accounting and tax basics for one rental property in my LLC

7 Replies

Last December I bought my second rental property and have deeded it over to my LLC which I set up for this purpose.

It has been cash flowing very well every month, so I'm thinking I'll have to pay income tax on the profits. Until now, I've been doing my own federal and state income tax returns through TurboTax.

I'm wondering about the basics of accounting and tax for this -- wondering what I don't know, that I don't know about it.

Do you have any tips or advice? Is it worth it at this point to hire an accountant? Or is it just an IRS form or two that are built into TurboTax that will flow the income through to increase my taxable income from my day job, no big deal? 

@Seth Nowak

I use H&R Block's online software (the one-step-up from-basic package), and it asks about rental property income right after employment income. It then adds everything together to get to total income. I would imagine TurboTax has the same feature. 

@Seth Nowak My opinion is that it depends on:

1) Your knowledge of the tax code

2) Your ability to be attentive to details

3) Your risk tolerance. 

Preparing your own return can certainly be cost effective and a good way to become more familiar with IRS rules and regulations. But obviously you'll want to make sure you are remaining compliant without leaving money on the table. That's where a professional could be helpful.

The benefit of deferring to a CPA or accountant is that they likely have a better handle on where you can bend/push the tax law to your advantage while not doing anything illegal/immoral. The basic goal is to ensure you have enough expenses and depreciation to balance out your income.

I'm by no means an expert along these lines, but even after doing my own personal tastes for 10+ years with Turbotax, I'm still learning things that could have saved money over the years.

Next year it's time for me to hire an accountant to handle my taxes. :)

@Seth Nowak

I'd suggest that since this is your second property and if you're planning to continue to add properties to your portfolio, this is a good time to bite the bullet and hire an accountant.  This is a biased opinion (because I am an accountant) but there are times when the savings on taxes you might incur will pay for the accountant's services.  If you're planning to stop at two properties, then I would suggest you spend some time really familiarizing yourself with the IRS Tax Code around rental properties and continue to do your taxes yourself to save money.

Probably the biggest tip I could give is around depreciation.  Many folks equate cash flow with taxable income.  Just because you're cash flowing doesn't mean you should have taxable income.  You need to ensure you're depreciating the value of property (excluding land) over the allowable time frame, likely 27.5 years if it's a residential property.  You can also depreciate appliances and other fixed assets as well to lower your tax liability.  

Thanks, everyone, this is quite helpful. 

I'my also an accountant (EA) so I, too, may be biased. Where I see the most benefit in using a pro is regarding depreciation. I have had new clients come to me who had been DIYers using Turbo Tax and their depreciation was way off. As a real estate investor, you definitely want to make sure your depreciation is accurate.

@Seth Nowak , how are you? I just publish a blog with ten real estate tax tips

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