Real estate CPA for rental property and short-term rental owners
What makes a real estate CPA return different from a standard 1040
A W-2 employee with one job and a standard deduction can file a clean Form 1040 in under an hour. A real estate owner filing the same 1040 might attach a Schedule E for each property, a Form 4562 for depreciation, a Form 4797 for property sales, and possibly a Schedule C if they’re running short-term rentals with material participation. That one return just became five or six forms deep, and each one has its own set of rules that interact with the others in ways that aren’t always obvious.
The tax code treats rental income differently than earned income. Rental income reported on Schedule E is generally passive income under IRC Section 469, which means losses from your rental properties can only offset other passive income unless you qualify for one of the exceptions. That distinction alone trips up more owners than almost anything else we see. Someone with $40,000 in rental losses and $200,000 in W-2 wages expects to deduct those losses against their salary. In most cases, they can’t. The losses get suspended and carried forward, sometimes for years, until the property is sold or enough passive income shows up to absorb them.
Depreciation is another area where real estate tax returns diverge from everything else. The IRS requires you to depreciate residential rental property over 27.5 years and commercial property over 39 years using the straight-line method, per IRS Publication 946. You don’t get a choice about whether to take depreciation. The IRS will recapture it when you sell regardless of whether you claimed it, so failing to depreciate your property costs you the deduction now and still hits you with the tax later. We’ve seen owners lose tens of thousands of dollars this way.
A real estate CPA also has to track your adjusted basis in every property you own. Basis starts with your purchase price, gets increased by capital improvements, gets decreased by depreciation taken (or allowed), and gets adjusted again if you do a 1031 exchange. Losing track of basis means you can’t accurately calculate gain or loss when you eventually sell. And “eventually”. Always arrives faster than people expect.
Passive activity rules under IRC Section 469 create another layer of complexity that a general accountant may not deal with regularly. The $25,000 special allowance for active participation in rental activities phases out between $100,000 and $150,000 of modified adjusted gross income. Above $150,000 MAGI, the allowance disappears entirely. For most of our real estate clients, whose incomes exceed that threshold, rental losses are fully suspended unless they qualify as a real estate professional. That’s a specific tax status with strict requirements, and it changes the entire calculation.
Why this matters
Real estate tax returns involve depreciation schedules, passive activity limitations, basis tracking, and form attachments that don’t appear on most individual returns. A real estate CPA handles these intersections every day. A generalist accountant may see them a few times a year.
Rental property deductions your real estate CPA should catch
Every real estate owner knows they can deduct mortgage interest, property taxes, and insurance. Those are the easy ones. The deductions that actually move the needle are the ones that require judgment calls and proper classification, and they’re the ones most often missed on self-prepared returns.
Repairs versus improvements under IRC Section 263
This is the single most misunderstood area in rental property tax. A repair is deductible in the year you pay for it. An improvement must be capitalized and depreciated over the life of the asset. The difference between a $12,000 current-year deduction and a $12,000 expense spread over 27.5 years ($436 per year) is real money. The IRS tangible property regulations under Treas. Reg. 1.263(a)-3 provide a framework, but the application is fact-specific. Replacing a broken window is a repair. Replacing every window in the building is an improvement. Patching a section of roof is a repair. Putting on an entirely new roof is an improvement. Our real estate CPA team reviews every significant expenditure against these regulations because the classification directly affects your tax bill that year.
The de minimis safe harbor election lets you deduct items costing $2,500 or less per invoice (or $5,000 if you have audited financial statements) without capitalizing them, even if they’d otherwise be considered improvements. You have to make this election on your return each year. Skip it and you lose the benefit. We make this election for every real estate client.
Depreciation recapture under IRC Section 1250
Owners focus on depreciation deductions during the holding period and forget about recapture when they sell. Depreciation recapture on residential rental property is taxed at a maximum rate of 25% under IRC Section 1250, not at your ordinary income rate and not at the lower long-term capital gains rate. If you’ve owned a rental for 15 years and taken $150,000 in depreciation, you’ll owe up to $37,500 in recapture tax when you sell, on top of any capital gains tax on the appreciation. A real estate CPA plans for this from the day you buy the property, not the day you list it.
