Calculate Depreciation on Rental New Tax Laws in Florida

Unlock Hidden Profits: How to Calculate Depreciation on a Rental Property with the New Tax Laws (A Florida Investor’s Blueprint for 2025)

MIAMI, FL – JULY 12, 2025: For real estate investors across Florida – from the sun-drenched shores of Miami and the family-friendly communities of Orlando to the vibrant Gulf Coast cities like Tampa and Sarasota – understanding every nuance of your investment’s financial performance is key to long-term success. Beyond rental income and property appreciation, one of the most powerful yet often misunderstood tools in your financial arsenal is depreciation. With the enduring effects of President Trump’s “Big Beautiful Bill” – more formally known as the Tax Cuts and Jobs Act (TCJA) of 2017 – the landscape for calculating depreciation on rental properties has continued to evolve. This comprehensive guide will equip you with the knowledge to maximize your tax benefits and accelerate your portfolio growth right here in the Sunshine State.

Calculate Depreciation on Rental New Tax Laws in Florida:

The Power of Depreciation: Your Non-Cash Deduction Advantage

Depreciation, in the world of real estate, isn’t about your property physically decaying. Instead, it’s an accounting method sanctioned by the IRS that allows you to deduct a portion of the cost of your rental property each year, reflecting its “wear and tear” and obsolescence over time. This non-cash deduction can significantly reduce your taxable income, effectively putting more money back into your pocket to reinvest, improve properties, or build your reserves.

Before the TCJA, depreciation was already a cornerstone of real estate investment. However, the “Big Beautiful Bill” brought about key changes that impact how much and how quickly you can depreciate certain assets, particularly regarding qualified improvement property and bonus depreciation.

Understanding the Basics of Rental Property Depreciation in 2025

For residential rental properties, the IRS generally requires you to depreciate the cost of the building (not the land, as land does not “wear out”) over 27.5 years using the Straight-Line Depreciation method under the General Depreciation System (GDS). This means you can deduct 3.636% of the building’s depreciable basis each year.

Here’s a step-by-step guide to calculating depreciation on your Florida rental property:

1. Determine Your Property’s Basis:This is your starting point. Your basis is generally the cost you paid for the property, plus any closing costs that aren’t deductible (like legal fees, title insurance, and recording fees) and the cost of any capital improvements you’ve made. It’s crucial to distinguish between capital improvements (which add value, extend the life, or adapt the property for new uses) and repairs (which maintain the property and are immediately deductible).Example: You purchase a rental duplex in Orlando (zip code 32801, near downtown’s growing urban core) for $400,000. Closing costs that add to your basis are $10,000. Your total initial basis is $410,000.
2. Allocate Value Between Land and Building:As mentioned, you can only depreciate the building, not the land. You’ll need to allocate your total property basis between the land and the building. This can be done using the property tax assessment values (which typically provide separate land and building valuations) or through a professional appraisal. The IRS doesn’t specify a single method, but it must be reasonable.Example continued: The county tax assessor for your Orlando duplex values the land at $70,000 and the building at $330,000. Your building’s depreciable basis is $330,000.
3. Determine the Placed-in-Service Date:Depreciation begins when the property is “placed in service” – meaning it’s ready and available for use as a rental, even if you haven’t secured a tenant yet.
4. Calculate Annual Depreciation:Divide the depreciable basis of the building by 27.5 years (for residential rental property).Example continued: $330,000 (depreciable building basis) / 27.5 years = $12,000 annual depreciation.This means you can deduct $12,000 from your taxable income each year for 27.5 years. Imagine the tax savings over nearly three decades!

