Property Decisions
What Rental Property Owners Need to Know About Recent Legal and Legislative Changes
Eviction law, short-term rental rules, and federal tax provisions have all moved. Here is what to know and what to review.
By Rich Arzaga, CFP®, CCIM
The Real Estate Whisperer® Financial Planning
| 6 min read
Rental property owners face a changed regulatory landscape. Many states and cities have enacted new eviction frameworks, short-term rental restrictions, rent stabilization measures, and landlord disclosure requirements. At the federal level, proposed changes to the tax treatment of carried interest, passive activity rules, and 1031 exchange eligibility have created planning uncertainty for larger portfolio holders.
I make it a point to monitor legislative and regulatory changes that affect real estate investors, because the rules of the game are not static. Over the past two years I have observed a meaningful shift in the regulatory environment for landlords, particularly at the local and state level, plus several proposed federal changes that would alter important planning strategies if enacted.
Local and state regulatory trends
The most significant operational changes for most landlords are happening at the local level. Many cities have extended tenant protections: longer notice requirements for rent increases, expanded just-cause eviction requirements, and right-to-return provisions for displaced tenants.
Short-term rental regulations have tightened significantly in many markets. Cities from New York to Palm Springs have imposed registration requirements, owner-occupancy mandates, and night caps on short-term rentals. Investors who built portfolios around short-term rental income in these markets need to understand their current legal standing.
If you're running short-term rentals, your local regulatory environment may have changed materially in the past two years. Verify your current legal status before your next booking.
Federal tax provisions to monitor
The SECURE 2.0 Act's changes to retirement accounts, including Roth 401(k) required minimum distribution elimination, have planning implications for real estate investors who are also optimizing retirement income. Separately, ongoing discussions in Congress about potential changes to 1031 exchange rules, particularly for high-income taxpayers, have not materialized into law as of this writing but remain worth monitoring.
Bonus depreciation phase-down under the 2017 Tax Cuts and Jobs Act has already reduced available first-year deductions from 100% in 2022 to lower percentages in subsequent years. Cost segregation studies remain valuable, but the full immediate expensing benefit is diminishing on schedule.
Bonus depreciation phase-down is not a future risk. It is already happening. If cost segregation is part of your strategy, model the numbers at current rates, not 2022 rates.
What to review now
- Review lease templates against current state and local landlord-tenant law
- Verify registration and operating requirements for any short-term rentals
- Model cost segregation with your CPA at current bonus depreciation rates
- Keep watching proposed 1031 exchange legislation if deferral is part of your exit plan
Frequently Asked Questions
- Have tenant protection laws changed recently for landlords?
- Yes, significantly in many markets. States and cities have enacted extended notice requirements for rent increases, expanded just-cause eviction protections, and new landlord disclosure requirements. Review your current lease templates and operating practices against the specific requirements in your market.
- Are short-term rental regulations getting stricter?
- In many markets, yes. Cities have imposed registration requirements, owner-occupancy mandates, night caps, and in some cases outright bans on short-term rentals in certain zones. Investors with Airbnb or VRBO income should verify their current legal standing in each market they operate.
- What is happening to bonus depreciation for rental property?
- Bonus depreciation, which allowed 100% first-year expensing of qualifying personal property in 2022, is being phased down under the 2017 Tax Cuts and Jobs Act. The percentage decreases each year. Consult your CPA for the current rate and whether a cost segregation study remains cost-effective at today's levels.
- Are 1031 exchange rules changing?
- As of this writing, 1031 exchange rules for real property remain intact at the federal level. However, proposed changes, including caps or limits for high-income taxpayers, have been discussed in various legislative proposals. This provision is worth monitoring if 1031 exchange deferral is part of your long-term exit planning.
About Rich Arzaga, CFP®, CCIM
Rich Arzaga is the founder of The Real Estate Whisperer® Financial Planning and creator of The Real Estate Income Lab® and The 5% Real Estate Performance Gap®. He provides comprehensive, flat-fee financial advice that brings investment real estate together with retirement, investments, taxes, insurance, estate planning and the rest of a client's financial life.
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