Travel expenses to rental properties
If you travel to your rental property to collect rent, make repairs, or inspect the condition of the unit, those travel costs are deductible. This includes mileage (70 cents per mile for 2024), airfare and meals at 50%. What many owners don’t realize is that travel to look at potential rental properties you’re considering buying is also deductible if you already own at least one rental. The trip has to be primarily for business, not a vacation with a quick drive-by of a property. We’ve seen audits where the IRS challenged exactly this distinction, and the documentation our clients had made the difference.
Property management fees, legal fees, and professional services
Fees paid to a property management company are fully deductible on Schedule E. So are legal fees related to the rental activity, eviction costs, accounting fees for real estate tax preparation, and the cost of advertising for tenants. What gets missed more often: the cost of a home office used exclusively for managing your rental properties, if you’re an active participant. That carve-out has saved some of our multi-property owners a few thousand dollars in deductions they hadn’t been claiming.
Insurance, HOA fees, and often-overlooked carrying costs
Landlord insurance premiums are deductible. So are flood insurance, umbrella policy premiums allocable to the rental properties, HOA dues, and condo common charges. Pest control, landscaping for the rental unit (not your personal residence), and even the cost of a lockbox or key safe for tenant access. These smaller deductions add up. On a portfolio of four or five properties, we routinely find $5,000 to $15,000 in deductions that weren’t being claimed.
Short-term rental tax rules that change the real estate CPA calculation
Short-term rentals through Airbnb and similar platforms have created a category of real estate income that sits uncomfortably between passive rental income and active business income. The tax treatment depends on how many days you rent the property, how many days you use it personally, and how much you participate in the management of the rental. Get the classification wrong and you’ll either overpay or file incorrectly.
The 14-day rule under IRC Section 280A(g)
If you rent your home or vacation property for 14 days or fewer during the year, the rental income is completely tax-free. You don’t report it. You don’t have to file a Schedule E for it. This is one of the few truly free tax breaks in the entire code. We have clients who rent out their Manhattan apartments during the U.N. General Assembly week or during New Year’s Eve and collect $8,000 to $15,000 completely untaxed. The catch: you can’t deduct any rental expenses either, but the trade-off is almost always worth it at those income levels.
Once you cross 14 days, everything changes. The property becomes a rental property subject to all the rules discussed above, and the allocation of expenses between personal and rental use gets complicated fast.
Material participation and Schedule C versus Schedule E
A short-term rental where the average guest stay is 7 days or less is not automatically treated as a passive rental activity. If you materially participate in the rental operation, it’s treated as a non-passive business activity reported on Schedule C. That means you get to deduct losses against your other income without any passive activity limitation. It also means you’ll owe self-employment tax on the net income, which is 15.3% up to the Social Security wage base ($176,100 in 2024) and 2.9% above that.
The material participation tests under IRC Section 469 require you to spend more than 500 hours during the year on the short-term rental activity, or more than 100 hours if no one else participates more than you. For operators who personally handle bookings, guest communication, cleaning coordination, pricing adjustments, and property maintenance, meeting the 500-hour threshold is common. For owners who hire a property management company to handle everything, it’s not. The classification matters because it determines whether losses are deductible against your W-2 income or suspended until you have passive income to offset.
A real estate CPA who works with short-term rental owners needs to understand this distinction and document it properly. The IRS has been paying more attention to STR operators in recent years, particularly those claiming material participation while also working full-time jobs. If you’re claiming 500+ hours on your Airbnb and also working 2,000 hours at your day job, you should have a contemporaneous activity log to support it. We help our clients set up tracking from the beginning of the year so the documentation is there if it’s ever needed.
State and local tax obligations for STR operators
Most cities and states impose occupancy taxes, hotel taxes, or transient lodging taxes on short-term rentals. In New York City, the hotel room occupancy tax is 5.875% plus a flat $1.50 to $2.00 per room per night. Airbnb collects and remits some of these taxes automatically in certain jurisdictions, but not all of them, and not always correctly. In Los Angeles, the transient occupancy tax is 14%. In Miami, there are county and state taxes that apply. Your real estate CPA needs to know which taxes are being collected by the platform and which ones you’re responsible for remitting yourself.
1031 exchanges and how they actually work for real estate CPA clients
Section 1031 of the Internal Revenue Code lets you defer capital gains tax when you sell one investment property and buy another of “like kind.” The concept sounds simple. The execution is anything but. We’ve watched clients lose their entire tax deferral because they missed a deadline by two days or received their sales proceeds directly instead of routing them through a qualified intermediary.