The TCJA’s Impact: Bonus Depreciation and Section 179

President Trump’s “Big Beautiful Bill” aimed to stimulate business investment, and while its primary focus wasn’t directly on residential rental property structures, it significantly impacted other aspects of depreciation for real estate investors:

• Bonus Depreciation: The TCJA dramatically expanded bonus depreciation, allowing businesses to immediately deduct a larger percentage of the cost of qualifying new and used property. For property placed in service after September 27, 2017, and before January 1, 2023, 100% bonus depreciation was allowed. However, it began to phase down in 2023 (80%), then 2024 (60%), and for 2025, it is 40%. For 2026, it will be 20%, and then zero for 2027 and beyond.Crucially, this bonus depreciation primarily applies to personal property within your rental (e.g., appliances, furniture in a furnished short-term rental) and qualified improvement property (QIP).
  • Qualified Improvement Property (QIP): This refers to improvements made to the interior of nonresidential real property after it was first placed in service. Due to a legislative oversight (the “retail glitch”), QIP was initially excluded from 15-year recovery periods and thus bonus depreciation. A subsequent fix, the CARES Act, retroactively corrected this oversight. This means that some improvements to existing rental properties might now qualify for accelerated depreciation, depending on the specific nature of the improvement and its classification. Always consult with a tax professional.
• Section 179 Deduction: The TCJA significantly increased the maximum Section 179 deduction and the phase-out threshold. For 2025, the maximum Section 179 deduction is projected to be around $1,220,000, with a phase-out threshold of approximately $3,050,000. This deduction allows you to expense the full cost of certain depreciable property in the year it’s placed in service, rather than depreciating it over time.
  • Expanded Definition: The TCJA also expanded the definition of Section 179 property to include certain improvements to nonresidential real property, such as roofs, HVAC, fire protection, alarm systems, and security systems. This is a huge benefit for investors upgrading existing Florida properties, from historic homes in St. Petersburg (zip code 33701, for single-family rentals) to commercial spaces in Jacksonville (zip code 32202, for downtown revitalization projects), as these specific improvements might be fully deductible in the year they’re incurred, provided you meet the limits and actively participate in the rental activity.

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Cost Segregation Studies: Unlocking Accelerated Depreciation

For Florida investors looking to maximize their depreciation deductions, especially on newer acquisitions or recently renovated properties, a cost segregation study is a highly valuable tool. This specialized tax strategy involves a detailed analysis of your property’s components, reclassifying certain elements that would typically be depreciated over 27.5 years (or 39 years for commercial) into shorter depreciation periods (5, 7, or 15 years).

For instance, items like landscaping, parking lots, certain electrical systems, specialized plumbing, and even specific types of cabinetry or flooring might be reclassified as personal property or land improvements, allowing for significantly faster depreciation write-offs. This can generate substantial tax savings in the early years of ownership, boosting your cash flow. Imagine accelerating deductions on a brand-new short-term rental in Kissimmee (zip code 34747, near theme parks), where fixtures and furnishings are a major component.

Financing Your Next Smart Move: GHC Funding – Your Florida Advantage

Understanding depreciation is powerful, but transforming those insights into tangible wealth requires the right financial partners. Whether you’re looking to acquire new properties to capitalize on these tax benefits, refinance existing assets, or simply need flexible capital, GHC Funding is uniquely positioned to serve Florida real estate investors. We understand the nuanced market dynamics from the Gold Coast to the Panhandle and offer specialized loan products designed for today’s savvy investor, often sidestepping the traditional lender hurdles.

Why GHC Funding is the Preferred Lender for Florida Investors in 2025:

• DSCR Loans (Debt Service Coverage Ratio): Ideal for investors focused on cash-flowing rental properties in high-demand Florida markets like Fort Lauderdale (zip code 33301, for multi-family units) or Naples (zip code 34102, for luxury vacation rentals). DSCR loans qualify based on the property’s income-generating potential, not your personal income, making them perfect for scaling your portfolio without traditional W-2 or tax return verification.
  • Current Rates (as of July 12, 2025): DSCR loan rates in Florida typically range from 6.75% to 8.50%. Factors influencing your specific rate include the property’s DSCR (a higher ratio, often 1.25x or greater, typically leads to better rates), Loan-to-Value (LTV), your credit score (generally 660+ preferred), and the property type (SFR, multi-family, short-term rental, mixed-use).
  • Requirements: Minimum DSCR generally 0.75x-1.25x+. LTVs typically up to 75-80% for purchases (refinances may vary). No personal income verification (no W-2s, pay stubs, or tax returns required). Borrower entities (LLCs, corporations) are preferred. Most residential investment property types are accepted, including 1-4 unit properties, condos, and even some short-term rentals.
• SBA 7a Loans & SBA 504 Loans: If you’re acquiring real estate for your operating business in Florida – perhaps a warehouse in Lakeland (zip code 33801, a growing logistics hub) or an office building in Boca Raton (zip code 33431, for professional services) – SBA loans offer competitive terms with lower down payments and longer repayment schedules, ideal for owner-occupied commercial real estate.
• Bridge Loans: Need to close quickly on a hot deal in Sarasota (zip code 34236, for waterfront properties) before your existing property sells? Our Bridge Loans provide rapid, short-term capital, allowing you to make competitive, non-contingent offers and secure lucrative opportunities.
• Alternative Real Estate Financing: We specialize in flexible solutions for unique investor profiles, including those with substantial assets but non-traditional income streams. Our underwriting is adaptive to the modern investor.

