on the property would begin in August, since your property was ready to be leased in that month.

Rental property depreciation can continue even if the property is not in use, whether it be to make extensive repairs or during the process of finding a new tenant. There are different depreciation methods to follow, but this is often determined by a certified tax professional when completing your taxes.

Can Your Rental Property Be Depreciated?

Your rental property must meet the following requirements set by the IRS to qualify for rental property depreciation:

• You must be the owner of the property
• The property must be used to generate income
• You must be able to determine useful life for the property that’s more than one year

If you’re unsure if your property qualifies, you can refer to a certified tax professional to help answer your questions.

How to Calculate Depreciation on a Rental Property

To calculate depreciation on a rental property, you’ll need the cost basis of the property, the recovery period, and recommended depreciation method. Rental properties placed in service (or in use) after 1986 can follow the Modified Accelerated Cost Recovery System (MACRS) method that spreads costs over the span of 27.5 years — the useful life of a rental property, according to the IRS.

Ideally, a certified tax professional would help you calculate depreciation on a rental property to ensure your tax forms are filled out correctly. However, here are three steps to take to help you perform the calculation yourself.

1. Determine the cost basis of your property: The basis of the property is the total acquisition cost, including the mortgage, legal fees, transfer taxes, and title insurance. This number is then subtracted from the value of the land the property is built on.
2. Separate the cost of land and buildings: You can only depreciate the cost of the building, not including the land. To separate the cost between the two, you can refer to the property’s fair market value for individual costs.
3. Use a property depreciation calculator: Use a property depreciation calculator to determine the cost basis, recovery period, and place in the service period for your property.

The depreciation you calculated can then be shared with a tax professional to confirm the amount is correct.

How Much Does Depreciation Reduce Tax Liability?

You can report your rental income and expenses for your rentals on a 1040 tax form. The depreciation amount will need to be outlined on the appropriate line of Schedule E to reduce your tax liability for the year. Tax liability reduction will depend on the tax bracket you’re in and how much depreciation you report.

Looking for an Experienced Residential Property Manager?

If you have a home to rent in the Orlando area be assured there is no substitute for experience. Covering Clermont, Winter Garden, Windermere, Dr Philips, Kissimmee, Davenport, Champions Gate, Hunters Creek and Haines City. We remain focused on this greater Orlando area to ensure we are able to provide outstanding service to our Clients without sacrificing performance. Looking for an experienced residential Property Manager in the Orlando area with a demonstrable track record – look no further.

Call us today to find out more (863) 424-2309

Investment properties can be a lucrative source of passive income, but factors like profitability, maintenance, and the housing market at large can become good reasons to sell a rental property.

According to Avail data, roughly 16% of landlords reported planned to sell an investment property in 2022. If you’re wondering whether to sell your property or when to sell it, here’s what to know about selling a rental property.

How Do I Know if I Should Sell My Rental Property?

Determining whether to sell or keep renting your property depends on a variety of factors, but these are a few indicators that it may be time to consider selling:

• Profitability: Ideally, your rental property should bring in more money than you’re spending to maintain it. If the rental income you’re generating isn’t higher than the cost of your annual operating expenses, the profits (or lack thereof) may not be enough to justify holding on to the property.
• Maintenance: Maintenance is an unavoidable part of owning a property, but it can be time consuming. If the time and money spent on rental property maintenance becomes overwhelming, it may be time to consider hiring a property manager or selling.
• Tenant turnover: High tenant turnover can be the result of many things — the rental market, the property itself, or even your style as a landlord. But high tenant turnover means spending time and money advertising your property and losing rental income due to vacancy, which can become unprofitable over time.
• Property finances: Financial factors like property appreciation, capital gains from selling a rental property, and new investment opportunities should be considered, too. If your rental property is worth a lot more now than when you bought it or you’ve identified an even better investment opportunity, it could make sense to sell. Note that it’s important to be aware of any capital gains taxes from a sale and how to defer them with a 1031 exchange.
• Housing market: The current housing market can dictate how much you can charge for rent, how high tenant turnover is, and how valuable your property would be if you were to sell. In highly competitive housing markets, landlords may be more incentivized to sell a property.
• Location: If you’re moving away from your rental properties, you can always try long-distance real estate investing. But since this often means hiring a property manager, some landlords opt to sell their rentals, instead.

When Is the Best Time of Year to Sell a Rental Property?

Based on Realtor.com® data, the week of April 10-16 is the best time of year to list a home for sale in 2022. Why? According to seasonal data from 2018, 2019, and 2021, this week in April has the most favorable conditions for home sellers when looking at factors like competition, listing prices, days on market, likelihood of price reductions, and homebuyer demand.

Compared to other weeks in the year, Realtor.com®’s historical data from April 10-16 showed higher-than-average listing prices, more buyers looking at listings, homes selling more quickly due to higher demand, and even a lower level of competition from other sellers.

