California Rent Control Laws changed with the Tenant Protection Act of 2019 (AB-1482). This is an overview of changes to local rental control law in CA.

Everything You Need to Know About California’s Rent Control Laws

California Rent Control Laws changed with the Tenant Protection Act of 2019 (the bill also known as AB-1482). Read on for an overview of changes to local rental control law in the State of California. 

Enacted on January 1, 2020, California’s statewide rent control law made it illegal for residential landlords to raise rent more than 5%, plus the local rate of inflation in a year. Called the “Tenant Protection Act of 2019,” or AB 1482, the law is designed to prevent the most “egregious” rent increases in the state, especially as many renters have had extreme difficulty paying for housing in the midst of the COVID-19 pandemic.

California Governor Gavin Newsom remarked that with the implementation of the Act (AB 1482), the state will enjoy the “nation’s strongest statewide renter protections.” The statewide law is retroactive to March 15, 2019, and expires on January 1, 2030.

Note that the rental caps limit how much a landlord can increase a tenant’s rent, not the amount of the initial rental price. That amount is determined as it always has been: the homeowner and the tenant come to an agreement that is ratified through a signed lease. To help homeowners determine the optimum price embodied in that agreement, Belong offers a Pricing Optimization Model which takes into account a variety of factors, including market conditions and location.

Exemptions for the Statewide Rent Control Law

The Tenant Protection Act applies broadly to all housing, however there are some exemptions, including which can be found here. The statute does not apply to California condos, and single-family homes, unless they’re owned by a corporation or real estate investment trust. Local rent control ordinances currently in effect will still apply.

Duplexes, where the owner lives in one of the units, are also exempt. In addition, the law provides for these exemptions:

Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner;

Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including an accessory dwelling unit or a junior accessory dwelling unit;

Units already subject to a local ordinance that is more protective than state law, and that requires “just cause” to terminate a tenancy (for example, the eviction protections of the San Francisco Rent Ordinance) – see below for a further description of “just cause;”  and

Residential real property that’s separately alienable from the title to any other dwelling unit – meaning, it can be sold separately from any other dwelling, as is typically the case with single-family residences and condominiums – as long as both A and B apply:


(A) The owner is not any of the following:

(i)  A real estate investment trust, as defined in Section 856 of the federal tax code;

(iii)  An LLC (limited liability company) where at least one member is a corporation

(B) The tenants have been given written notice that the residential property is exempt from this section.

Homeowners should note that the state law exempting buildings constructed in the last 15 years is a rolling date. Thus, units built in 2006 will be covered by the exemption in 2021, but not thereafter. Similarly, units built in 2007 will be covered up through 2022,  but not thereafter. And so on.

Updates to evictions and lease terminations: the “just cause” requirement

AB-1482 has a protection for tenants that prevents landlords from attempting to circumvent the law by evicting current tenants to set new, higher rents for future tenants. The law requires landlords to show “just cause,” such as failure to pay rent, when terminating a lease. Other examples of just cause include violating the terms of a lease agreement, assigning or subletting the premises, refusing to provide reasonable access, refusing to vacate, and committing a crime on the property.

The just cause protection applies to renters who have resided in the unit for 12 months or more. If another renter is added to the lease before an existing renter has continuously resided in the unit for 24 months, the just cause provisions only apply if everyone on the lease has continuously resided in the unit for 12 months or more, or if one of the renters has continuously resided in the unit for 24 months or more.

For those residents who’ve lived in a unit for at least a year, landlords must provide the tenant with an opportunity to cure the violation.

The law exempts certain housing types from the tenant protections (like the rent control provision), requiring a just cause showing prior to terminating a residential tenancy.

Furthermore, AB 1482 sets out some “no fault” just causes, which means that a homeowner can end a lease if the unit is removed from the rental market or is being provided to an immediate relative. Additional “no fault” just causes include: if the homeowner is substantially remodeling the unit; if it needs to be vacated to remedy habitability issues; or if the homeowner is responding to an administrative or court order. 

Where local rent control laws are already in place

The following California communities have local rent control laws on the books, meaning the statewide rent control rules won’t apply – other than for mobile homes:

In addition, several other communities have measures short of rent control, and we advise you to look at the provisions that apply:

Campbell (starting Ch 6.09 mediation only)

San Diego (98.0730 just cause eviction, only)

San Leandro (non-binding review & mediation only)

Plus, the unincorporated neighborhoods of Los Angeles County have local rent control laws.

