Must have a CPA?

[Tomoko Hale]

Many people mentioned that it is strongly recommended to have a CPA as a part of the team. 
I started looking in my area and am a beginner of real estate investment.
Would you please tell me the reasons to have CPA vs a tax accountant. What if a tax accountant has a lot of knowledge and experiences of tax laws including investment, would it matter?  
I had a call with an accounting firm this morning and he mentioned something like he is not a CPA so he is not able to represent like CPA.

What does it mean?

Thank you!

[Katie Ripp]

This is a great question, and many people encounter this situation when they're just getting started!

It seems the accountant was highlighting that a CPA (Certified Public Accountant) can represent you before the IRS, while someone without a CPA license or Enrolled Agent (EA) status cannot. This representation is crucial if you're ever audited.

Regarding whether to hire a CPA versus just a tax preparer: Real estate tax is highly specialized, with numerous code sections and rules specific to the field. Most tax accountants don't exclusively focus on real estate tax, so they may lack the in-depth knowledge that a CPA specializing in this area would have. Given the complexity and potential tax-saving opportunities in real estate, it's wise to consider hiring a CPA with expertise in this field.

Many clients who work with non-specialists find that their non-real estate preparers lack the specific knowledge to help them minimize taxes through strategies like depreciation, the de minimis safe harbor, partial asset dispositions, 1031 exchanges, navigating real estate professional status, the short-term rental loophole, and more.

If you are looking to qualify as a real estate professional, use the short-term rental strategy, or complete a 1031 exchange, I would without a doubt recommend working with a real estate CPA.

[Zachary Jensen]

Quote from @Tomoko Hale:

Many people mentioned that it is strongly recommended to have a CPA as a part of the team. 
I started looking in my area and am a beginner of real estate investment.
Would you please tell me the reasons to have CPA vs a tax accountant. What if a tax accountant has a lot of knowledge and experiences of tax laws including investment, would it matter?  
I had a call with an accounting firm this morning and he mentioned something like he is not a CPA so he is not able to represent like CPA.

What does it mean?

Thank you!

 Our firm is primarily made up of EA's (enrolled agents) who specialize exclusively in the study of tax law and representation (basically if you get audited they can defend you in tax court). Most CPAs don't have nearly the amount of tax prep knowledge most people think they do. That being said, the CPA is MUCH harder to get and deserves its prestige. I would say for most people on this forum, working with a competent EA who knows real estate tax is going to save them 10s of thousands of dollars in fees, and 100s of thousands of dollars in tax over their lifetime. 

[Tomoko Hale]

Quote from @Katie Ripp:

This is a great question, and many people encounter this situation when they're just getting started!

It seems the accountant was highlighting that a CPA (Certified Public Accountant) can represent you before the IRS, while someone without a CPA license or Enrolled Agent (EA) status cannot. This representation is crucial if you're ever audited.

Regarding whether to hire a CPA versus just a tax preparer: Real estate tax is highly specialized, with numerous code sections and rules specific to the field. Most tax accountants don't exclusively focus on real estate tax, so they may lack the in-depth knowledge that a CPA specializing in this area would have. Given the complexity and potential tax-saving opportunities in real estate, it's wise to consider hiring a CPA with expertise in this field.

Many clients who work with non-specialists find that their non-real estate preparers lack the specific knowledge to help them minimize taxes through strategies like depreciation, the de minimis safe harbor, partial asset dispositions, 1031 exchanges, navigating real estate professional status, the short-term rental loophole, and more.

If you are looking to qualify as a real estate professional, use the short-term rental strategy, or complete a 1031 exchange, I would without a doubt recommend working with a real estate CPA.

 Thank you so much for your reply! Appreciate you.

[Tomoko Hale]

Thank you so much for your reply. We have added a long term rental property and are planning to add more for the future and needed advise. We have been working with an EA and want to evaluate if this is a timing to start looking. Your reply was great. Thank you!

[Joshua Thompson]

Hi Tomoko,

As long as they are an EA, CPA, or attorney that works in the tax field and they have good real estate knowledge I would feel comfortable interviewing them to see if it would be a good fit. Relationships and communication is huge and that's what we try to focus on. If your current accountant isn't a CPA but one of the other two above, you have a good working relationship and they have real estate tax knowledge I would recommend staying there to be honest.

Best of luck!

[Tomoko Hale]

Quote from @Joshua Thompson:

Hi Tomoko,

As long as they are an EA, CPA, or attorney that works in the tax field and they have good real estate knowledge I would feel comfortable interviewing them to see if it would be a good fit. Relationships and communication is huge and that's what we try to focus on. If your current accountant isn't a CPA but one of the other two above, you have a good working relationship and they have real estate tax knowledge I would recommend staying there to be honest.

Best of luck!

 Thank you so much for your reply!

[Joshua Thompson]

Quote from @Tomoko Hale:

Quote from @Joshua Thompson:

Hi Tomoko,

As long as they are an EA, CPA, or attorney that works in the tax field and they have good real estate knowledge I would feel comfortable interviewing them to see if it would be a good fit. Relationships and communication is huge and that's what we try to focus on. If your current accountant isn't a CPA but one of the other two above, you have a good working relationship and they have real estate tax knowledge I would recommend staying there to be honest.

