Guides from McKee Properties
Federal and California taxes on a rental home, explained
How rental income is taxed, what you can deduct and depreciate, what happens when you sell, and the California rules that differ from federal law, including withholding for owners who live out of state. Every rule was checked against IRS, FTB and Board of Equalization sources on October 19, 2026.
Run your numbers with the rental cash flow calculator. Military owners, see the Military Rental Guide. Coronado owners, see taxes on a Coronado rental.
Income and deductions
Schedule E for Rental Property: A Line-by-Line Walkthrough
How Schedule E works for a rental home on 2025 returns: the income and expense lines, fair rental and personal use days, the 14-day rule and Form 4562.
What Counts as Rental Income: Advance Rent, Deposits and Tenant-Paid Expenses
Which payments are rental income under IRS Pub 527: advance rent, security deposits you keep, lease cancellation fees, tenant-paid bills, services and 1099s.
Repairs vs. Improvements on a Rental: How the IRS Draws the Line
How the IRS splits rental repairs from improvements: betterment, restoration and adaptation, plus de minimis, routine maintenance and small taxpayer rules.
1099 Forms for Landlords: What You Send and What You Receive
1099 rules for rental owners: the $600 threshold for 2025 payments, $2,000 for 2026, the trade-or-business test, W-9s, 1099-MISC from managers and 1099-K.
Depreciation and losses
Rental Property Depreciation: 27.5 Years, Basis and Land
How rental depreciation works: the 27.5-year period, what goes into basis, why land is excluded, converted homes, mid-month timing and allowed or allowable.
Bonus Depreciation and Cost Segregation for Rental Owners
How 100% bonus depreciation under section 168(k) applies to rentals after the 2025 law, what qualifies, Section 179 limits, cost segregation and California.
Passive Loss Rules for Rental Property: The $25,000 Allowance
How passive loss rules limit rental losses: the $25,000 allowance, its phase-out, active participation, suspended losses and real estate professionals.
The QBI Deduction (Section 199A) and Rental Property
When rental income qualifies for the 20% QBI deduction under Section 199A, the Rev. Proc. 2019-38 safe harbor, 2025 and 2026 thresholds, and California rules.
Selling and exchanging
Selling a Rental Property: Depreciation Recapture and Capital Gains
Taxes on selling a rental: figuring gain, unrecaptured Section 1250 gain up to 25%, 2025 and 2026 capital gain brackets, the 3.8% NIIT and California rules.
Selling a Former Home You Rented Out: The Section 121 Rules
How the Section 121 home sale exclusion works after renting: the 2-of-5-year test, nonqualified use and its exceptions, depreciation, and the military rule.
1031 Exchanges for California Rental Owners
How a 1031 exchange works for a California rental: real property only, the 45 and 180 day deadlines, intermediaries, boot, Form 8824 and the FTB 3840 filing.
California Real Estate Withholding When You Sell a Rental (Form 593)
California withholding on a rental sale: 3 1/3% of the price or an alternative gain amount, Form 593 exemptions, the home rule and claiming the credit.
California rules
California vs. Federal Tax Rules for Rental Property
Where California and federal rules split for rental owners: bonus depreciation, Section 179, QBI, passive losses, capital gains, 1031s and withholding.
Out-of-State Owners: California's 7% Withholding on Rent
Live outside California? How the 7% withholding on rent paid through a property manager works: the $1,500 rule, Forms 592, 592-B, 590 and 588, and 540NR.
California Property Tax on Rental Homes: Prop 13, Reassessment and Exemptions
How California property tax works on a rental home: the 1% levy, the 2% cap, base year value, what triggers reassessment, supplemental bills and due dates.
Inheriting a Rental Property in California: Prop 19 and Stepped-Up Basis
Inherited a California rental? How the Section 1014 stepped-up basis works, community property rules, why Prop 19 reassesses a rental, and filing deadlines.
Should You Hold a California Rental in an LLC? Taxes and Reassessment
What a California rental LLC costs in tax: the $800 annual tax, the LLC fee tiers, Form 568, and when deeding the home to an LLC triggers reassessment.
These guides are general information, not tax or legal advice. Tax rules change and depend on your facts; talk to a CPA or enrolled agent before acting.