What To Do Before Selling a Rental Property

Before you list your rental property on the market, a few things need to be handled:

• Notify your tenants: You’ll need to give tenants appropriate notice that you’re selling the property. The amount of notice often depends on your lease and local laws, but can also dictate your timing for listing the property. In some cases, tenants will need to leave the property, but in others, a new owner will take over the rental lease.
• Prepare the property: Once you notify tenants of the sale, you’ll need to prepare the property for sale. This consists of a property inspection — regardless of whether tenants are staying or leaving — to identify any wear and tear or damage and address any needed repairs. If tenants have moved out of the property, it may be a good time to tackle property renovations that will help increase the value of the rental.
• Research home value: Doing some research on your property’s value is essential, even before working with an agent. Tools like Realtor.com®’s My Home give a breakdown on a property’s value, local market trends, and how your property compares to those currently for sale.
• Work with an agent: You can sell a property on your own, but most sellers choose to work with a real estate professional to make the selling process a lot smoother. An agent will be able to help you prepare the necessary paperwork, get your property in front of buyers through a multiple listing service, and assist with the entire home-selling process.
• Time your sale: To avoid being hit with short-term capital gains tax, it’s commonly advised to hold on to a rental property for at least one year. In some cases, you’ll want to wait until a lease has expired or allow time to complete renovations. An agent can help you make decisions about when to list your property on the market, or you can use market trends and research — like those provided by Realtor.com® — to help determine an optimal time to list.

Looking for an Experienced Residential Property Manager?

If you have a home to rent in the Orlando area be assured there is no substitute for experience. Covering Clermont, Winter Garden, Windermere, Dr Philips, Kissimmee, Davenport, Champions Gate, Hunters Creek and Haines City. We remain focused on this greater Orlando area to ensure we are able to provide outstanding service to our Clients without sacrificing performance. Looking for an experienced residential Property Manager in the Orlando area with a demonstrable track record – look no further.

Call us today to find out more (863) 424-2309

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Rental Documents Every Landlord Should Have

A handful of tasks go into being a landlord — you’ll need to advertise your rental listing, screen prospective tenants, collect rent payments, turnover an apartment, and much more. 

While some landlords opt for hiring a property manager to help, you can easily do everything yourself with the right rental documents and tools. Here are the top 10 rental documents that are essential for managing a rental property. 

1. Pre-Screening Questionnaire

A pre-screening questionnaire can help you filter through tenant leads to determine which are worth pursuing before scheduling a property showing. The questionnaire can highlight if a person meets the income requirements, is willing to submit a rental application, and can pay the rental application fee. 

2. Online Rental Application

After conducting a property showing with a prospective tenant, it’s important to have them complete an online rental application to better understand their renting history, credit usage, and more. 

3. Prospective Tenant Acceptance and Rejection Letter

As a landlord, it’s advised to let applicants know whether or not their application has been accepted or denied. If you’ve accepted an application through Avail, your new tenant will automatically be emailed with the news, as well as next steps. 

However, tenants will also need to be properly notified when their application has been rejected. A prospective tenant rejection letter can clearly outline why their application has been denied in a friendly manner.

4. State-Specific Lease Agreement

One of the top rental property forms every landlord needs is an online lease agreement that’s state-specific and reviewed by a lawyer. When using Avail to manage your rentals, you can easily access lease agreement templates that have already been reviewed by a team of trusted lawyers and include all the information required by local ordinances. 

Our lease agreements can also be digitally signed for free and saved to your account for both parties to reference throughout the lease term. 

5. Tenant Welcome Letter

Providing a welcome letter to your new tenant can make the moving process less overwhelming, especially if they’re new to the neighborhood. A tenant welcome letter outlines the utilities they’re responsible for covering, your contact information, answers to commonly asked questions, and local places to visit. 

Although it’s not required to provide tenants with a welcome letter, it’s a nice gesture that can position you as an awesome landlord.

6. Move-In and Move-Out Checklist

Similar to a tenant welcome letter, a move-in and move-out checklist lets your tenant know what to check to ensure everything in the property is functioning properly. It also makes it easier to identify what needs to be fixed or replaced either before or after the tenant has moved out. 

7. Lease Renewal Letter

To avoid long vacancy periods and high apartment turnover costs, you can offer lease renewal options to your tenants 30 to 60 days before the lease term ends. It can also act as proof that renewal options were presented to the tenant, even if they choose not to renew. 

8. Security Deposit Return Letter

If you collected security deposit fees from your tenants, you’ll need to provide a security deposit return letter within a certain period. A security deposit return letter outlines the amount you collected, the rental property address, any deductions you took, and when it was returned. 

9. Rent Roll Template  

A rent roll template is the key to organizing any generated income from your rental properties. When collecting rent with Avail, a rent roll report is automatically generated that outlines all the rental payments that have been collected from your tenants. The report can then be exported as an excel spreadsheet to share with your accountant during tax season.

10. Apartment Turnover Checklist

There will be times when you’ll need to turnover an apartment once it’s time to find a new tenant, and an apartment turnover checklist will help. This process can be overwhelming as a first-time landlord, but having a checklist on hand that outlines the most important steps can reduce the stress. 

Looking for an Experienced Residential Property Manager?

If you have a home to rent in the Orlando area be assured there is no substitute for experience. Covering Clermont, Winter Garden, Windermere, Dr Philips, Kissimmee, Davenport, Champions Gate, Hunters Creek and Haines City. We remain focused on this greater Orlando area to ensure we are able to provide outstanding service to our Clients without sacrificing performance. Looking for an experienced residential Property Manager in the Orlando area with a demonstrable track record – look no further.

Call us today to find out more (863) 424-2309