BiggerPockets

What should RE investors look for in a CPA? (Part 3)

Sunday, May 29

ANOTHER IMPORTANT CONSIDERATION IS A CPA'S EXPERIENCE

Many types of experience can be helpful for a CPA.  Having worked in or owned a private business can be valuable to understanding real world accounting.  Having real estate investments can aid in understanding the costs, processes and risks of investing.  Tax planning and audit experience can also prove valuable in staying out of trouble and reducing tax exposure.

Business Experience

All CPAs are required to work in public accounting for at least a year in many states more than a year.  Some CPAs though never gain exposure to private industry because they have worked exclusively in public accounting.  This is not necessarily bad, but there are real world situations that come up in private accounting that a public accountant rarely sees.

A CPA that has managed and/or owned a private company will have greater business insight and understand better how business transactions are dealt with on a day-to-day basis.

Real Estate Investing Experience

Real estate investing can be done in many ways.  A CPA involved in the world of real estate investing and has bought and sold real estate is going to have a far greater insight in how these transactions are and can be accounted for.  Real estate investing experience makes it far easier to understand real estate possibilities and scams.

Here is a small sample of the varied nature of real estate investing:

• Leasing residential properties
• Leasing commercial spaces (which may include CAMs, NNN terms and generally lease longer than a year)
• Rehab/construction activities that may involve a flip or not
• Short sale transactions
• REO transactions
• Investing with an IRA or 401K
• Selling property on installments
• Seller financing arrangements
• Lease option, subject to and wraps
• Buying and selling real estate paper
• REITS and TICs
• 1031 exchanges
• Real estate development or redevelopment
• Low income tax credit properties
• Buildings listed on the historical record
• Cooperative Housing

A CPA that has experience in some or all of these areas can be a huge asset.  First they will have a better understanding of the nature of the transactions and can better account for them.  Second understanding the nature of these transactions can help in better tax planning and a greater assurance that the transactions are recorded properly.

Tax planning experience

Generally speaking a CPA will learn more about tax planning strategies working in public accounting.  CPAs can learn various strategies from seminars and other sources as well, but it does take considerably more work and dedication.

Audit experience

A CPA that practices before the IRS learns a great deal about what the IRS is looking for in the accounting records and the interpretive process that the IRS goes through in determining revenue and the deductibility of expenses.

There are a number of areas that are not clear cut.  Having some experience with tax audits can make it easier to see how the IRS is more likely to rule.  It also helps to know when you should appeal or go to tax court.

When you consider a CPA, you will want to look at the CPAs experiences in business, real estate investing, tax planning and in working with the IRS.

Here are links to earlier posts in this series

Part 1 - Outline for Finding a CPA

Part 2 - CPA should understand the various types of investors in the tax code

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