Real Estate CPA – Real Estate Professionals, Investments, Investors, and Construction
Investments, Investors, and Construction – A Boutique Real Estate CPA Firm
Real estate investors and construction groups benefit from a set of unique provisions in the tax code that demand the expertise of an accounting firm well-versed in this field. These provisions encompass a range of topics, from the necessity of engaging contractors and subcontractors instead of employees to considerations like 1031 exchanges.
It’s important to note that your local accountant may not possess the familiarity required for many facets within the real estate domain. Particularly in South Florida, where real estate groups often attract investments from overseas, handling accounting for foreign ownership incorrectly can result in substantial penalties.
If you seek specialized knowledge in the realm of real estate, our CPA firm with a focus on real estate may be the ideal choice for your needs.
Real Estate Income
Passive, Non Passive, and Active
Passive losses can only be used to offset passive income, which can pose challenges for new real estate investors. As your real estate investments expand, the income generated from your earlier ventures can help offset passive losses incurred in newer investments. For novice investors, however, their properties may yield positive cash flow but show paper losses due to factors like depreciation and other real estate-specific rules. These losses can accumulate over time until the property is eventually sold.
If your portfolio includes short-term rentals, you might have opportunities to more directly offset income through specific IRS regulations. Beyond comprehending the accounting aspects of passive, non-passive, and active income, we can collaborate with you to structure your businesses in ways that mitigate this challenge. As a real estate CPA firm, we can assist you in devising strategies to reclassify losses into the non-passive category, effectively reducing your tax liability. However, this can only be achieved if we are engaged early in the process to ensure your business vehicles are established correctly.
Fixing and Flipping
Account and Tax Effects
Individuals involved in property fixing and flipping may encounter challenges related to excessive short-term capital gains, difficulties in claiming seemingly clear-cut business-related expenses, and the risk of mishandling cost considerations that could lead to the loss of valuable deductions. Neglecting expense deductions can significantly reduce your profitability, turning what should be tax benefits for real estate investors into tax liabilities.
By engaging an accounting firm with expertise in real estate investment and construction matters, you can establish your chart of accounts and tax systems accurately right from the outset, steering clear of these potential pitfalls.
Furthermore, it’s worth noting that Section 1031, often referred to as ‘Like-Kind Exchanges,’ offers a valuable avenue for deferring taxes in the realm of real estate. It’s essential to be aware that the rules governing these exchanges were modified with the Tax Cuts and Jobs Act.
Tax-Free Income
Real Estate Income Can Be Tax-Free
Much of the tax code for individuals is based on cash accounting, reflecting annual financial flows. Real estate, with its unique features like leverage, mortgage interest deductions, and depreciation, offers opportunities for strategic tax planning.
By setting up your business correctly, we aim to offset passive losses against passive rental income, allowing you to enjoy tax-free income for a significant period. While the government recovers some benefits when you sell, with the right ownership structure, much of this advantage can last a lifetime, gradually dissipating within your estate, without repayment.
This approach can also apply to foreign real estate investors, with attention to FIRPTA compliance through proper planning and record-keeping.
While eventually involving your tax attorney and estate attorney, we can help establish initial structures for tax-free income and safeguarding benefits until you’re ready to consult with your legal team.
Being a Real Estate Professional
In the Eyes of the IRS
Should you anticipate experiencing passive losses exceeding passive income, you may encounter a substantial tax liability in the present. It can be disheartening to know that it will take several decades before you can recoup these losses while writing substantial checks to the IRS.
If you find the need to transform these losses into active or non-passive status, we can collaborate with you to structure your business operations for optimal income treatment. It’s worth noting that achieving the designation of ‘Real Estate Professional‘ is a specific IRS recognition, which may not necessarily align with your perception of professional status. Converting all losses into active or non-passive losses might not always be feasible, but the more losses that can be offset against other income, the smaller your current tax liability becomes.
More Info: What is Passive Activity Income?
Knowledgeable Real Estate CPA Firm
Advantages of Having Expert Advice
When engaging in real estate transactions, whether buying, selling, or leasing properties as a landlord, the guidance of a proficient real estate CPA can assist you in reducing your tax obligations by capitalizing on deferrals, deductions, and other tax advantages tailored to the real estate sector. It’s essential to ensure proper adherence to tax regulations throughout the year; adjustments may not always be possible at tax-filing time. Therefore, maintaining regular communication with your dedicated real estate CPA is crucial for sound financial management, not solely during tax season.
Real Estate CPA – More Info
Booms and Busts
Bette entered the professional world during the Technology Bust and was at the heart of Miami’s Public Accounting sector amidst the Housing Crash. With firsthand experience navigating the highs and lows of tech and real estate market cycles, we’re uniquely equipped to guide you through any economic landscape.