Rent Control Ordinances in Large California Cities

In LA, the local rent control law only applies to buildings constructed prior to 1978. However, with the statewide rental control law, many thousands of newer units built between 1978 and 2005 will be required to comply with AB 1482.

The municipal code says that only one rent increase is allowed every 12 months based upon the regional CPI (Consumer Price Index). Effective July 1, 2020, the annual allowable increase is 3.0%. To be clear, in the City of Los Angeles, if a tenant resides in a building that was built before 1978, rent increases are to be capped under the provisions of the city’s rent control ordinance, and rent in that building can’t exceed a 5% increase (plus inflation). The rate by which landlords can up the rent is calculated as a percentage of the annual Consumer Price Index (CPI).

California Rent Control Laws: An Overview

Landlords have been painted as money hungry monsters keeping people from homeownership. Here's why we don't accept this crushing stereotype: people like you.

6 Invaluable Rules for Being a Landlord But Not a Jerk

Landlords have a bad reputation. There’s a stereotype of a money-hungry merciless landlord that has persisted for centuries, dehumanizing regular homeowners. In fact, the term has so much bad blood behind it that at Belong we don’t even like using it. Instead, we refer to landlords as the more human and accurate description of  homeowners. Equally, we prefer ‘residents’ to ‘tenants’. 

Because having a rental home is more than just property ownership. It’s a vital community service for people who need a place to call home. A growing number of Americans aren’t in a position to own a home or may even prefer the flexibility of renting when moving for work or looking for opportunities in a new city. 

Providing shelter to a person or family has a significant impact on their lives. While it can be financially lucrative, it also comes with a lot of responsibility. If you want to be the kind of homeowner who can be a landlord without being considered a jerk, there are ways to be kind and considerate without losing out financially.  

Here are 6 invaluable rules for being a successful ‘landlord’ but not a jerk:

Partner with companies who reflect your values

Rule #1: Don’t think the worst of people.

Even though you’re currently a homeowner, there was probably a point in your life when you were on the other side of things — when you were living in a rental. You may even be renting now while someone else is in the home you own. 

As a renter, did you (or do you) make yourself at home? Did you ever invite a friend over to see “the landlord’s house?” Or did you simply say “let’s have dinner at my place”? 

Belong thinks it’s important to keep that dynamic in mind — to remember that when you own a house or apartment on the rental market, you’re not leasing out a dead space. You’re inviting someone to make themselves at home.

Just as people say “nobody ever washed a rental car”, there is an untrue belief that renters won’t care for places they don’t own. Yet if you do your due diligence to find great people who want to live in your home and treat them as such, there’s a good chance they will have pride in your home. They may even leave it in even better condition than when they arrived. 

One of the most important rules to follow as a homeowner is to maintain good communication with your residents. Whether it's about a rent increase, a repair, or a dispute, keeping the lines of communication open and transparent can help you avoid misunderstandings and conflicts. 

Particularly if you self-manage a home, it’s important to create an environment of mutual respect. Be considerate of their privacy, and make sure to give them notice before entering the home. Don't harass them with endless phone calls or emails, and try to be understanding if they are experiencing financial difficulties or personal issues that may affect their ability to pay rent on time. That’s not to say you shouldn’t enforce the rules of the lease agreement, but be careful not to treat them with contempt simply because you own the place they call home. 

Another thing that gives landlords a bad reputation is the desire to let things slide. From dodgy paint jobs, ignoring dead plants in the yard or taking your time making repairs, there is no shortage of cost-cutting short cuts for homeowners. 

But when you show a lack of commitment, you are sending signals to your resident that you don’t care about the home, which begs the question: Why should they? When you demonstrate you love your home – by quickly and responsibly investing in its maintenance – you are encouraging “love it back” behavior.

What’s more, something wonderful happens when everyone in a community works together to maintain houses: the values increase. And there’s a great deal of data which shows the tragic opposite is true: neighborhoods decline in value when people stop caring.

Rule #4: Avoid discrimination and judgment.

It's illegal to discriminate against tenants based on their race, religion, gender, or other protected categories. Make sure to treat all applicants and residents equally and fairly, and don't make any assumptions or judgments based on their background or appearance. Be open to different lifestyles and cultures, and try to accommodate peoples’ needs and preferences as much as possible.