Best of luck!

 Thank you so much for your reply!

 Of course! Let me know if you need anything else and we wish you the best of luck!

[Tanner Bellamy]

Hi Tomoko,

I wouldn't focus so much on the license that an individual has but instead their knowledge and expertise in your specific field of work, especially for real estate. So I think you hit it right on the nose with your question of someone having knowledge but no license. To me a license doesn't prove one is qualified for a job.

However, having a CPA or EA license allows the individual to represent you before the IRS in the event you get audited. Again, the license doesn't prove that that individual would be best at representation (in my opinion). It simply allows them to be able to represent. 

Hope this helps!

[Michael Plaks]

@Tomoko Hale

This older thread includes a summary of different types of tax professionals.
https://www.biggerpockets.com/forums/51-tax-legal-issues-con...

CPA is a license. Tax accountant is a job/expertise description. So it's not apples to apples. 

There're many licensed CPAs who are not doing tax work and are not knowledgeable in taxation. They may work in corporate finance, for example. My firm has a number of them as clients. 

There're many excellent tax accountants (aka tax advisors, tax strategists, tax specialists and so on) who do not have a CPA license. Some of them, myself included, have an EA - Enrolled Agent - license which is very similar to that of a CPA when it comes to taxes. Some of them have no licenses at all. 

Having a license does NOT make a difference when it comes to preparing your tax returns and advising you on tax strategies. It makes a difference in one situation only: when you have IRS troubles such as an IRS audit or an IRS debt. Only CPAs, EAs and attorneys can represent you in these situations. 

You can still work with an unlicensed person, as long as they know what they are doing, and you can hire a licensed representative if you have to fight the IRS later.

The single most important factor in selecting your tax person is technical competence. Being licensed does not guarantee this.

[Tomoko Hale]

Quote from @Tanner Bellamy:

Hi Tomoko,

I wouldn't focus so much on the license that an individual has but instead their knowledge and expertise in your specific field of work, especially for real estate. So I think you hit it right on the nose with your question of someone having knowledge but no license. To me a license doesn't prove one is qualified for a job.

However, having a CPA or EA license allows the individual to represent you before the IRS in the event you get audited. Again, the license doesn't prove that that individual would be best at representation (in my opinion). It simply allows them to be able to represent. 

Hope this helps!

 Thank you for your reply!!!

[Tomoko Hale]

Thank you for the info. I check the thread that you provided me. So if have a knowledgable accounting person(or firm)to with with and something happened to fight IRA then I can hire a representative at that moment?

[Michael Plaks]

Quote from @Tomoko Hale:

Thank you for the info. I check the thread that you provided me. So if have a knowledgable accounting person(or firm)to with with and something happened to fight IRA then I can hire a representative at that moment?

yes

[Tomoko Hale]

Thank you !!!!

[Tanner Bellamy]

Quote from @Tomoko Hale:

Thank you for the info. I check the thread that you provided me. So if have a knowledgable accounting person(or firm)to with with and something happened to fight IRA then I can hire a representative at that moment?

 Yep

[Gil Wildridge]

It doesn't have to be a CPA per se, but I'd argue that a lot of the potential behind real estate investing boils down to what taxes you pay, what taxes you don't pay, and when in your life you pay them. You could be missing out on a lot of value and paying more in tax than you need to without someone on your team with solid real estate tax knowledge.

The other thing is that real estate taxes are just getting more complex and looking at the world today, I expect more and faster changes to real estate tax law. Insurance is going to get more expensive, the government wants to keep people in homes, home equity financing is only growing in popularity, multiple generations are living under the same roof more, and all of those trends are going to lead to changes in how tax law is used and possibly the law itself. So what works now probably won't be the best thing for your strategy ten years from now. You definitely need professionals with their ear to the ground to know how to take advantage of those changes instead of being caught in them. A CPA isn't the only option, but it is one option.

[Tomoko Hale]

Thank you so much for your reply! Appreciate it!

[Fulton Sanchez]

Hi Tomoko, you've come to the right place. There are over 20 active CPAs here in Biggerpockets assisting RE investors with their tax planning. Make sure to reach out to one with real estate experience. Please contact them as we are not allow to self promote.

[Bill Hampton]

@Tomoko Hale

I recommend finding an accountant who specializes in real estate taxation, tax planning and financial planning.

You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

Good luck.

[Tomoko Hale]

Quote from @Fulton Sanchez:

Hi Tomoko, you've come to the right place. There are over 20 active CPAs here in Biggerpockets assisting RE investors with their tax planning. Make sure to reach out to one with real estate experience. Please contact them as we are not allow to self promote.

 Thank you

Tomoko

[Tomoko Hale]

Thank you for the information. Appreciate it!

[Basit Siddiqi]

A CPA is a special designation that is difficult to obtain.
You are not able to claim yourself to be a CPA unless you pass all the qualifications.

A few amount of the qualifications include
1) College degree with a certain amount of credits within accounting / Tax / Law / assurance
2) Completing 4 exams in accounting / tax / law / assurance
3) complete continuing education courses
4) Work a certain amount of time under a CPA

The reason that the person you spoke with being unable to say he / she is a CPA is likely because he / she didn't pass the above qualificaitons.

[Tomoko Hale]

Thank you for the msg!