Value of tax accountant/preparer with real estate specialty

12 Replies

Still in search of my 1st deal for a rental property.  Hoping the right deal is found by the end of this year.   I've used a tax preparer for several years and happy with her service.  I haven't inquired yet but I do not believe she has any specialty when it comes to real estate.  Should I be searching for someone immediately who knows how to navigate the real estate tax world for this year if I find a deal or can it wait until next year when cashflow is in full swing and I may be possibly purchasing another property? My primary residence is NJ and the investments will be out of state.

@Alberto Leonard you will want to work with a CPA who specializes in RE sooner than later, however you don’t need that before starting. Just make sure you open a dedicated bank account for your real estate and keep good records of expenses. That’s the main thing when you start. Be organized. Good luck!

Most CPAs have some preliminary knowledge of RE so I would not worry about that at the infancy of your investing career. They are versed in knowing how to depreciate properties as well as allocating the right amount of loss on your taxes where it makes sense. I would focus on starting and building your portfolio at this junction before going down the rabbit hole of CPA search. 

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A niche CPA is likely to be more expensive than a general one, but it may be worth paying a little more now if you're wanting to grow aggressively.  I'd rather have to only get my books set up right once at the beginning than go to a general CPA and then have to start over with a new CPA.

One of the biggest things I'll note on the front end is lots of people don't bring in a tax professional until they own a few rentals

And then there may be errors related to the properties from setup-year that now need to be corrected. 

If depreciation is set up incorrectly year 1 it stays incorrect forever until corrected. So if you don't bring on a professional in the beginning make sure you fully understand how to set up the properties for depreciation so a form 3115 isnt' required later to correct. 

Originally posted by @Natalie Kolodij :

One of the biggest things I'll note on the front end is lots of people don't bring in a tax professional until they own a few rentals

And then there may be errors related to the properties from setup-year that now need to be corrected. 

If depreciation is set up incorrectly year 1 it stays incorrect forever until corrected. So if you don't bring on a professional in the beginning make sure you fully understand how to set up the properties for depreciation so a form 3115 isnt' required later to correct. 

Thank you Natalie. I certainly have no intentions of handling the taxes myself. My concern was using a general CPA or one that specializes in real estate when I first begin to invest. My intention is to not have more than 10 locations.. mixed with SFH and small MFH..

Good advice from @Natalie Kolodij here. You will always benefit from having expertise on your team. If you are just getting started and are focused on SFRs, network around with your local REIA or other SFR investors you can connect with and see who they are using for tax and why. A simple consultation with one or two of them should land you in a pretty good spot.

As you grow, if you get into larger and more complex real estate transactions, you will DEFINITELY want to have experts on your team. My partner and I acquire MHPs with investor capital and have several tax advisors on our team to advise us on complex tax issues and strategies that will impact our investors and ourselves, both this year and in the future. You simply cannot ignore or overlook having qualified experts on your team, and having those who deeply understand the particular asset class of real estate you are investing in will be even more valuable. 

All the best,

Jack

@Alberto Leonard

My advice is to have your current tax lady prepare your 2021 taxes as early as possible and then find a real estate expert accountant to check out her work before it is filed. If she can do a decent job, which is very possible - stay with her. If her work had serious issues, you will know it, too, and will have a good reason to upgrade.

If you don't buy a property in 2021 or you buy a property that will need a lot of repairs before rentable - then the urgency of finding a real estate accountant will be very low.

If you start getting deeper into real estate, as in multiple and/or larger properties or complex deals - then you may need professional help sooner rather than later for proactive tax planning to prevent costly errors. But if you just want to get your feet wet at first, you may not need such help yet.

Some of my colleagues may disagree and suggest to hire one of us ASAP. I personally think it may be premature if you're starting small and slow.

@Alberto Leonard

As mentioned earlier, most tax professionals(that have years of experience, not the ones who started doing taxes last year) will have a general understanding of real estate taxes.

However, below are some unique tax laws to real estate investors
Section 121 Exclusion
1031 Exchange
QOF Exchange
199A deduction
Cost Segregation analysis
Etc

Best of luck

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