Rule #5: Be reasonable with rent increases

Rent increases are a common occurrence in the rental market, but it's important to be reasonable and considerate when raising the rent. Make sure to give your residents ample (and legally required) notice before raising the rent, and try to keep the increase within a reasonable range. 

If your residents are long-term and reliable, remember that huge price hikes could send them packing and cost you money with vacancies and looking for new people just like them. 

Read more about the best way to price your rental home to attract long-term residents in Los Angeles, San Diego, San Francisco Bay Area, Seattle or Miami. 

Rule #6: Partner with companies who reflect your values.

Self-managing a rental home is not for everyone. Those who take on the responsibility themselves often find it much harder to avoid inherent ‘jerkiness’ purely from the emotionally draining and time-consuming nature of property management. Try being nice when a furnace stops working at 11pm! 

Hiring a property manager isn’t always the quick-fix answer either. Think about the lengths that large hotel brands and vacation rental services like Airbnb go to make people feel comfortable and even “at home” when they’re staying with them. And yet traditional property management services — the very businesses who are supposed to be finding everyday living accommodation for people — do the complete opposite. 

Belong is changing that. Its human approach is turning the rental experience into a world-class hospitality service for both you and your residents. Unlike traditional property management services, Belong provides a complete end-to-end service with full transparency. Belong matches houses with residents that are looking for a long term place to live — somewhere to call home. 

Find out how Belong can both optimize your passive income opportunities and help you be a respected homeowner here. 

6 Invaluable Rules for Being a Landlord (But Not a Jerk)

We ranked the best accounting software for landlords to stay on top of your rental income.

Accounting Software for Landlords, Ranked

The financial benefits of managing a rental property for landlords are numerous. Still, you can only actualize them with careful accounting habits and tools. 

Real estate accounting needs to incorporate four key three key aspects:

These are all the costs associated with managing your rental property. Look for an accounting tool that will automatically track your expenses.

This category includes all the money you make from your rental property. 

Not all accounting tools will provide robust reporting options, but careful financial analysis is critical for a successful rental property.   

How to choose the right tool to manage your rentals

Landlords will need to consider their specific needs to determine which accounting software is best for their needs. 

Take inventory of your rental property portfolio 

Each rental property accounting software is designed for a specific type of landlord. There are less expensive options if you manage the finances for just one or two rental properties. However, suppose you are managing a large number of rental properties. In that case, you'll need to look for accounting software specifically designed for that need. 

Consider your CPA or tax preparation preferences 

If you currently or plan to work with a CPA or tax preparer, it can be helpful to seek their advice on which accounting software they prefer. Most tax and accounting professionals will be familiar with general accounting tools like Quickbooks or Quicken. If your CPA works with other landlords, they may have unique insights into specific platforms and any downsides or benefits. 

Make a list and look for specific features

Are there specific tools or features that your accounting software needs to have? It's helpful to make a list of these functions before you start your search to ensure that your chosen software has those features.

Separate chart of accounts for rent/deposits 

Multiple payment options such as ACH and credit cards

Types of accounting software for landlords 

Landlords can choose from several different types of accounting software. Standard options fall into a few distinct categories. 

If you're financially savvy or particularly good with spreadsheets, you may be able to use Google Sheets or Excel in place of traditional accounting software. Many free accounting templates can help you get started with this option. We don't recommend DIY accounting software for landlords unless you feel 100% comfortable managing and troubleshooting any issues. 

Many landlords may choose to use accounting software that hasn't been developed specifically for real estate. Accounting software like Quickbooks, Freshbooks, or Quicken can be a solid choice for landlords already familiar with these tools. 

These types of software won't have features specific to rental property, particularly for rent collection. Still, they can be suitable for landlords with solid processes and procedures. 

Free rental property accounting software exists, but they're only suitable for certain landlords. We've found that they don't always include critical features and can expose you to potential financial errors. We've included a review of one popular free software to see how it stacks up against the competition. 

One of the best ways to stay on top of your accounting (without the need for expensive software), is to partner with a good property manager. Property management provides support not only for accounting needs, but also tenant placement, screening, maintenance, and more. Working with a property manager significantly reduces the time spent completing administrative tasks and saves money in the long run.

