H&R Block/Turbo Tax vs. CPA

39 Replies

My partner and I live in the California Bay Area and just closed on our first buy and hold SFH in St. Louis, MO. We're still getting it rent-ready, but we'll hopefully have a tenant in soon. That means that for the first time, we will need to figure out how to pay taxes on an investment property.

In the past, I have primarily used H&R block to do my taxes. They do seem to be set up to handle real estate investments. While this is certainly the cheapest option, I don't want to miss out on potential tax deductions or do something really wrong and end up in trouble. On the other hand, with one property that cash flows, but that still doesn't make a ton of money, I'm not sure whether it's worth paying a CPA to do our taxes. I have a feeling that the cost of paying the CPA would wipe out a good chunk of the profit that we stand to make on the property.

Here are my questions:

1. Is it worth paying for a CPA even if it means that there may be very little profit from the one property after paying these fees?

2. If not, at what point is it worth paying for a CPA?

3. If I'm deciding between doing my taxes by myself online using H&R block vs. sitting down in person with a cheaper, non-CPA tax filer, which option would make more sense?

I really appreciate your advice!

CPAs are really inexpensive when you think in terms of value and not price. I don’t know your personal situation but in almost every case I’d vote for the CPA. 

@Michelle Eisenberg

Are you an expert on taxes? If you are dabbling in real estate do it yourself. If you are making it a stream of income or replacing your job get a CPA on your team as soon as possible.  They can actually save you money opposed to costing you money. 

Focus your time on finding properties and making them cash flow. Pay the professionals for their expertise-you can shop and interview CPAs. CPA should save you money and time as well as provide advice from years of experience. Moves you up on the learning curve. 

Check out the wealth of knowledge the BP CPAs have. @Brandon Hall @Lance Lvovsky , @Michael Plaks , @Ashish Acharya are a few great contributors. 

@Michelle Eisenberg Find a cpa for 600 or less and it will be worth it. At 1000 plus it’s probably not worth it. I got a CPA as soon as I could. I want to make this a business, not a hobby. This means professional property management, cpa, lawyer if I ever need one. I’ll analyze and find and fund deals. That’s all I reallt want to do.

@Michelle Eisenberg

Go for the CPA. You will need to file taxes in Missouri now too. If you need referrals, I have some in Southern California. Having your taxes done right might save you money in taxes. You’ll especially want to look into the new section 199A pass through deduction.

Strangely, managing taxes on my rental business wasn't that hard.  But the taxes on my stock options drove me to a professional years ago!  :)

Seriously, rentals aren't too hard to do taxes.  I found Turbo Tax to be more than up to the job.

Moreover, CPA's are indeed expensive.  (And more often than not, worth every penny.)  And, as I said, rentals aren't that hard.  You may not need a full fledged CPA.  An enrolled agent, or even a certified tax preparer with a good history and reputation will likely do the job for you.  That said, H&R does NOT have a good reputation.  

Thank you all for your responses! It sounds like the overall message is that the value I would gain from working with a CPA would outweigh the cost of doing so, even if on paper, it seems very expensive. 

@Damon Pendleton That is a good point about the difference between value and price. I agree that the knowledge I could gain through working with someone knowledgeable could help me make better investing decisions in the future, too. I do worry about the difficulty of finding a CPA who knows real estate well enough to be able to impart this knowledge though. I need to keep asking around to see if anyone knows any good CPAs in the area who know real estate well.

@Carl Fischer I am definitely not an expert on taxes, and I don't consider myself to be simply dabbling in real estate. On the other hand, I am just beginning, and it likely won't be replacing my full time job for a number of years. I do definitely see the value of the advice that a good CPA would be able to give, and I appreciate the recommendations for CPAs on BP to follow. I'll look into all of them. 

@Caleb Heimsoth That makes sense, and I also want to make this a business, even though I won't be able to go full time for a number of years. When you say that you got a CPA as soon as you could, did you start working with a CPA after you bought your first property, or did that come later for you?

@Katie Lepore Thanks for pointing that out--I know that having to file taxes in multiple states will make tax time more complicated. I'd definitely appreciate referrals, and I'll PM you as well. I have heard about the new pass through deduction, but I'll also look into more.

@George Pauley That's interesting that it was the other way around for you in terms of what drove you to seek out a CPA. It sounds like even though you were able to do your taxes for your rental business on your own, you would still recommend hiring a tax preparer. I also hadn't realized H&R doesn't have a good reputation. That's definitely good to know.

@Michelle Eisenberg  put first property under contract In April.  Had first cpa conversation in June.  Closed in August.  They did my taxes for last year.  I’ll use them again next year.  Hopefully this helps

@Carl Fischer - thank you for the mention

@Katie Lepore - Section 199A most likely will not apply to casual landlords

@Michelle Eisenberg - H&RB are just like any chain business: auto shops, hair salons, large clinics etc. They have some excellent people working for them, alongside a much larger group of incompetent and poorly trained employees. If you can find one of the good ones and make sure he or she will service you long-term - then H&RB is OK. But I would not go to just a random person who happens to be free when you walk in. In that case, you're better off trying it yourself - at least you won't be paying for the mistakes if they happen. :)

Originally posted by @Katie Lepore :

@Michael Plaks why do you say that 199A will not apply to casual landlords?

Nobody knows for sure at this point, of course. Sec. 199A only applies to a "trade or business" which is conveniently undefined in the code. The general consensus is that this term will be applied as in Sec. 162. 

A typical casual investor with a full-time job and couple rentals on the side does not meet this definition.

Also, most leveraged SFHs show a loss on taxes anyway, after depreciation, so Sec. 199A would be irrelevant even if applicable.