The rules, stripped down to what actually matters:
- Like-kind requirement: Any real property held for investment or business use can be exchanged for any other real property held for investment or business use. A single-family rental can be exchanged for a commercial building, raw land, or a multi-unit apartment complex. The “like-kind”. Requirement for real estate is broad. What doesn’t qualify: your personal residence, property held primarily for sale (inventory), and after the 2017 Tax Cuts and Jobs Act, any personal property.
- Qualified intermediary (QI): You cannot touch the sale proceeds. Period. A qualified intermediary must hold the funds between the sale of the relinquished property and the purchase of the replacement property. If the proceeds hit your bank account, even briefly, the exchange is disqualified. Choose your QI before listing the property. We’ve worked with the same group of QIs for years and can make introductions.
- 45-day identification period: From the date you close on the sale of your old property, you have exactly 45 calendar days to identify up to three potential replacement properties in writing to your QI. This deadline is absolute. No extensions, no exceptions. We start the identification process before the sale closes.
- 180-day completion period: You must close on the replacement property within 180 calendar days of selling the relinquished property (or by the due date of your tax return for the year of the sale, including extensions, if that’s earlier). Miss this deadline and the entire gain becomes taxable in the year of sale.
- Boot recognition: If you receive any cash or non-like-kind property in the exchange, that’s “boot”. And it’s taxable. If the replacement property has a lower mortgage than the relinquished property, the difference in debt relief is also treated as boot. Many owners are surprised by this. They sell a property with a $400,000 mortgage and buy a replacement with a $300,000 mortgage, thinking the exchange is fully deferred. It’s not. That $100,000 difference is taxable boot.
A real estate CPA who handles 1031 exchanges regularly, and who understands real estate accounting at the transaction level, knows these deadlines cold and structures the deal before the sale closes so nothing falls through the cracks. We coordinate with your real estate attorney, the QI, and the title company to make sure every document is in order. The alternative is paying capital gains tax plus depreciation recapture, which on a property held for 15 or 20 years can easily run into six figures.
A note on 1031 exchange chains
Some of our clients have done a series of 1031 exchanges over decades, rolling deferred gains from property to property. The basis tracking gets complicated. If you exchange a property you bought for $200,000, into a property worth $500,000, your basis in the new property isn’t $500,000. It’s your old basis adjusted for boot, exchange expenses, and accumulated depreciation. Lose that thread and you’ll overpay capital gains tax down the road, or worse, you won’t be able to prove your basis in an audit. We maintain the full exchange history for every client who does a 1031.
Cost segregation and accelerated depreciation for real estate owners
Standard depreciation spreads the cost of a residential rental building over 27.5 years. Cost segregation reclassifies components of the building into shorter-lived asset categories, 5-year, 7-year, and 15-year property, which lets you depreciate those components much faster. The result: larger deductions in the early years of ownership.
A cost segregation study is an engineering-based analysis that identifies building components like flooring, cabinetry, certain electrical systems, landscaping and decorative finishes that qualify for shorter depreciation lives under the Modified Accelerated Cost Recovery System (MACRS). On a $500,000 residential rental property, a typical cost segregation study might reclassify 20% to 30% of the building cost into shorter-lived categories. That’s $100,000 to $150,000 that gets depreciated over 5 to 15 years instead of 27.5 years.
When cost segregation makes financial sense
We don’t recommend cost segregation for every property. The study itself costs $5,000 to $15,000 depending on the size and type of property. For a $200,000 rental condo, the cost of the study may eat most of the tax benefit. For properties valued at $500,000 or more, the math almost always works. For properties over $1 million, it’s a question of when to do the study, not whether.
Cost segregation is particularly valuable if you qualify as a real estate professional under IRC Section 469 because your rental losses aren’t subject to passive activity limitations. You can use the accelerated depreciation deductions against your other income, which creates immediate cash flow from tax savings. For a W-2 earner whose rental losses are suspended, the accelerated depreciation still reduces future taxable income when the property is sold or when passive income materializes. The deductions don’t disappear. They just get used later.
Bonus depreciation phase-down
Under the Tax Cuts and Jobs Act of 2017, bonus depreciation allowed 100% first-year write-off of qualifying assets placed in service from September 28, 2017 through December 31, 2022. That percentage has been stepping down:
- 2023: 80% bonus depreciation
- 2024: 60% bonus depreciation
- 2025: 40% bonus depreciation
- 2026: 20% bonus depreciation
- 2027 and beyond: 0% (unless Congress extends it)
The phase-down makes cost segregation studies less dramatic in their first-year impact than they were in 2021 and 2022, but they still produce meaningful tax savings over the holding period. A real estate CPA should model the actual tax benefit under the current bonus depreciation percentage before you commit to the study. We run these projections for clients before they spend the money.