Many modern property management companies offer an app or landlord portal that streamlines communication and tracks repair requests. It should also manage all of your rental receipts and incomings/outgoings, making your finances simple to find at tax time.

We've included information in our ranking for each software's pricing. However, it's important to note that each software has a different pricing structure and that these prices are subject to change.  

Landlords should carefully consider different pricing aspects, including free trials, potential software set-up fees, required monthly minimums, upgrade, and add-on charges.

Best 2022 Rental Property Accounting Software 

ZenLord Pro is free software that offers rent collection, accounting & bookkeeping, a work order system, tenant communication, free screenings, and lease agreements. 

Pros: Users like that the software can generate tenant applications and leases. While the platform is basic, it should address the needs of landlords with just one or a few properties. 

Cons: You may only be able to add information for one bank to your account. For some, this could cause some difficulties. 

Pricing: ZenLord Pro is one of very few free accounting software choices for landlords. They also offer two upgraded versions with additional features that run $7 and $9 per month. 

Customer review: "Overall: I solved late rent. That is the biggest concern for me. It made sure my tenants knew that we were watching payments and we would know before rent was due if they were good to clear the payment. Communication through the website/text platform is great: I like the feature where it gives you a balance update. So you know if your tenant is good for the rent. Maintenance platform is useful for scheduling repairs. The UX design needs some work, but it's something that can be changed easily. Still super easy to use…" - Nishul P.

Quickbooks - Best Accounting-only Software

We ranked the best accounting software and financial solutions for landlords to stay on top of your rental income.

Maximize Your Rental Income

Before deciding to manage your own rental property, ask yourself these three questions on if you're ready to be a landlord and property manager.

3 Questions To Help You Assess If You Can Be A Property Manager

Self-managing a home on the rental market is usually taken on by people looking to save money on property management fees, taking the full share of the rental income. But making the decision to self-manage a rental property isn’t as straightforward as some may think. 

From finding and screening the right tenants to responding to maintenance requests and the dreaded business of collecting rent, self-managing a property can be time-consuming and sometimes frustrating work. 

That said, some people are born to be property managers. They have superior organizational skills and the kind of people-pleasing personality that makes the job less stressful. Others will find themselves overwhelmed by the amount of paperwork and weekend phone calls that self-management often involves. 

If you’re not sure, these three simple questions can tell if you should take the plunge.

There is no denying that taking care of every aspect of your property ratchets up one’s stress levels. The pressure ranges from what happens when the rent isn’t paid on time – which is often a reality –  to what happens if the washing machine hose breaks and the basement is flooded. Or the furnace stops working on the coldest day of the year.

It’s bad enough if a crisis happens when nearby, but what happens if bad news strikes at the worst possible time (as it usually does) like when you’re on vacation? 

Some people can deal with all that, and take it in stride. But if none of this sounds appealing to you, you might want to consider outsourcing these responsibilities to professionals like Belong, who will take it all on for you. 

Other stress-busting services include guaranteeing the rent (no guesswork on when you’re getting paid) and a 24/7 concierge service on the Belong app for both you and your residents. We even offer innovative finance options that let you spread the cost of things like emergency repairs over the term of your lease, so you’re not faced with any stressful surprises. 

 Learn More: Discover Belong PRO, the best alternative to Property Management in Seattle, Redmond, Oakland, and many more cities across California, Florida and Washington State.

Be honest, are you disciplined and rigorous about record keeping? Can you quickly lay your hands on receipts and warranties? Or is a shoebox your idea of what a filing system should look like?

We ask that question because managing your own property involves tons of record-keeping.  Everything from the initial applications, to the credit checks, to the legal lease agreement, to repairs and maintenance, all need to be maintained in an organized fashion. You’ll need it for the day-to-day management of your property; in case there are any legal issues along the way that require substantiation; and of course, for the preparation of your tax returns.

For some, that’s second nature, but for others it’s a challenge. Belong doesn’t just maintain those records for you, but they are part of your digital account with us, and are instantly accessible. 

See why thousands of US homeowners are ditching outdated Property Management in San Francisco, San Diego, Los Angeles, Tampa, Jacksonville, Concord, Berkeley, Orlando and more.

Question #3: How important is your free time?