@Michelle Eisenberg

I use CPAs as insurance. If I make a mistake it could be viewed as fraud if the CPA makes a mistake it’s a typo I use multiple CPAs because of businesses and real estate in multiple states. I did my own taxes for years and was forced to use a CPA because I was really busy and found out the CPA did it faster and better. It is even cheaper if you have your cpa help you setup your  software such as QBs.  Good luck. 

Originally posted by @Paul Allen :
Originally posted by @Michael Plaks:
 "trade or business" which is conveniently undefined in the code. 
You keep using that word. I do not think it means what you think it means.  :-)

My bad. I was not sure how to spell "inexplicably" - English is not my first language :)

Besides, in the Code, almost nothing means what we think it means.

Congrats on making the leap into real estate investing! It is good that you are asking questions and thinking frugally.

My team is very frugal. We have found that finding a solid CPA, Attorney, and Agent are worth every penny. They save/make us money instead of cost us money.

Originally posted by @Michael Plaks :
Originally posted by @Katie Lepore:

@Michael Plaks why do you say that 199A will not apply to casual landlords?

Nobody knows for sure at this point, of course. Sec. 199A only applies to a "trade or business" which is conveniently undefined in the code. The general consensus is that this term will be applied as in Sec. 162. 

A typical casual investor with a full-time job and couple rentals on the side does not meet this definition.

Also, most leveraged SFHs show a loss on taxes anyway, after depreciation, so Sec. 199A would be irrelevant even if applicable.

 Thanks, Michael. I suppose we will have to wait for the regulations to come out. I’ve seen several groups like the ABA and AICPA submit comments. Someone told me she went to a seminar where the interim IRS comm was speaking and he said regulations were forthcoming this summer. So much for that seeing as summer is almost over...

I’ve been working off the assumption that rental real estate is indeed a business, being that it is engaged in for the purpose of profit or investment (as opposed to say, a hobby). Passive activities are still activities and I think the way 199A is written calling out specified activities that are disallowed shows an intent to disallow certain active businesses, particularly with the language about the reputation or skill of the principal. Seems Congress was specifically aiming to target passive activities as ones to qualify for the deduction.

The way I read it, schedule E or schedule C businesses should still qualify as well, and is not limited to pass through entities. Hence why I’ve been working off the assumption that the basic landlord would qualify. Though, as you say, many have losses anyway.

Interesting take, thanks for making me think from a new standpoint. Will need to wait for regulations I suppose and other guidance.

*this post does not create an attorney-client relationship nor a cpa-client relationship. It is for educational purposes only and was written prior to any case law or guidance on section 199A. It is not to be relied upon and readers are advised to seek professional advice.

@Michelle Eisenberg If you plan on having this as a full time business you should defiantly consider hiring one. If you’re gonna take it slow and not acquire a ton of property the taxes on residential real estate aren’t very complex. You most likely won’t be paying taxes for awhile either. If you want to research on your own some of the big items will be -27.5 year deprecation deduction -interest deduction on your loan (this will be very large for awhile assuming 30 year note and you’re buy and hold) -all other normal business expenses are deductible are pretty easily found on schedule E The key is keeping records of everything (receipts for all of your purchases, amortization schedule showing interest vs principle). Excel is fine for a few properties but again if you want to scale probably best to get quickbooks or another accounting software and a CPA I’m a CPA in Texas let me know if you have any questions

@Michael Plaks I really appreciate your response. What you said about H&RB makes a lot of sense. When I've done my taxes in the past, I've done it myself using their software online, so I haven't interacted with a tax preparer in person. I should probably have made it clearer in my original post that I was debating between continuing to do my taxes myself online using tax software like H&RB or Turbo Tax vs. working with a CPA in person. After all of the responses, I'm definitely leaning strongly toward working with a CPA rather than doing it myself online. 

@Ryan Weirick Thanks for your book recommendation. I looked it up on Amazon, and it looks like a new version is coming out in around a month, so I'm definitely going to buy the book then. I read Amanda Han's book on taxes already, including the update they wrote up on BP about the changes to the tax code this year. I'm hoping they'll also put out an updated book now that the tax laws have changed because I really liked how they explained taxes in their book.

Did you use H&R's online tax prep software or did you work with someone in person?

Originally posted by @Michelle Eisenberg :

@Michael Plaks I really appreciate your response. What you said about H&RB makes a lot of sense. When I've done my taxes in the past, I've done it myself using their software online, so I haven't interacted with a tax preparer in person. I should probably have made it clearer in my original post that I was debating between continuing to do my taxes myself online using tax software like H&RB or Turbo Tax vs. working with a CPA in person. After all of the responses, I'm definitely leaning strongly toward working with a CPA rather than doing it myself online. 

Like my colleague @Account Closed said, you can successfully complete a basic tax return with couple rental properties yourself - as long as you're willing to invest some time into understanding the rules, which you're doing by reading the books. 

A good tax professional who understands real estate (this part is critically important, as REI tax rules are unique) will still do a better job and likely save you some money. Your compromise could be to do it yourself and, before submitting it to the IRS, have a tax pro check it out. The risk is that you may end up paying more for tax prep this way, if the accountant discovers that you made major mistakes, and you need to hire him anyway. Well, could be considered the price of learning.

Eventually, an accountant will be necessary for you, as our ultimate job is not tax preparation but the proactive tax planning. This is where the real value is. The bigger your business, the more it matters. Good luck in this business!

I had two new clients this past tax season who were previously HRB DIYers. They both brought me their 2015 and 2016 returns. I noticed for both clients that their suspended passive losses were not automatically carried forward from 2015 to 2016. 

I have no idea if this indicates a software flaw or if both clients made the same 'operator error' when using the software, but it is something to watch out for. 

Best of Luck with Your Real Estate Investments!