Part 1 of our February Series: Profit-Driven Tax Strategies for Billings Rental Owners
How to Keep More Money in Your Pocket in 2026 — With Premier as Your Advantage
Why Depreciation Matters for Rental Property Owners in Billings, MT
If you own a rental property in Billings, Montana, depreciation is likely the largest tax deduction available to you each year.
Yet it’s also one of the most commonly misunderstood — and underused — tax benefits among local landlords.
Many owners assume depreciation is something their CPA simply “handles” at tax time. In reality, depreciation is a year-round strategy that depends heavily on how your property is managed, maintained, and documented.
When depreciation is done correctly:
- Your taxable income drops
- Your after-tax cash flow improves
- Your long-term ROI increases
When it’s done poorly:
- Deductions are missed
- Improvements go undocumented
- Owners unknowingly overpay taxes
This is where professional property management in Billings becomes a financial advantage — not just an operational one.
What Is Depreciation? (Plain-English Explanation for Rental Owners)
Depreciation allows rental property owners to deduct the assumed wear and tear of a property over time — even if the property’s market value increases.
For residential rental properties:
- The building is depreciated over 27.5 years
- Land is not depreciable
- The deduction is taken annually
Example: Billings Rental Property Depreciation
- Purchase price: $400,000
- Land value: $80,000
- Depreciable building value: $320,000
Annual depreciation:
$320,000 ÷ 27.5 = $11,636 per year
That’s over $11,000 in deductions annually — before considering renovations, upgrades, or additional assets.
For owners with multiple properties or long-term holdings, depreciation often becomes the single largest tax offset on their rental income.
Why Most Billings Landlords Underuse Depreciation
1. Depreciation Is Set Once — and Rarely Updated
Many rental owners depreciate their property based only on the original purchase price and never revisit it.
At closing, depreciation is typically calculated using the purchase price and then spread out over time. That part is normal. The issue is what happens after the purchase.
Most rental properties change over the years — money gets reinvested, systems get replaced, and units get upgraded. But depreciation doesn’t automatically adjust when those changes happen.
Depreciation should be revisited when:
- Capital improvements are made (new roof, flooring, exterior upgrades, major remodels)
- Major systems are replaced (HVAC, plumbing, electrical)
- Units are renovated with new appliances, cabinets, or finishes
- Assets are removed or replaced as part of an upgrade
When these items aren’t clearly tracked and separated from routine maintenance, they often never get added to the depreciation schedule at all.
Example:
An owner replaces an HVAC system for $12,000 and renovates a unit with $18,000 in new flooring, appliances, and cabinets. If those costs are simply recorded as “maintenance” and never flagged as upgrades, depreciation continues as if nothing changed — even though $30,000 was invested into the property.
The result? The owner misses out on deductions they should be receiving over time, simply because the improvements were never documented in a way that allowed them to be depreciated properly.
Over time, this can significantly reduce after-tax cash flow, especially for owners who actively improve their properties.
2. Renovations Are Not Properly Documented
Renovations are where depreciation opportunities are most often missed.
Common examples include:
- New flooring
- Appliance packages
- HVAC replacements
- Electrical or plumbing upgrades
- Kitchen or bathroom improvements
Without proper documentation:
- CPAs may default to conservative assumptions
- Assets may be depreciated incorrectly
- Owners lose deductions they were legally entitled to claim
3. Owners Rely on Memory Instead of Systems
By tax season, most owners are relying on:
- Incomplete records
- Bank statements
- Email searches
- Memory
This creates gaps — especially for owners who self-manage or work with managers who don’t track assets cleanly.
This is one reason many Billings investors choose professional property managers instead of self-managing.
Bonus Depreciation Updates Heading Into 2026
Bonus depreciation allows certain qualifying assets to be written off faster than standard depreciation schedules. Instead of spreading a deduction out over many years, part of the cost may be deducted sooner.
However, this is where many rental owners get confused.
Bonus depreciation does not apply to the building itself.
You can’t take bonus depreciation on the entire property just because you own a rental.
Instead, bonus depreciation may apply to specific components and assets within the property, such as certain equipment, fixtures, or improvements — if they qualify and are documented correctly.
Why tracking matters more now
Bonus depreciation percentages have been phasing down over the past few years, meaning the benefit is smaller than it used to be — and the rules matter more.