There’s a reason that property management is a full-time job for thousands of people across the country: it takes time. A lot of it. There are always unexpected things that come up, which are likely to require time and effort to research and manage, such as vetting all of your rental applications or finding contractors to manage repairs at a moment’s notice. 

If you want to make property management your job, self-management could be for you. But if you’re working or would prefer to spend your time on activities that matter to you, consider outsourcing to those who will dedicate their days to looking after your home and residents. 

There is an easier alternative to self-managing a rental property

Whether you’re new to the rental market or burnt out on self-managing your rental home, Belong can help. 

Belong PRO is a residential network offering unique services to both homeowners and their residents. From not charging fees for the essentials to guaranteeing rent, Belong will partner with you to achieve financial freedom. And you'll never need to lift a finger. Learn more and find out if your home is eligible (even if you’re mid-lease!) at belong.com/homeowners.

We are announcing a $5M Series Seed led by Jeff Jordan at a16z, a $10M Series A led by Jeff Richards at GGV Capital

Announcing Belong's $5M Series Seed, $10M Series A and $40M Series B from a16z, GGV and Battery Ventures

Today is an important day for Belong and all of us personally.

We are announcing a $5M Series Seed led by Jeff Jordan at a16z, a $10M Series A led by Jeff Richards at GGV Capital, and a $40M Series B led by Roger Lee at Battery Ventures, with Comerica providing credit support.

Joining a16z, GGV, and Battery Ventures, we are welcoming individual investors Eric Wu (CEO of OpenDoor), Sarah Friar (CEO of Nextdoor), Austen Allred  (CEO of Lambda School), Kevin Hartz (Founder of Eventbrite), Elliot Cohen and TJ Parker (Founders of PillPack), Manish Chandra (CEO of Poshmark), Laurence Tosi (CFO Blackstone / Airbnb), Sam Corcos (CEO of Levels), Dave Vasen (CEO of Brightwheel), Brett Rotchkind (Former MD General Atlantic), William Barnes (leading the Uber Alumni Syndicate), and Larry Summers (former Secretary of the Treasury)! 

We are a company started by immigrants. As immigrants, we had to redefine, multiple times and in numerous ways, what Home meant to us. 

Is Home the walls around you and the ceiling above you?

With time, we discovered that Home isn't a place. Home is a feeling. Home is where our heart is.

We love building products that make people happy. More specifically, we love surprising people with something they never thought could make them happy. 

So we chose an industry that hadn't changed in centuries and offered no elements of delight to those it was meant to serve. The rental journey is a universally shared experience that’s severely dysfunctional. Whether you’re on that journey as a renter or a homeowner, it is filled with stress, anxiety, headache, and often, ill will. 

That's precisely the type of experience we feel compelled to go tackle. We’ve set about changing every aspect of renting. It’s certainly not the easy route, but we're obsessed with eradicating everything that was once bad, and replacing it with something truly great.

If you’re a homeowner, Belong will handle everything for you. For starters, we’re going to treat your home exceptionally well. Our in-house, full-time team of Pros will take care of all maintenance and reconditioning on your home, showing up on time and doing work correctly the first time around. We'll find really great Residents that love your home, almost as much as you do. And we’re going to treat them exceptionally well too, so that they stay longer, further reducing vacancy. And because we’re building for the future, everything is handled right through your phone, from rent and Pro Services, to communications with your dedicated Concierge. 

We're proud to be building the feeling of Home every human deserves.

Want to learn more about the magic of Belong? HOW IT WORKS

Building something from nothing is incredibly hard. 

So, why do we do it? More importantly, why did we choose to do it again?

We continuously remind each other of this secret: building something the world values is a hack that enables you to choose who to work with.

Case in point, several of the Belong team members have been working together for eight years and plan to continue for many, many more.

Another secret is that you also get to 'hire' your investors when you’re off to a good start. The people you admire the most from your field. We get to learn from these people in a seamless, natural way. In the Jeffs and Roger, we've found extraordinary operators, turned even better investors, that we are proud to call our partners. We don't take that for granted and we are extraordinarily grateful.

But, we couldn't do any of this without our team members, The Belongers, past, and present. All incredibly dedicated, talented, warm-hearted people that make and will continue to make Belong special. 

