Property

A property is a home or rental, either Currently Owned or a Future Purchase. A property with rental details is a rental. One without them is a primary residence. There is no separate setting, and a property keeps that role for its whole life in the plan. Property costs and mortgage payments are paid in full every year, outside the spending budget (variable spending). Property value counts toward net worth but never toward invested assets or spendable wealth. FinZot never sells property to cover a shortfall.

Valuation

An owned property has a Current Market Value, a Current Assessed Value for property tax, and an Original Purchase Price for the gain on sale. A future purchase has an Estimated Purchase Price in today’s dollars and a Future Purchase Date. Purchases and sales are dated to a month. One that falls in the month of a mid-year plan start counts as happening after it (plan start date).

Value grows with inflation by default. You can set an Appreciation Rate Above Inflation.

The assessed value rises with inflation from the plan start, capped where FinZot models the property’s own state’s cap on a parcel’s assessment: 2% a year in California under Proposition 13, and in Florida 3% a year on a personal residence under Save Our Homes or 10% a year on anything else, including every rental. DC caps a personal residence at 10% a year and leaves a rental uncapped. Elsewhere the assessment tracks inflation. The assessed value never resets to the market value.

FinZot simplifies these caps in four ways. Every personal-use property in Florida or DC is treated as the owner’s homestead. A Florida second home therefore takes the 3% cap rather than the 10% one, and a DC second home is capped where DC would not cap it. Florida’s 10% cap is applied to the whole bill, where the statute exempts school district levies from it. DC’s lower 2% cap for seniors on its senior relief is not modeled. Other states’ caps are not modeled either, such as Texas’s 10% homestead cap, Michigan’s Proposition A and Oregon’s Measure 50.

A property has no owner. It belongs to the household rather than to either person.

Mortgages

A property can carry a mortgage. An existing mortgage is described by its current balance, interest rate, and monthly payment for principal and interest only, with no escrow or fees. FinZot solves the remaining term from those three. A new mortgage on a future purchase is described by the Down Payment, rate, and Term. FinZot derives the payment with the standard amortization formula at the monthly rate, so it matches a lender’s quote. Interest accrues monthly and the payment is made monthly, as it does on any other loan (debt). The mortgage’s final year pays only the months the loan is outstanding.

• Interest-Only Period. Months during which payments cover interest only, after which the loan amortizes.
• Adjustable-rate mortgage. A Fixed period in months, then resets at an Adjustment period, with caps on the first reset, per reset, and lifetime, and a lifetime floor. At each reset the new rate is the year’s inflation plus the loan’s spread over inflation, held within the caps and above the floor, and the payment is recomputed. The new rate takes effect in the month of the reset. A reset partway through a year charges the old rate up to that month and the new rate after it.

Mortgage interest is deductible when you itemize, subject to the loan limits (income taxes). Extra principal payments come from the Extra Cash Allocation Order: a Pay Down Debt entry keeps the payment and shortens the term, and a Recast a Loan entry pays a lump sum once and lowers the payment (debt).

Recurring costs

• Annual Property Tax Rate, as a percent of assessed value. Counts toward the state and local tax deduction, and toward your state’s itemized deduction where the state allows it (income taxes).
• Annual Insurance Expense and Annual Maintenance Expense, each a fixed amount or a percent of property value.
• Custom Property Expenses, each a fixed or inflation-adjusted amount or a percent of value. A recurring expense has the same timing as any other expense (milestones and timing), with two extra anchors: the property’s own Purchase and Sale. By default it runs from purchase to sale. It can also recur every few years or a set number of times. Whatever the timing, it is only paid while you own the property. On a rental it can be a Deductible Operating Expense. A capital improvement is a one-time cost placed in service on the date its timing starts, and it is depreciated.

Rentals

A rental property has gross rental income, an optional Property Management Fee as a percent of gross rent, and the recurring costs above. Net rental income is ordinary income. A rental can be marked eligible for the QBI deduction where it rises to a trade or business.

A net rental loss, after depreciation, follows the passive activity loss rules (IRC §469). The Passive loss treatment decides how:

• Active participation, the default. Up to $25,000 of net rental loss a year is deducted against other income. The allowance phases out between $100,000 and $150,000 of MAGI, measured before passive losses, taxable Social Security, the IRA deduction and student loan interest. The rest of the loss is suspended.
• Passive. Every loss is suspended.
• Non-passive. For a real estate professional who materially participates: the loss is deducted in full.

A suspended loss is carried per property. It is released against later net income from the rentals, and in full in the year the property is sold. For a rental you already own, enter the unallowed loss from your last Form 8582 as the Suspended loss carryforward so the plan starts where your return left off. Not modeled: the married-filing-separately halving of the allowance, netting a sold property’s release against other rentals’ income before it reaches other income, treating the gain on sale as passive income that could absorb another rental’s suspended loss, the net investment income exclusion for a non-passive rental, whose income and loss still count, and the QBI deduction, which nets the rental loss in the year it is booked even when §469 suspends it.

Gross rent is a fixed amount, a phased schedule, a custom variable, or a percent of the property’s current market value. A fixed amount is entered in today’s dollars and follows inflation plus whatever growth rate you set. A percentage instead re-reads the appreciating value each year, which holds the rental yield constant and grows rent at the appreciation rate — above inflation wherever you set Appreciation Rate Above Inflation above zero. The percentage ignores the inflation and growth settings, since the value it reads already carries both.

The building is depreciated over the IRS schedule, Residential at 27.5 years or Commercial at 39 years, from the year of purchase. The Land percentage, 20% by default, is not depreciated. A capital improvement you add is depreciated from its own Placed in Service Year. Depreciation reduces taxable rental income each year and is recaptured on sale at up to 25%.

Selling

Check Plan to sell this property and set the date.

Selling Cost covers the broker commission, transfer taxes and closing costs, entered as a percent of the sale price or a fixed amount. It defaults to 6% of the sale price. It comes off the proceeds and off the amount the gain is measured against, so it lowers the tax as well as the cash. Set it to 0% for a sale that costs nothing. A cost larger than the sale price is charged only up to the sale price, leaving no proceeds rather than a negative number.

The mortgage is then paid off from what is left, and the rest is cash the plan can spend that year. In the cash flow view the sale arrives at its full price, with the selling cost and the mortgage payoff shown as separate outflows against the property. The gain is the sale price, less the selling cost, minus the adjusted basis — the purchase price plus capital improvements minus depreciation taken. Any depreciation taken is recaptured first, at up to 25%, though never more than the gain itself: a large selling cost that shrinks the gain shrinks the recapture with it. The rest of the gain is a long-term capital gain (income taxes). When a spouse dies, the property’s basis steps toward market value by the state’s rule, the same as a taxable lot (people and life events).

On a home you used personally for at least two of the last five years, the primary residence exclusion shelters the gain after recapture: $500,000 on a joint return and $250,000 otherwise. These amounts are set by law and do not rise with inflation. A surviving spouse keeps the $500,000 amount for two years after the death, whether or not they file as a qualifying surviving spouse. The exclusion can be claimed once every two years. If two eligible homes sell in the same year, the one with the larger gain gets it.

A sale below the adjusted basis is a loss. On a rental it is a deductible capital loss that offsets other gains and carries forward; on a property you hold personally, a home or a second home, it is not deductible and creates no carryforward.

Not modeled: a property changing from rental to primary residence, or back, during the plan. Converting a rental to a home before selling it to capture part of the exclusion cannot be expressed. Nor is the special basis rule for a home converted to a rental before sale, which would measure the loss from the lower of market value at conversion or adjusted basis.