Liz Hernandez, CPA

Depreciation recapture is the tax on the depreciation you claimed while you owned the property, charged when you sell it. The IRS taxes that part of the gain at up to 25%, and it applies whether or not you actually claimed the depreciation, so it belongs in the plan before the sale rather than after.

Yes. A 1031 exchange defers the tax on the gain when the proceeds go into another investment property. The replacement has to be identified within 45 days of the sale and bought within 180, and the rules are strict, which is why the exchange is planned before the property is listed.

No. Many investors use an LLC to limit personal liability if something goes wrong at the property, and that is a reasonable reason to have one. It does not, by itself, change your taxes.

When the average stay is seven days or less and you materially participate in running it. The two tests most people meet are more than 500 hours in the year, or more than 100 hours and more than anyone else. The hours have to be recorded.

Repairs, yes, in the year they are done. Improvements are added to the property’s cost and written off over time, with one exception: certain work to the inside of a non-residential building, called qualified improvement property, can be written off in full in the first year. Which side of the line a job falls on is worth asking before the work starts.

Usually not. Rental losses are passive, and passive losses offset passive income, not wages. The exceptions are a short-term rental you run yourself, and real estate professional status, which takes more than 750 hours a year of real estate work, more than half of your working time, and material participation in the rentals. With either, the losses offset the salary on the federal return. California does not recognize real estate professional status: on the California return, every rental activity is passive.