One thing most owners don’t realize: you can do a cost segregation study on a property you’ve owned for years and take a “catch-up”. Depreciation deduction in the current year using a change in accounting method (Form 3115). You don’t have to amend prior returns. The entire missed depreciation from the reclassified assets shows up as a one-time deduction. We’ve had clients pick up $60,000 to $100,000 in additional depreciation in a single year this way on properties they’ve held for a decade.
Multi-property portfolio accounting and the real estate CPA’s role
Owning one rental property is bookkeeping. Owning four or five is accounting. Owning ten or more is a full-time tracking operation that needs structure from day one. We work with portfolio owners who have properties across multiple states, held in different entities (LLCs, S-corps, partnerships), with overlapping 1031 exchange histories and mixed personal use. Keeping the numbers clean requires systems, not just good intentions.
Tracking basis across multiple properties
Every property has its own adjusted basis, which includes the original purchase price, closing costs allocable to the purchase, capital improvements made during the holding period, and accumulated depreciation. When you sell one property and buy two more through a 1031 exchange, the basis from the relinquished property gets allocated across the replacement properties based on their fair market values. We maintain a basis schedule for every property our clients own, updated annually, because reconstructing it years later from bank statements and HUD-1 settlement sheets is expensive and sometimes impossible.
Cost allocation between land and building
You can only depreciate the building, not the land. When you buy a property for $600,000, you need to allocate a portion to land and a portion to the building and its improvements. The IRS doesn’t prescribe a specific method, but they expect the allocation to be reasonable and supportable. Using the property tax assessment ratio is the most common approach. If the county assesses the property at $100,000 for land and $400,000 for improvements (an 80/20 split), applying that ratio to your purchase price gives you a depreciable basis of $480,000 on a $600,000 purchase. We’ve seen owners default to a 50/50 split or worse, depreciate the entire purchase price, and face recapture on a basis the IRS won’t accept.
Partial dispositions
When you replace a major component of a rental property, like a roof or an HVAC system, the old component still sits on your depreciation schedule unless you make a partial disposition election. Without the election, you’re depreciating both the old roof and the new roof simultaneously. The partial disposition election under Treas. Reg. 1.168(i)-8 lets you write off the remaining undepreciated basis of the old component in the year of replacement, then capitalize and depreciate the new one. This is a real estate CPA detail that saves money every time a significant component gets replaced.
Entity structure considerations
Many portfolio owners hold properties in separate LLCs for liability protection. Some of those LLCs are taxed as disregarded entities (reported on the owner’s individual return), some as partnerships (Form 1065), and some as S-corporations (Form 1120-S). Each structure has different reporting requirements and tax implications. An S-corporation holding rental real estate, for example, creates complications with the built-in gains tax if the property was contributed to the S-corp from a C-corp. A partnership return requires tracking each partner’s capital account, at-risk amount, and passive activity separately. Our real estate accounting team manages these structures across the entire portfolio.
Real estate professional status under IRC Section 469 and what your real estate CPA needs to prove
Real estate professional status (REPS) is the single most valuable tax classification for rental property owners with high incomes. It removes the passive activity limitation on rental losses, which means losses from your rental properties can offset your W-2 wages, business income, investment income, and everything else. For owners with large portfolios carrying significant depreciation deductions, REPS can reduce their federal tax bill by $30,000 to $100,000 or more per year.
The qualification requirements under IRC Section 469(c)(7) are specific:
- 750 hours: You must spend more than 750 hours during the tax year performing services in real property trades or businesses in which you materially participate.
- More than half: More than half of the personal services you perform during the year must be in real property trades or businesses. If you work a full-time job outside of real estate, this test is extremely difficult to meet. A person working 2,000 hours at a corporate job needs more than 2,000 hours in real estate activities to pass.
- Material participation in each rental: You must also materially participate in each rental activity, unless you make an election to group all rental activities as a single activity (the grouping election). Without grouping, you need to materially participate in each property separately, which is impractical for most portfolio owners.
