Do I need a real estate specific accountant?

Question

Hello everyone! Hope y’all are having a great holiday season despite 2020 being terrible. I’m posting to inquire about some tax advice. First off...should I enlist the help of a real estate specific accountant? Or, is my personal accountant sufficient? If the real estate specific account is needed, are there any recommendations in this community that are passed around frequently? I am inquiring because my wife and I are attempting to utilize the real estate professional status to allow us to deduct passive losses from my physician salary. Any advice would be greatly appreciated!

Franky

Michael Plaks · Answer

@Franky Davis

Do you need a specialist? One of the funniest question a physician could ask. :)  Your profession is not different from ours in this regard.

You immediately brought up a topic which is the high-end knowledge in real estate accounting: real estate professional status. Very few tax accountants know it well, and many have not heard of it at all. You will not qualify for this status if you're a full-time physician. Your wife might qualify, depending on how much real estate work she will be doing and her other income-producing activities. Bad advice here would be dangerous, not unlike your profession.

Here's some intro into RE Pro status:https://www.biggerpockets.com/blog/real-estate-professional-status-save-money-on-taxesHere're some old threads discussing how to select a tax expert:https://www.biggerpockets.com/forums/51/topics/795929-questions-to-ask-a-potential-accountanthttps://www.biggerpockets.com/forums/51/topics/792277-how-to-test-your-cpas-technical-competencehttps://www.biggerpockets.com/forums/51/topics/528033-must-ask-questions-when-interviewing-a-cpa

Daniel Hyman · Answer

@Franky Davis

If you are simply dabbling in real estate and not sure where it will go, and you have a good relationship with your current CPA, then see if it is in his/her wheelhouse. However, if you are looking to scale up or want to make sure no real estate tax deductions are falling through the cracks, then I recommend hiring a real estate specific CPA.

Basit Siddiqi · Answer

@Franky DavisReal Estate professional status is a great strategy when you have a married couple where one spouse is a high income earner.There are rules to follow to claim real estate professional status along with proper record keeping. Make sure to talk to a CPA/accountant to make sure that you are following all of the steps.

Franky Davis · Answer

Thank you all for the response. Haha....and I definitely see what you mean. I am going to have a discussion with my accountant about consulting with a real estate expert as we transition into my orthopedic career and real estate career simultaneously. I definitely think it'll be possible since my wife is going to be spending the majority of her time on our business and will be working >750 hours a year. We will begin documenting this at this point. I just need to figure out how to manage our entity structure to allow for us to deduct from my 1099. Thank you all for the advice.

Bill Hampton · Answer

Franky,

I recommend finding an accountant who specializes in real estate taxation. You may want to consider working with your accountant remotely to expand your options.

The real estate professional status has several requirements, including meticulous documentation. An accountant who specializes in real estate taxation will be invaluable for someone who wants to claim the real estate professional status.

I  would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year.

Good luck and let me know if you have any questions.

Ahad Ali · Answer

A CPA who has more real estate experience could potentially yield out a better return for you than an accountant without. It is circumstantial of course so it depends on what you have and are trying to do.

I would suggest browsing around this forum as well as your area and if your willing to, look into CPAs who can offer remote service.

Greg Scott · Answer

Franky:

Would you see a podiatrist about a heart condition?   CPAs familiar with real estate will be more likely to maximize your tax deductions and help you grow your business.  Unfortunately, there isn't any such thing as a "Real Estate CPA" so you have to do some digging.   I searched on BP but didn't have much luck.

Later I found a web site where I could search for any CPA in my state.   I created a list of about 100 CPAs within 10 miles or so. We wanted a firm big enough so if someone was on vacation or sick we still had support, but small enough we could get attention.  I filtered out the large firms and the single-person operators.   We also wanted someone fairly tech savvy so filtered out any without any web presence.  Almost all of the web sites, the CPAs will talk about their experience, so we found ones that had real estate in their background.  We narrowed it down to six firms.

I then set up interviews with each of the six firms and it quickly boiled down to one that we really liked so we went and met them in person.  They have been our CPA for the past 3 years now and it was a huge step up from the CPA we had been using in the past.

Do I need a real estate specific accountant?

Most Popular Reply