I'd be interested in hearing from both CPA's and Real Estate Investors on this topic.
I'm conducting a search for a personal CPA who specializes in REI. I live in California, and I invest in multiple states. What are the advantages and dis-advantages of using a CPA who is not in CA? How important is it to have someone with knowledge of my local state vs a generalist who may have a deep understanding of federal taxes?
Honestly for someone in California I would think it would be highly beneficial to have someone in state. California's state taxes are much different than most of the rest of the country in my experience. That's not to say that you can't find a good CPA that is elsewhere but it would be something that you should verify that they understand CA law if you find someone out of state.
If you pay taxes in CA as a CA resident, I think you'll find a CA CPA would be helpful. You may have liabilities in other states to file returns as well but generally, unless it's a state like New York or similar, the other states have less confusing tax codes (and significantly lower tax rates) than California. For instance, I've seen several people post on these forums saying that holding property in an LLC doesn't have any tax consequences because of a flow-through treatment of taxes. While that may generally be true, LLCs in CA DO have a tax requirement and minimum filing fees just for existing. You can probably get by having an out of state accountant, but don't be surprised if they're not as familiar with CA rules where you're filing a more substantial resident return versus a nonresident return elsewhere. Out of state folks are also less likely to be familiar with things like property taxes that are county/state specific. CA also has different dates/percentages for estimated taxes due than federal (CA has a LARGER percentage due EARLIER so possible underpayment penalties there) that out of state people wouldn't be familiar with either. It's probably not going to make a huge difference that if you find an out of state accountant with significantly cheaper preparation rates maybe it's worthwhile, but if they're about the same cost, you may want to consider keeping an account of the state where you're a resident.
*Disclaimer: none of this message is intended to be legal or professional advice.
Working with a CPA with an understanding of CA Tax is important.
Publication 1001 is a 14 page document that lists out the differences between Federal and California Tax Law
California has the highest top state tax rate in the nation at 13.3%. Including income that shouldn't belong can come out to be quite costly.
With that said - California is a large state with a lot of thriving businesses and individuals who choose to select CPA's out of state. This has made the CPA's out of state more versed with CA tax law.
@James Kojo You want to have someone who is familiar with your state's income tax laws and regulations.
What's more importantly, when you invest in multiple states, your should have a CPA who understand multi-state taxation and credits in your home and other states. Comparing to some states, CA is pretty straight-forward state as far as taxes go, believe it or not.
Feel free to reach out if you would like to talk more.
Thanks everybody who responded to the thread!
It seems pretty clear that I should probably get an in-state CPA who is familiar with multi-state REI investing.
Thanks for the
Join the Largest Real Estate Investing Community
Basic membership is free, forever.