The grouping election is filed by attaching a statement to your tax return in the first year you want the grouping to apply. Once made, it generally can’t be revoked unless there’s a material change in facts. A real estate CPA who understands REPS will file this election proactively in the first year the client qualifies.
Audit risk and documentation
REPS claims get audited at a higher rate than almost any other position on an individual return. The IRS knows the stakes are high and they challenge the hours regularly. The Tax Court has sided with the IRS in cases where the taxpayer relied on estimates or reconstructed their hours after the fact. In Truskowsky v. Commissioner, the court denied REPS because the taxpayer couldn’t produce contemporaneous records of their time spent. In Almunaseer v. Commissioner, the court found the taxpayer’s logs were created after the audit began and rejected them as unreliable.
We tell every client pursuing REPS: keep a daily log. Write down what you did, which property it was for, and how long it took. Use a spreadsheet, a notebook, or an app. It doesn’t matter what format you use as long as it’s contemporaneous. Don’t wait until April to reconstruct a year’s worth of hours from memory. The IRS won’t believe it and neither will a Tax Court judge.
Spouses filing jointly can meet REPS based on either spouse’s hours, but they can’t combine their hours. If one spouse works full-time in real estate and the other works a corporate job, the real estate spouse’s hours are the ones that count. We’ve worked with married couples where one spouse transitioned from full-time employment to full-time property management specifically to qualify for REPS, and the tax savings justified the change.
Common mistakes we see on rental property tax returns
After four decades of real estate accounting and rental property tax preparation, we’ve developed a pretty good sense of where things go wrong. These are the patterns we see repeatedly, even from otherwise careful owners.
Mixing personal and rental use without proper allocation
If you use a rental property for personal purposes, the IRS requires you to allocate expenses between rental and personal use based on the number of days used for each purpose. A property rented for 300 days and used personally for 30 days gets 90.9% of its expenses allocated to rental. But “personal use”. Includes any day a family member uses the property, even if they pay fair market rent, unless they pay full fair market value and you treat it like an arms-length transaction. We catch this allocation error on about one in five returns we review from new clients.
Failing to track basis from the beginning
Owners buy a property, make improvements over the years, do a 1031 exchange, buy another property, make more improvements, and then sell the final property. When the real estate CPA asks for basis documentation, they can’t produce it. Closing statements from 15 years ago are lost. Records of capital improvements weren’t kept. The result: they either overpay capital gains tax because they can’t prove their basis was higher, or they take an aggressive position without support and hope it doesn’t get audited. Neither outcome is good. We set up basis tracking at the time of purchase for every client.
Ignoring depreciation or depreciating incorrectly
Some owners skip depreciation entirely because they don’t want the recapture when they sell. This is a losing strategy. The IRS recaptures depreciation “allowed or allowable”. Under IRC Section 1250. That means they’ll recapture it whether you took it or not. You’re giving up the deduction now and paying the tax later regardless. Other owners depreciate the full purchase price including land, or use the wrong recovery period, or forget to adjust the depreciable basis after a 1031 exchange. Each of these errors compounds over time.
Not separating land from building in the purchase allocation
We mentioned this above, but it’s worth its own callout because we see it so often. An owner buys a property for $750,000 and starts depreciating $750,000 over 27.5 years. Land isn’t depreciable. If 25% of the property value is land, they’ve been over-depreciating by $6,818 per year. Over 10 years, that’s nearly $70,000 in depreciation they’ll have to give back, plus penalties and interest if the IRS catches it. A real estate CPA gets this allocation right on day one.
Missing the Section 199A qualified business income deduction on rental income
Rental income can qualify for the 20% Section 199A deduction if the rental activity rises to the level of a trade or business. The IRS issued a safe harbor in Revenue Procedure 2019-38 that treats a rental as a trade or business if you spend at least 250 hours per year on the activity and maintain separate books and records. Many owners don’t know about this safe harbor or don’t track their hours, and they leave a 20% deduction on the table. On $80,000 of net rental income, that’s a $16,000 deduction that reduces federal tax by $3,500 to $6,000 depending on your bracket.
How we work with real estate owners as their real estate CPA
Tax returns are filed in April (or October with an extension), but real estate tax planning happens all year. The decisions that affect your tax bill, when to buy, when to sell, when to do a 1031 exchange, whether to elect REPS, whether to do a cost segregation study, how to structure entity ownership, are made during the year, not at filing time. By the time you’re sitting in our office in March handing over your documents, the tax planning window for the prior year is already closed.