Intelligence
Bette studied engineering at MIT and have a Masters’s Degree in Accounting, so she’s capable of understanding the nuances of real estate tax laws; the most complicated area of tax law.
Proactive Services
From handling passive losses and short-term capital gains to addressing phantom income, we preemptively identify potential challenges. Addressing concerns before tax season ensures they’re resolved timely, rather than when it’s too late.
Real Estate CPA FAQs
What does a Real Estate CPA do for investors and developers?
We design tax-efficient entity structures, set up real estate bookkeeping, track basis and depreciation, handle cost segregation, prepare returns and K-1s, plan 1031 exchanges, manage multi-state filings, and advise on exit strategies.
How are passive, non-passive, and active real estate income treated for taxes?
Passive income/losses come from rental activities unless you qualify for exceptions. Non-passive/active income (e.g., development or dealer activity) is subject to different rules. Matching the right bucket affects whether losses offset your other income.
What is Real Estate Professional Status (REPS) and why does it matter?
If you meet IRS hour and participation tests, certain rental losses can be treated as non-passive and offset W-2 or business income. We evaluate eligibility, group activities if appropriate, and document participation to support REPS.
Can short-term rentals qualify for non-passive treatment?
Often yes. If average stays are seven days or fewer and you materially participate, STR income/loss may be treated as non-passive without REPS. We verify averages, services provided, and participation tests.
When should I use a 1031 exchange to defer capital gains?
Use 1031 when selling investment or business real property and buying like-kind property within strict timelines. We coordinate with a Qualified Intermediary, track basis, boot, and debt replacement to preserve deferral.
What is depreciation recapture and how can I plan for it?
On sale, prior depreciation can be “recaptured” and taxed at special rates. We model recapture, partial asset dispositions, and strategies like 1031 or installment sales to manage tax impact.
Should I do a cost segregation study on my rental or commercial building?
Cost seg accelerates depreciation by reclassifying components to shorter lives, improving cash flow. We assess property size/hold period, coordinate an engineer’s study, and manage Form 3115 for method changes.
How are fix-and-flip projects taxed—capital gains or ordinary income?
Frequent flips can be treated as dealer activity, making gains ordinary income subject to self-employment tax and inventory rules. We help structure operations, track costs correctly, and separate long-term holds from dealer property.
Which entity is best for real estate—LLC, partnership, S-corp, or C-corp?
Most holds use LLCs taxed as partnerships for flexibility and basis step-ups; S-corps are usually avoided for holds due to basis and distribution limits. We tailor structures for liability, financing, and exit goals.
How do foreign investors handle U.S. real estate taxes and FIRPTA?
Non-U.S. investors face FIRPTA withholding, treaty issues, and entity considerations. We plan ownership, file ITINs/returns, reduce excess withholding when eligible, and coordinate repatriation strategies.
What records do I need for real estate tax compliance and audits?
Maintain closing statements, loan docs, rent rolls, leases, repairs vs. improvements detail, mileage logs, invoices, management agreements, depreciation schedules, and 1031/QI files. We implement chart-of-accounts and monthly closes.
Can real estate income be tax-free or largely sheltered?
Yes. With leverage and depreciation, properly structured rentals can produce cash flow with paper losses. REPS, STR rules, and cost seg can further shelter income; planning is needed to manage recapture later.
Do I qualify for the 20% Qualified Business Income (QBI) deduction on rentals?
Many rentals can qualify if they rise to a trade or business and meet wage/property tests. We document operations or use the safe harbor where appropriate and optimize W-2/UBIA factors.
How do construction companies and contractors stay compliant?
We implement job-costing, WIP schedules, percentage-of-completion or completed-contract methods, 1099/withholding compliance for subs, and multi-state sales/use and payroll tax accounts.
What multi-state or local taxes should real estate owners expect?
Apportionment on passthrough income, state filing for property location, sales/use tax on construction inputs, and local business taxes may apply. We register and file in each jurisdiction and track nexus.
How can a Real Estate CPA improve cash flow and financing outcomes?
We forecast rent and capex, monitor DSCR and debt covenants, time repairs vs. improvements, accelerate/deferral strategies, and produce lender-ready financials and projections.
What’s the best time to engage a Real Estate CPA—before or after purchase?
Before. Early planning sets entity choice, financing structure, allocation methods, and documentation that are hard to fix later. We create a roadmap from LOI through closing and ongoing operations.
Can you coordinate with attorneys, lenders, and property managers?
Absolutely. We collaborate on operating agreements, 1031 timelines, loan packages, and management reporting to align tax, legal, and operational goals.
How do we get started with your Real Estate CPA services?
Schedule a consult, share recent returns, property lists, leases, and closing statements. We assess opportunities (REPS, STR, cost seg, 1031), propose a fixed-fee scope, and launch a 90-day plan.