At GHC Funding, our flexible underwriting, in-depth understanding of the Florida market, and commitment to a streamlined, efficient process empower investors to make smart, swift decisions.

Visit GHC Funding at www.ghcfunding.com to discover how we can fuel your investment success!

Current Florida Real Estate Market Insights (July 2025)

The Florida real estate market remains a dynamic landscape for investors. As of July 2025, median home prices across Florida are showing some stabilization after rapid appreciation, with some areas experiencing slight corrections while others continue to see strong demand.

• Median Sale Price (Florida, May 2025): Approximately $412,400 (Source: Redfin).
• Average Rental Rates (Florida, June 2025): Approximately $2,069 (Source: Zillow).

Key trends for Florida investors to note:

• Population Growth: Florida continues to experience significant inbound migration, driving sustained demand for both rental housing and property purchases, particularly in metropolitan areas like Tampa (zip code 33602, for urban core apartments) and Cape Coral (zip code 33904, for single-family and vacation homes).
• Interest Rate Environment: While the Federal Reserve’s actions continue to influence the broader rate environment, commercial and investment property loan rates for DSCR products are reflecting current market conditions. Investors should be prepared for rates that are higher than historical lows but still competitive given the non-QM nature of these loans.
• Insurance Costs: Florida investors must factor in increasing property insurance costs, particularly for properties in coastal areas or those susceptible to severe weather events. This can impact your property’s overall cash flow and DSCR calculation.
• Investment Niches: Opportunities abound in specific niches, from short-term rentals (Airbnbs) in tourist hotspots like Orlando (zip code 32819, near Disney) and Panama City Beach (zip code 32413, for beach rentals) to workforce housing in rapidly expanding industrial zones.

Q&A Section: Calculate Depreciation on Rental in Florida

External Resources for Florida Real Estate Investors

1. Florida Department of Business and Professional Regulation (DBPR) – Real Estate: https://www.myfloridalicense.com/real-estate-commission/ – The official state resource for real estate licensing, regulations, and consumer information in Florida.
2. Florida Realtors: https://www.floridarealtors.org/ – Provides market data, legal resources, and industry insights for real estate professionals and investors across Florida.
3. REIClub – Florida Real Estate Clubs: https://reiclub.com/real-estate-clubs/florida/ – A comprehensive directory of local real estate investor associations (REIAs) throughout Florida, ideal for networking and localized market intelligence (e.g., Central Florida Realty Investors Association, Tampa Bay Real Estate Investors Association).
4. Zillow Florida Housing Market: https://www.zillow.com/home-values/14/fl/ – Offers up-to-date market data, home values, and rental trends across various Florida cities and zip codes.
5. IRS Publication 527 (Residential Rental Property): https://www.irs.gov/forms-pubs/about-publication-527 – The official IRS guide providing detailed instructions on reporting rental income, deductions, and depreciation.

Conclusion: Empower Your Florida Real Estate Journey

Depreciation is a powerful, yet often underutilized, tool for real estate investors in Florida. By understanding the core calculations and leveraging the opportunities presented by the TCJA – especially regarding bonus depreciation and Section 179 deductions for qualified improvements – you can significantly reduce your taxable income, enhance your cash flow, and accelerate your wealth creation.

Don’t leave money on the table. Empower yourself with knowledge and partner with a lender that understands your unique needs.

Ready to optimize your investment strategy and unlock the full potential of your Florida real estate portfolio? Contact GHC Funding today for a personalized consultation or visit www.ghcfunding.com to explore our flexible financing solutions!

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