Cheatsheet: Advanced Finance

1031 Exchange — Key Deadlines

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1031 Like-Kind Rules

Real property for real property = like-kind (broad definition)

Investment/business use ONLY — no primary residence, no flip inventory

Same taxpayer must sell and buy

CA clawback: if CA property exchanged for out-of-state, CA taxes deferred gain when replacement is sold

1031 Identification Methods

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Proposition 19 (Effective Feb 16, 2021)

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AB 1482 Rent Cap Formula

``Max Increase = Lesser of: 5% + Local CPI (April-to-April) OR 10% (absolute ceiling)`

Covered: Multi-unit buildings ≥15 years old (rolling)

Exempt: SFH (individual owner), condos (individual owner), post-Feb 1995, owner-occupied duplex, gov't subsidized

No-fault eviction relocation assistance: 1 month's rent required

Just cause required for covered units — at-fault (nonpayment, breach, nuisance) or no-fault (owner move-in, Ellis Act, demolition, substantial rehab)

`AB 12 — Security Deposit Cap (Effective July 1, 2024)`


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`Investment Analysis Formulas`

`NOI = EGI − Operating Expenses EGI = GSI × (1 − Vacancy Rate) Cap Rate = NOI ÷ Value Value = NOI ÷ Cap Rate GRM = Price ÷ Annual Gross Rent Cash-on-Cash = Annual Cash Flow ÷ Cash Invested Annual Cash Flow = NOI − Annual Debt Service DSCR = NOI ÷ Annual Debt Service (lenders require ≥ 1.25) Annual Depreciation = (Price − Land Value) ÷ 27.5 (residential) Annual Depreciation = (Price − Land Value) ÷ 39 (commercial)``

Leverage Rules

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Depreciation Quick Facts

Residential income property: 27.5 years straight-line

Commercial property: 39 years straight-line

Land: not depreciable

Depreciation recapture on sale: 25% tax rate (Section 1250 gain)

1031 exchange defers depreciation recapture along with capital gains

Step-up in basis at death: heirs get FMV basis → all deferred gain/recapture eliminated

Key Investment Benchmarks

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Identify replacement property in writing	Day 45 from close of relinquished property
Event	Deadline
Close on replacement property	Day 180 from close of relinquished property
Periods run	Concurrently (Day 1 starts both clocks)
Proceeds held by	Qualified Intermediary (QI) — exchanger cannot touch funds
Boot	Taxable in year received (cash + mortgage reduction)
Method	Rule
3-Property Rule	Up to 3 properties, any value
200% Rule	Any number of properties, total FMV ≤ 200% of relinquished FMV
95% Rule	Any number, but must acquire 95% of total identified value
Scenario	Rule
Parent-child transfer: primary residence	Excluded from reassessment up to $1M above parent's assessed value; child must occupy within 1 year
Parent-child transfer: vacation home, rental, commercial	FULLY REASSESSED — no exclusion
Grandparent-grandchild	Same as parent-child; only if both parents are deceased
55+ portability	Transfer base year value to any CA replacement home; up to 3 times lifetime; any value; any county
55+ upward adjustment	New AV = Old AV + (Replacement FMV − Sale Price)
Landlord Type	Max Deposit
Most landlords	1 month's rent
Small landlord (≤2 properties, ≤4 units)	2 months' rent
Return deadline	21 days with itemized statement
Condition	Effect
Cap rate > mortgage rate	Positive leverage — cash-on-cash > cap rate
Cap rate < mortgage rate	Negative leverage — cash-on-cash < cap rate
Metric	Typical Range
Residential vacancy assumption	5–7%
Residential operating expense ratio	35–45%
DSCR minimum (lenders)	1.25
Depreciation recapture tax rate	25%
Long-term capital gains rate (federal, high earners)	20%
CA capital gains rate (ordinary income)	Up to 13.3%

Advanced Finance

Cheatsheet: Advanced Finance

1031 Exchange — Key Deadlines

1031 Like-Kind Rules

1031 Identification Methods

Proposition 19 (Effective Feb 16, 2021)

AB 1482 Rent Cap Formula

`AB 12 — Security Deposit Cap (Effective July 1, 2024)`

`Investment Analysis Formulas`

Leverage Rules

Depreciation Quick Facts

Key Investment Benchmarks

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