March 2025 Newsletter

Dear Residents and Property Owners,

Welcome to our March edition! This month, we’re highlighting the Second Nature Resident Benefits Package, a convenient and valuable service available to our residents. We’re also covering an important topic for property owners: capital improvements vs. repair expenses and how depreciation impacts rental properties.

Resident Benefits Package (RBP) – Enhancing Your Rental Experience

We’re excited to provide our residents with the Second Nature Resident Benefits Package, offering value-driven services that help improve convenience and savings.

Key Features of the Resident Benefits Package:

✔ HVAC Filter Delivery Service

Regularly delivered high-quality air filters help keep your HVAC system running efficiently.

Benefits: Cleaner air, extended lifespan of HVAC systems, and lower utility costs.

✔ Resident Rewards Program

Residents can earn rewards for on-time rent payments and enjoy discounts on everyday purchases from local and national retailers.

Benefits: Access to exclusive cash-back rewards and promotions.

✔ Credit Building

On-time rent payments are reported to major credit bureaus, helping residents establish and improve their credit scores.

Benefits: Strengthens credit history, potentially improving future financing opportunities.

✔ Resident Portal Access

A user-friendly online portal for paying rent, submitting maintenance requests, and receiving important property updates.

Benefits: A seamless and efficient rental management experience.

This package is designed to improve residents’ quality of life and provide valuable financial benefits. If you have any questions about the Resident Benefits Package or wish to enroll, please reach out to our team.

Capital Improvements vs. Repairs – What Property Owners Should Know

Understanding what qualifies as a capital improvement versus a repair expense can help property owners maximize tax benefits and maintain their rental investment strategically.

What Are Capital Improvements?

A capital improvement adds value to a property, prolongs its life, or adapts it for a new use. These are not immediately deductible but must be depreciated over time. Examples include:

🔹 New Roof Installation – Replacing an old or damaged roof ($15,000 – $30,000 in Monterey County).

🔹 Kitchen Remodel – Upgrading cabinets, countertops, and appliances ($25,000 – $50,000).

🔹 HVAC System Replacement – Installing a new central air system ($8,000 – $20,000).

🔹 Solar Panel Installation – Adding solar energy systems ($12,000 – $30,000, but eligible for tax credits).

🔹 New Windows & Insulation – Improving energy efficiency ($10,000 – $25,000).

💡 Important: Cosmetic repairs (like repainting or replacing a broken appliance) do not qualify as capital improvements. They are considered repair expenses and can usually be deducted in the tax year they occur.

How Depreciation Works for Rental Properties

Depreciation allows property owners to recover the cost of their rental investment over time, reducing taxable income each year.

Key Depreciation Rules for California Rental Properties:

📌 Depreciation Period:

Residential properties are depreciated over 27.5 years under the Modified Accelerated Cost Recovery System (MACRS).

📌 Example for Monterey County:

A rental home purchased for $1,000,000 (excluding land value) could be depreciated at $36,363 per year ($1,000,000 ÷ 27.5).

📌 Depreciable Costs Include:

Purchase Price (excluding land value)

Capital Improvements (renovations, major upgrades, structural additions)

📌 Depreciation Recapture at Sale:

When selling the property, any depreciation claimed may be subject to recapture taxes at 25% federal + California state rates.

One way to defer recapture taxes is by utilizing a 1031 exchange, allowing you to reinvest proceeds into another rental property tax-deferred.

💡 Pro Tip: Always keep detailed records of capital improvements and depreciation schedules for tax purposes. Consult a CPA or tax professional to maximize deductions and avoid common mistakes.

Need More Information?

If you have questions about capital improvements, depreciation, or how these topics impact your rental investments, please feel free to reach out. We’re always here to help our property owners and residents make informed decisions.

Thank you for being part of Pacific Grove Property Management!

Best regards,

Pacific Grove Property Management

📍 650 Lighthouse Avenue Suite 105, Pacific Grove, CA 93950