I bought 5 properties in 3 different states....

15 Replies

Hi everyone, question about State tax returns. I live in New York, and have bought properties in Arkansas, Alabama, and Missouri this year. Do I have to file something for each state even though My schedule E will show a paper loss and I have no other business in those states?  How much do CPA's typically charge for this? Would they charge for each state, each property or just one for the entire return? 

I got quoted 2k when I had only two properties but it didn't really itemized what would happen during tax season. 

I also might be attempting to do a flip/BRRRR in Indiana before the year is done. How complicated is a return going to be if done this year as opposed to next?

@Wei Jie Yang

Don’t do it yourself, treat it like a business. Get a CPA that’s specializes in RE you can find plenty here in BP.

Unless you have a background in accounting and have time it’s best to find a profesional.

I started with excel spreadsheets and soon as I started growing my spreadsheets started to get overwhelming keeping them up.

States tax you based on income earned there. 

Even though you have losses you still need to file the state returns, so now you have several states and the federal. I would definitely utilize a tax professional because every state has different laws.

A Flip and a BRRRR are very different.

A BRRRR is just adding another rental.

A Flip is now adding a whole active business, self employment taxes, ect. 

@Wei Jie Yang you have to file a tax return for each state that requires it. So in your case you’ll probably have 4 or 5 tax returns.

2000 dollars for what you described sounds high

@Caleb Heimsoth Hah! 2k Was what I was quoted when all I had were two properties in two states. + Primary.  That's why I'm still kind of hesitant about getting a CPA when my portfolio is still relatively small.

A good CPA or tax person will save you in taxes in the long run.  They also give you great advice as you go to avoid taxing situations legally.  But the amount you were quoted for what you have is out of line.  Ask for recommendations from other real estate folks.

Last year I had taxes in 2 states plus federal taxes, they included real estate, stocks and bonds, selling inherited property, did the "long form" for federal taxes because of medical expenses that were 1/3 of my income and real estate taxes on non rental property, paying 2 minor children for working on rental properties (they had ROTH IRA tax paperwork set up), and paid under $500 for the tax man. But note, one state TN is 'easy' just have the stocks/bonds for the taxes, not income.

And note, I go prepared and do not waste the guy's time playing with papers or having to return with the needed information--I have the totals of the categories and the documentation if he wants to see it all nicely sorted, with a copy for him.  That also gets me a good price. You might have an initial high price because he will need to educate you first.

My partner and I always look to be audit prof and be as tax advantaged as possible and have had an accountant involved even before the first property and now as we have closed on our 13th and completed a full year of tax returns going on Year 2 we could not be more grateful we did.  I would check in with @Brandon Hall   their website is www.TheRealEstateCPA.com   we are current clients of theirs and would highly recommend.   

Hey @Wei Jie Yang ,

Do you have everything in your personal name or is it in a LLC name?

Sometimes the CPA can charge a bit less if it's all owned by a single LLC. Or create a network for yourself where a single LLC or entity controls the owner of each property (each property is owned by another entity).

I would check with your CPA about what's the easiest move for him to file your taxes as possible because they will be the one doing it, by him setting it up it will save you in the long run.

ALSO, if they aren't insured under the LLC names please let me know I can switch that around for you. Just looking to help.

Good luck on your investing journey!

@Wei Jie Yang

There's not enough info here to tell if $2k is reasonable or not.

From what I see you have five maybe six state and local returns (NY, NYC, AR, AL, MO and maybe IN) and at least 3 rentals and maybe one flip.  The rest is a mystery.

For example: the fee for a rental with a single filer with no activity other than three rentals is going to be very different than a MFJ filer with two high income W-2s, portfolio income, three kids (child tax credit and childcare expense credit), a Schedule C business, and three rentals.  i.e. viewed myopically, yes, both have three rentals.  But -- beyond that their tax pictures are drastically different.

CPA fees will also vary according to location (cost of living), knowledge level and level of service.

1) File in every state - even if you don't have tax due to losses, you are doing business in the state and they may have minimum fees that result. You are also recording your losses with the state of they allow loss carryforwards.

2) As noted by someone else, a BRRR is just another rental, flipping is a business that would be subject to SE tax

3) Fees will range widely by location and the firm you are working with. At the firm I am with, we don't do 1040s we can't bill at least $600 for, and we have very very few of those. At our billing rates, a RE partnership filing in multiple states and only mediocre record keeping very likely could be around $2k, very clean records likely around $1200-1500. Typically It is not a firm ripping you off - perhaps their level of expertise just exceeds what applies to your situation. 

Much of the complexity and billing in your situation would be dependent on how good your record keeping is - perhaps touch base with your chosen accountant on a good system to maintain everything.

Just to give others clarity about my situation at the time of the initial 2.7k quote:

1) MFJ with one kid. 

2) 2 investment property(AR, MO) and one primary (NYC). 

3) agi much lower than 150k.

4) no entities. No mention of wanting to flip anything. 

I think overall my tax situation should be rather simple right? 

I didn't do it at the time because their monthly retainer was over half of my net monthly cashflow from my rentals at the time. cost/benefit it wasn't worth it. It's significantly less than that now but it's still pretty high up there. 

I did State that I wanted to buy 3 to 4 properties a year though. Maybe that's why it's so high? 

Is this standard pricing? Do I need that expensive a service at this time? Judging by some comments here it seems to be waaaay overpriced. But maybe not, I've never hired a tax accountant before so maybe it's just sticker shock. 

Can a tax professional comment? 

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