That’s why we structure our real estate CPA engagements as year-round relationships, not seasonal transactions. Here’s what that looks like:
Onboarding and baseline review. When you come to us as a new client, we start by reviewing your entire real estate portfolio. We look at every property, every entity, every depreciation schedule, and every prior-year return. We reconstruct basis if needed, correct depreciation errors from now on, and identify planning opportunities that weren’t being used. This initial review typically takes two to four weeks and covers the full scope of your individual and business tax situation.
Year-round planning calls. We talk to our real estate clients when decisions are being made, not after they’ve been made. Thinking about buying another property? Call us first so we can model the tax impact and discuss entity structure. Considering selling? Let’s talk about 1031 exchange logistics before you list it. Getting close to the 750-hour threshold for REPS? Let’s make sure you’re tracking properly.
Tax return preparation. We prepare the full package: Form 1040, all Schedules E, depreciation schedules, Form 4562, Form 8582 for passive activity limitations, Form 8825 for rental income in partnerships and S-corps, and any state returns required. For our New York City clients, that includes NY State and NYC returns, plus UBT calculations if the rental is held through an entity subject to the Unincorporated Business Tax.
Estimated tax projections. Real estate income fluctuates. A property that was vacant for three months or had a major repair expense can change your tax picture significantly. We update estimated tax projections quarterly so you’re not surprised by a large balance due in April.
Audit support. If the IRS or New York State questions anything on your return, we handle it. Our IRS and state representation team responds to notices, prepares documentation, and represents you in examinations. For real estate returns, the most common triggers are REPS claims, large rental losses, and 1031 exchange reporting. We’ve defended all of these.
Whether you need a real estate tax accountant for a single rental condo or a CPA for real estate investors managing a 20-property portfolio, the process is the same. Our office is at 350 East 62nd Street in New York City, and we’ve been here for more than 40 years. We’re members of the AICPA and the New York State Society of CPAs. We work with real estate owners across the country, not just in New York, though our NYC clients benefit from our deep familiarity with New York’s uniquely aggressive state and city tax rules.
Want to know what your real estate tax return would cost? Use our tax return fee estimator to get a ballpark, then submit a new client inquiry to start the conversation.
Related Services
Real estate CPA services by city
IRS Schedule E Instructions (Supplemental Income and Loss)
IRS Publication 527 — Residential Rental Property
IRS Publication 946 — How to Depreciate Property
IRC Section 1031 — Like-Kind Exchanges
IRC Section 469 — Passive Activity Losses and Credits
IRC Section 280A — Disallowance of Expenses in Connection with Dwelling Unit Used as Residence
IRC Section 263 — Capital Expenditures
IRC Section 1250 — Gain from Dispositions of Certain Depreciable Realty
IRS Topic 415 — Renting Residential and Vacation Property
New York State Department of Taxation and Finance
California Franchise Tax Board
Florida Department of Revenue
The Reed Corporation — Individual Tax Returns
The Reed Corporation — Client Accounting Services
How Form 1040 Tax Returns Work
Schedule E — Supplemental Income
Tax Services for Real Estate Agents
Tax Return Fee Estimator
Frequently asked questions
What does a real estate CPA do differently than a general accountant for rental property owners?
The difference between a real estate CPA and a general accountant shows up the moment a rental property hits your tax return. A general accountant can file a Schedule E and plug in the numbers you give them. A real estate CPA knows where the numbers come from, why they matter, and how they connect to the rest of your return in ways that directly affect your tax bill. The distinction isn’t just about specialization for its own sake. It’s about money left on the table versus money in your pocket.
Start with depreciation. A general accountant knows that residential rental property is depreciated over 27.5 years. A real estate CPA knows that the depreciable basis needs to be calculated by subtracting the land value from the total purchase price, that the land-to-building allocation should be supportable using property tax assessment ratios or an independent appraisal, that closing costs like title insurance and recording fees get added to basis, that transfer taxes paid by the buyer increase basis, and that points paid on the mortgage to acquire the property can be amortized over the life of the loan. Each of these details changes the annual depreciation deduction, and over 10 or 15 years of ownership, the cumulative effect is significant. We’ve taken over returns from general accountants and found depreciation errors, both over-depreciation and under-depreciation, going back years. Correcting them requires either amended returns or a Form 3115 change in accounting method, which a real estate CPA knows how to file.
