One House Rental - Do I Need A CPA or Accountant

One House Rental - Do I Need A CPA or Accountant

Member since 2020 · 10 posts · 2 votes

Hello, my wife and I recently purchased a new primary residence and now renting out our previous primary residence.  We own the previous primary and so owe nothing on it.  I was able to rent it in less than 24 hours and now have a renter who signed a 2 year lease.  I used Zillow.  I can check their background/credit history and the applicant is the one who pays for that -- Very nice.

Anyways...On to my question.  I had a previous property that I rented out years ago and had a loss every month because it didn't cover my mortgage and other expenses I may have had -- I did this on purpose.  I say it to state I have some experience with renting.  The house I'm going to rent now, I own free and clear.  I practically have no expenses, except taxes, insurance, and I cover trash and water.  So, I'm making over $1000 a month.  I know how to figure out depreciation, but I never made profit every month.  

Do you guys have any idea of whether you would suggest getting an accountant or CPA type of person?  I'm not planning (At this time) to buy anymore investment properties.  I know, this thread might be difficult to give a firm answer, but your thoughts are helpful.

This isn't a mentor request, just some opinions

Thanks for your thoughts!

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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
6y

@Jason Raymer You don't need an accountant.  You can even use an excel sheet if you want.  But have a separate bank account just for the income and expenses on that property so you can easily keep track.  The only thing you need beyond that is a good cpa or tax preparer during tax season...one that is familiar with real estate taxation and works with other real estate investors.  

Best of luck!

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  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Jason Raymer You don't need an accountant.  You can even use an excel sheet if you want.  But have a separate bank account just for the income and expenses on that property so you can easily keep track.  The only thing you need beyond that is a good cpa or tax preparer during tax season...one that is familiar with real estate taxation and works with other real estate investors.  

    Best of luck!

  • Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
    6y
    Tax laws are complex and ever changing. You would benefit from the skills of a person on your team who is well qualified to assist you with tax advice, tax form preparation, tax filing, and tax representation with the IRS.  The size of your portfolio, the complexity of your business, and your own skills will factor into the type of professional best suited to meet your needs.  Try to find a professional who is well versed in working with real estate investors and rental property.  A CPA (Certified Public Accountant) or EA (Enrolled Agent) may serve you well. We have 17 rental units held in LLCs and no employees. An EA has been serving our needs very well for more than 25 years. If our business required the more advanced skills of a CPA, we would certainly look for a CPA.  All the best to you!
  • Member since 2020 · 10 posts · 2 votes
    6y

    Thank you both, Twana and Marcia, for your responses...They are helpful!

  • Member since 2020 · 10 posts · 2 votes
    6y

    @Twana Rasoul —

    I appreciate your help. Do you think I’d have to pay taxes quarterly or could I wait until tax time when I do my regular taxes❓

    My wife is concerned that we have to pay quarterly and if we don’t, we get penalized.

  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Jason Raymer No problem.  Really depends on your situation, if your day jobs are withholding enough then you may not need to but this would be a great question for a CPA in your area that can help guide you in the right direction.

    Best of luck!

  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Jason Raymer

    Whether or not you have to pay estimated taxes depends on several factors

    1) how much taxable income are your real estate related activities bringing in.
    If you are flipping houses - you likely should factor in quarterly estimated tax payments.
    If you are a buy and hold investor - estimated tax payments are likely not a factor unless you have a lot of high cash-on-cash investment properties.

    With that said - you likely can't make the determination of if you need to make quarterly estimated tax payments unless you understand your tax return/taxes very well or if you work with a CPA.

  • Member since 2020 · 10 posts · 2 votes
    6y

    @Basit Siddiqi --- 

    Thanks.  I just have this one rental property which is paid off and then one primary residence that I just bought.  So, I fit into invest and hold.  It's more for helping pay off the new primary I just bought, some retirement income, and it holds value in the future if I want to sell it.  I don't like to hold much cash.  I've had very good experiences with real-estate in the past.

    I don't flip houses.  I just had too much liquid just sitting in the bank doing nothing for me.  

  • Denver, CO · Member since 2016 · 50 posts · 25 votes
    6y

    There are a lot of variables to the situation depending on if you have other things to write off and the structure of other businesses/assets but going off your post I would assume no. I'd hold off on the Accountant until your portfolio gets more complicated.

  • Member since 2020 · 10 posts · 2 votes
    6y

    @Jamaal Gibbs —

    Yea, only write offs I would usually have are minimal.  The house is in great shape, only a couple things that would be of any significance that would be a write off -- those would be maybe around $1500.  My situation is a house in good shape (I've lived in it for the last 3 years) and a tenant that is very responsible and signed up for 2 years.  I'm betting they'll stay for 5 years.  It probably won't take much attention on my part.

    I have to say, this site has been very useful and people have been pretty responsive - I can't say all sites are this way.

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Jason Raymer keep in mind their is a difference between tax profit and profit after mortgage payment. The IRS only lets you deduct your interest portion of your payment. 

    Depreciation is generally your largest expense. For example a house with a basis of $200,000 would net you a $7272 deduction. So even if you are making $1000 a month after other expenses, your taxable income at the end of the year would be only $4728 ($12,000-$7272). If you are in the 25% tax bracket, that is $1182 in taxes owed. That is not enough to trigger any interest or penalty clauses with the IRS.

    I would hire a CPA to help you with establishing basis for depreciation and to make sure you are taking advantage of all possible deductions. 

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