Tax Question

4 Replies

My wife and I have decided to go full steam ahead with building out rental portfolio. We are currently closing on our second property under our newly formed LLC. With tax season fast approaching, we are wondering if we need to look for a RE specific tax professional, or if we can go to a local couple that run their tax business out of their home. They do single, business, commercial, etc.
Are there any tax write off's or benefits that are commonly missed that we could take advantage of? Our LLC is majority owned by my wife, which makes it a minority owned business. Any perks there we should look for? Thanks in advance.

I think you can use a reputable local. REI is a common strategy, so local CPA can go pretty far with you while you're getting started. As you grow your portfolio and your income/networth is more real estate focused, you might want to evaluate other options.

Congrats on the start!

Rick

@Steve Jeffries congrats on your success! As @Rick Baggenstoss mentioned, if you can find a solid CPA that is local to you, that may be a great option.

However I would caution you in using just any CPA. Real estate tax knowledge is niche, which is why you see some of us advocating that real estate investors utilize real estate savvy CPAs as soon as possible (even if you only own one property). There are two reasons: (1) we obviously have a business interest in clients going non-local and (2) we have seen, time and time again, new clients come to us who have either prepared their own returns or used a non-real estate savvy CPA to prepare their returns and the result can quite literally cost the client thousands of dollars in missed opportunities or errors.

Two main questions I'd have for whomever you decide to utilize are: (1) do you invest yourself and (2) how many of your clients are real estate investors.

If the CPA doesn't invest themselves, how can they possibly know the intricacies of real estate investing tax? That's like selling a product you don't believe in. Additionally, if they don't have many real estate investors as clients, can they truly have see the wide variety of tax strategies specifically available to real estate investors?

There are two great vehicles the wealthy use to limit their tax liability: businesses and real estate. They wouldn't use a real estate CPA to advise on corporate international tax havens the same as they wouldn't use a business CPA to advise on the intricacies of the passive activity loss rules and the IRS Tangible Property Regulations.

Hope this helps!

I would second what Brandon Hall said that you need to be very careful using a CPA that isn't specialized in real estate. My wife and I have been using the same CPA for a few years up until last year's taxes. I had overseas taxes from being a contractor and he always got us a refund of around 6-8k with that and 1 property rented out. After returning for good and closing on a 5 unit property along with renting out another SFR we had, we ended up going over the threshold for income to be able to claim a deduction for renovations that we performed one one of our SFRs. Around 12k spent that he told me was lost. Leaving us with a HUGE tax bill! I took them to another CPA that a fellow REI recomended and paid less than half to have them done and cut 6k off our tax bill. Along with being informed that my 12k in receipts can just be carried over to this year! It makes all the difference having the right members on your team. Personally I would find someone that has a specialty in real estate like Brandon suggested.