., 578 F.2d 520 (4th Cir. 1978) which deals with deducting expansion costs as ordinary expenses when one's activity rises to the level of a trade or business.

Originally posted by @Brit F.

With that warning....Just do all the math as if was an ordinary property to arrive at your taxable income.

Thanks,Brit

Generally speaking... 1031 exchanges are meant to keep you from paying capital gains taxes (15%) not ordinary income. 

@Cole Britting - thank you, will def post updates!

California does not have a capital gain tax rate and California's top ordinary tax rates are now tiered from 9.3% to 10.3%, 11.3%, 12.3% and 13.3% depending on your AGI.

You pay taxes on your net rental income as you described and it’s ordinary income taxed at your applicable effective tax rate.  

But because of recapture, capital gains tax differential as to ordinary income, ordinary income, earned income, investment income differences, retirement funding, 1031 exchange deferrals, 401k deferrals, etc. the world of tax minimization become VERY COMPLEX.  

Typically, the tenant is responsible for ordinary pest control.