Because of that:
- Timing matters — when the asset was placed in service can affect eligibility
- Documentation matters — assets must be clearly identified and separated
- Clarity matters — vague “renovation” or “maintenance” entries often can’t be used
If assets aren’t tracked accurately, your CPA may have no way to apply bonus depreciation, even if the asset technically qualifies.
What owners risk missing
With bonus depreciation decreasing, owners who don’t track assets cleanly may miss:
- Accelerated deductions that improve short-term cash flow
- Strategic depreciation elections their CPA could otherwise use
- Opportunities to offset income in higher-earning years
This doesn’t usually happen because owners are doing anything wrong — it happens because the information never makes it to the tax return in a usable way.
Why 2025–2026 matters
As bonus depreciation continues to phase down, clean asset tracking in 2025 and 2026 becomes critical.
The owners who benefit most won’t be the ones spending the most — they’ll be the ones who:
- Know what they added to the property
- Document it clearly
- Give their CPA the right information at the right time
That’s what turns depreciation from a generic tax concept into a real cash-flow tool.
How Renovations Impact Depreciation (And Why Structure Matters)
Renovations often include a mix of:
- Repairs (immediately deductible)
- Capital improvements (depreciated over time)
If everything is lumped together:
- Your CPA has less flexibility
- Assets may be depreciated too slowly
- Deductions may be delayed for years
Example: Unit Turn Renovation
A typical unit turn might include:
- New flooring
- Updated lighting
- Appliance replacements
- Partial kitchen refresh
When tracked properly:
- Each asset can be classified correctly
- Depreciation schedules are optimized
- Owners capture the maximum legal deduction
This is where property management systems and maintenance logs make a measurable financial difference.
Why Asset Tracking Is the Missing Link for Most Rental Owners
Depreciation issues rarely stem from bad tax advice — they stem from bad data.
Your CPA can only work with what they’re given.
What Needs to Be Tracked for Depreciation
For depreciation to work in your favor, records should include:
- Date placed in service
- Cost
- Type of asset
- Property and unit location
- Nature of work (repair vs improvement)
- Supporting invoices and descriptions
Most self-managing owners don’t have this information in one clean system.
How Premier Property Management Helps Owners Maximize Depreciation
At Premier Property Management, depreciation support happens throughout the year — not just during tax prep season.
Here’s how we support smarter tax outcomes for Billings rental owners:
✔ Detailed Maintenance & Improvement Documentation
Every project is logged with:
- Dates
- Descriptions
- Costs
- Invoices and work details
✔ Clear Separation Between Repairs & Capital Improvements
Our systems distinguish:
- Routine maintenance
- Capital assets
- Major replacements
This helps your CPA classify expenses correctly and confidently.
✔ Asset Visibility Across Your Portfolio
For owners with multiple rentals:
- Assets are tied to the correct property
- Improvements aren’t lost across years
- Portfolio-level reporting stays clean
✔ CPA-Ready Financial Reporting
At tax time, your CPA receives:
- Organized reports
- Full asset visibility
- A clear picture of depreciation opportunities
This is one reason owners working with Premier Property Management in Billings, MT consistently report smoother tax seasons and stronger after-tax returns.
Depreciation Is a Strategy — Not a Line Item
The most successful Billings rental owners don’t treat taxes as an afterthought.
They:
- Track improvements consistently
- Plan ahead for tax efficiency
- Use systems that support clean reporting
- Partner with professionals who understand how operations impact financial outcomes
Depreciation isn’t about being aggressive — it’s about being intentional.
Call to Action: Let’s Make Sure You’re Not Leaving Money on the Table
If you own a rental property in Billings and want to:
- Capture every allowable depreciation deduction
- Improve after-tax cash flow
- Work with a property manager who understands the financial side of investing
Schedule a rental property strategy call with Premier Property Management.
We’ll help you:
- Review how your property is being tracked
- Identify documentation gaps
- Ensure your CPA has the full picture — year after year
Coming Next in the Series
Part 2 — Repairs vs. Improvements: Stop Losing Money by Misclassifying Expenses
Many owners unknowingly lose thousands each year by classifying expenses incorrectly.
In Part 2, we’ll cover:
- IRS definitions in plain English
- Real-world examples every Billings landlord faces
- How misclassification impacts deductions
- How Premier’s documentation protects your write-offs
If you’ve ever asked, “Should this have been written off or depreciated?” — Part 2 is for you.