This announcement is dedicated to each one of you:

Adam, Ahmad, Akash, Alejandro, Alex, Alex, Alex, Alfie, Amy, An, Andy, Anthony, Aprilynne, Ariane, Arlie, Ben, Brandon, Brittany, Bruce, Caleb, Cameron, Carlo, Catherine, Cesar, Chelsea, Chenell, Chris, Christian, Corinne, Cynthia, David, Daniel, DeJon, Diego, Diego, Dion, Divine, Dolores, Doug, Eileen, Ellie, Erin, Erin, Fedelyn, Fernando, Flora, Frankie, Francisco, Freddy, Garrett, Gabriel, Glenn, Haris, Hyuk, Jake, Jane, Jason, Javier, Jerry, Jiffy, Joel, John, John, Jonathan, Jordan, Jordan, Jorge, Joseph, Julio, Kalin, Kar, Katie, Kathryn, Kayla, Khym, Landon, Lara, Leah, Liam, Lupe, Mario, Mark, Mary Bernadette, Mati, Matt, Matthew, Mary, Maxx, Michael, Michael, Michelle, Milan, Montana, Murugesh, Namrata, Noemi, Nica, Nick, Nico, Nimesh, Nitesh, Oggi, Pablo, Pradeep, Priscila, Randy, Ronson, Ruben, Ryan, Sadara, Sajni, Saliq, Sam, Sam, Shawn, Stephan, Sydney, Tanner, Thomas, Tom, Tomek, Travis, Troy, Tyler, Vic, Yanna, and Zeni!

Thank you for your hard work. You've made it possible to get this far.

Would you like to explore careers at Belong? We have lots to do and learn. 

Please send any press inquiries to press@belonghome.com.

Belong's $40M Capital Expansion with Series Seed, A and B Funding

We cover the ins and outs of tenant screening, from how to do it yourself to the best tenant screening services to find the right people to occupy your home.

How To Find Great Tenants: The Best Tenant Screening Services

When you place a tenant in your home, who you choose can make or break your rental experience. Someone who is late on their rent or damages your home can be a costly nightmare for landlords. What you want is a person or family who is reliable with rent and trustworthy, treating the place as they would their own. 

Finding that perfect fit is a big deal, it’s why tenant screening services and property managers are so popular, helping to take the burden off landlords. 

There are four approaches you can take to finding great tenants:

1. Do your own vetting of tenant applications with a mix of research and screening services

2. Outsource background checks to a tenant screening service

3. Hire a property management company to manage applications and tenant screening

4. Hire Belong to take a human approach to tenant screening, pairing all the necessary checks with interviewing potential residents for the perfect long-term fit

Before we dive into the ins and outs of each approach, the best advice we can give is to remember that tenants are more than a financial transaction. They are people looking for a place to call home. If you want reliable people who will treat your home as their own, you need to treat them as such. 

This is why Belong refers to renters as ‘residents’, not tenants. By treating everyone in our residential network with mutual respect, combining best-in-class technology with a human-centered approach, we can foster a feeling of belonging that attracts the kind of people you want to live in your home. 

Approach #1: Conduct your own tenant screening

If you want to go it alone and manage your own rental applications, you will need to conduct a series of necessary checks manually and with a bit of help from some screening services. You should also brush up on Fair Housing Laws to ensure your ads and questions don't discriminate against any potential applicants.

Your tenant screening process should examine the following:

Financial stability/ability to service the asking rent

References from employees and previous landlords or property managers

Tenant identify and past experiences in the rental market can be verified using online tenant screening services including:

Don’t forget to ask for and contact references to verify any information received and be on the lookout for any accidental or willful omissions/deceit.

Approach #2: Hire a tenant screening service to manage the process

If you want to manage part of the process yourself but need some help, you can enlist the help of a tenant screening service that will provide you with a background check and necessary reports for review. 

Background checks, criminal record and credit rating checks are typically covered by tenant screening services. Keep in mind that these checks are just the basics of tenant screening to rule out financial red flags. The rest of the process still needs to be performed by you or your property manager.

To help you do the best screening, you’ll want a service that offers a these 5 services:

1. Consumer credit report (from any of Experian, Equifax or Transunion)

Here are a few tenant screening services to consider:

Approach #3: Hire a property manager to manage applicants and tenant screening

A run-down on what 1031 Exchange Rules mean to landlords and homeowners considering putting their home on the rental market.

What Landlords Should Know About 1031 Exchange Rules

If you own an investment property and are considering selling, it's time to get up to speed with a tax benefit known as a 1031 exchange. A 1031 exchange (sometimes called a "like-kind" exchange) will allow the homeowner to defer paying capital gains tax on the sale of an investment property, as long as the proceeds from the sale are reinvested into a similar home (of equal or greater value, within a certain timeframe). 

What is the advantage of a 1031 exchange?

If you own an investment property that has appreciated in value, you will pay capital gains tax on the sale. The advantage of a 1031 exchange is that it lets you defer capital gains tax, so you have more net cash to invest in a replacement property.

Owners of rental homes use a 1031 exchange for a number of reasons, including:

Buying a property that promises to offer a better rental return;

When selling an investment home, owners have 45 days to identify a replacement property for the sold asset. You're given 180 days in total to complete the 1031 exchange (inclusive of the time you took to identify the replacement). 

You must also satisfy one of the following requirements: 

1. The Three-Property Rule lets you identify three properties as potential purchases regardless of their market value;

2. The 200% Rule allows you to identify unlimited replacement properties, provided the properties’ cumulative value doesn’t exceed 200% of the value of the property sold; or

3. The 95% Rule permits a homeowner to identify as many properties as they like, provided the homeowner acquires properties valued at 95% of their total or more.


The identification must be in writing, signed by the taxpayer, and delivered to the replacement property seller. It’s customary for the identification to be delivered to the qualified intermediary, but a written statement in a contract to purchase the replacement property stating that the buyer is identifying the subject property as his replacement meets the requirements. Note that there’s no licensing or other formal eligibility for intermediaries. However, the tax code disqualifies anyone who’s acted as a taxpayer’s agent and those who are related. The term “agent” includes accountants, attorneys, and realtors who’ve worked on behalf of the taxpayer in the last two years.

There are also a few other requirements to keep in mind:

The proceeds received from the sale of properties must be used to buy the new properties

An intermediary is required to hold all the cash from the sales in escrow, in a segregated account, until it’s used for the new purchases; and

You don’t pay taxes on the recapture of depreciation, but your depreciation schedule doesn’t start over. We will explain that below.

Based on the current tax code, you can make as many exchanges as you want; but when the property is finally sold and the proceeds aren’t reinvested in a new property, any capital gains and depreciation recapture tax liability kick in.

Depreciation is the percentage of the cost of an investment property that’s declared as an expense, such as the effects of wear and tear on the home. Expenditures of that kind can be claimed as a tax deduction when they occur.

When a property is sold, any capital gains taxes are determined based on the property’s net-adjusted value, which is the property’s original purchase price, plus any capital improvements, minus depreciation. 

If an investment property is sold for more than its depreciated value, a homeowner may be required to “recapture” the depreciation, which means the amount of depreciation will be included in his or her taxable income from the eventual sale of the property.

The rules for 1031 exchanges state that properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. In general, real estate properties are like-kind properties, no matter if they’ve been improved or not. But note that property in the United States and property outside the U.S. aren't like-kind properties.

The IRS states that if you make a like-kind exchange, you aren’t required to recognize a gain or loss under Internal Revenue Code Section 1031. However, if as part of the exchange, the owner also receives other (not like-kind) property or money, that not like-kind portion of the transaction must be reported to the IRS as a gain when measured against the other property and money received (The IRS says that a homeowner can’t recognize a loss.).

For homeowners to receive the full benefit of a 1031 exchange, the replacement property must be of equal or greater value.

Are there different kinds of like-kind exchanges?

Yes. There are three types of 1031 exchanges that vary by their timing and other details. Each has its own requirements and procedures:

1031 exchanges that are carried out within 180 days get this name because in the past, exchanges had to be performed simultaneously.  In a delayed exchange, the homeowner relinquishes property before he acquires a new property. The “relinquished” property is transferred first, and the property the homeowner wants to purchase is acquired second.

This type of 1031 exchange permits the replacement property to be renovated or newly constructed. Note that because these exchanges are still subject to the 180-day rule,  all improvements and construction on the exchanged property must be completed by the time the transaction is executed.

If a homeowner makes any improvements after this point, they won’t qualify as part of the exchange.

A run-down on what landlords should know about 1031 Exchange Rules and what it means for homeowners looking to put their home on the rental market.

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