The repair-versus-improvement classification under IRC Section 263 and the tangible property regulations is another area where a real estate CPA earns their fee. A general accountant might capitalize everything over a certain dollar amount. A real estate CPA analyzes each expenditure against the unit-of-property rules, the betterment and adaptation tests, and the safe harbor elections (de minimis safe harbor, small taxpayer safe harbor, routine maintenance safe harbor). The result is that more expenditures get deducted currently instead of being capitalized and depreciated over 27.5 years. On a property where the owner spent $25,000 on repairs and improvements during the year, proper classification under these rules can shift $10,000 or more from a capitalized improvement to a current-year deduction. At a 32% marginal tax rate, that’s $3,200 in tax savings in the current year.
Passive activity rules under IRC Section 469 are where general accountants most often get it wrong. A real estate CPA understands the $25,000 active participation allowance and its phase-out between $100,000 and $150,000 MAGI, the real estate professional exception under Section 469(c)(7), the material participation tests under Temp. Reg. 1.469-5T, the grouping election for rental activities, and the at-risk rules under Section 465 that apply before the passive activity rules even come into play. A general accountant might apply the passive loss limitation incorrectly, either allowing losses that should be suspended or suspending losses that could have been deducted with proper documentation and elections. We’ve reviewed returns where the taxpayer qualified for real estate professional status but the accountant didn’t know to apply it, resulting in $40,000 or more in unnecessarily suspended losses.
A real estate CPA also handles 1031 exchanges with the technical precision they require. The basis calculations in a 1031 exchange are not intuitive. The basis of the replacement property is not its purchase price. It’s the basis of the relinquished property, adjusted for boot paid or received, exchange expenses, and any gain recognized. A general accountant who doesn’t do exchanges regularly may set up the replacement property’s depreciation schedule using the wrong basis, which means every year of depreciation from now on is wrong. We’ve corrected this error on returns taken over from other firms, sometimes going back 10 or 15 years to the original exchange.
State tax complexity adds another layer. A real estate CPA with clients in multiple states knows that each state has its own rules for depreciation conformity (some states don’t follow federal bonus depreciation), passive activity limitations (some states have their own passive loss rules that differ from federal), and withholding requirements on rental income earned by out-of-state owners. New York, for example, requires nonresident owners of rental property in New York to file a NY nonresident return and report the rental income. If the property is held through a partnership or S-corp, the entity may be required to withhold estimated tax on the nonresident owner’s share of income. A general accountant in Texas preparing a return for an owner with a rental in New York may not know about these filing requirements.
The real estate CPA also brings year-round advisory that a seasonal tax preparer doesn’t. Entity structure advice (should you hold this property in a single-member LLC, a multi-member LLC, an S-corp, or in your own name?), timing of property sales to manage bracket exposure, planning for depreciation recapture under IRC Section 1250, and coordination with real estate attorneys and lenders on transactions. These aren’t April conversations. They happen throughout the year as decisions come up.
Estimated tax calculations are another area where a real estate CPA adds value. Rental income and expenses fluctuate throughout the year. A vacancy in Q2, a large repair in Q3, or a rent increase in Q4 all change the projected tax liability. A real estate CPA recalculates estimated payments quarterly so you’re not overpaying or underpaying. Underpayment penalties under IRC Section 6654 apply if you owe more than $1,000 at filing and haven’t paid at least 90% of the current year’s tax or 110% of the prior year’s tax (for higher-income filers). Getting these projections right takes more than plugging numbers into a calculator. It requires understanding how rental income interacts with your other income sources across the year.
We’ve been preparing real estate tax returns at The Reed Corporation for over 40 years. The clients who come to us from general accountants almost always have the same reaction after their first return with us: “I didn’t know I was missing all of that.” The fees for a real estate CPA are higher than a general accountant, typically $500 to $2,000 more per return depending on complexity. But the additional deductions, correct classifications, and properly filed elections usually save multiples of that difference. If you own rental property, the question isn’t whether you can afford a real estate CPA. It’s whether you can afford not to have one. Start with our fee estimator to get a sense of cost, then reach out if you’d like to talk specifics.
How does a real estate CPA handle depreciation and cost segregation for investment properties?
Depreciation is the single largest non-cash deduction available to rental property owners, and how your real estate CPA handles it determines whether you’re getting the full benefit or leaving money behind. The basics sound simple: divide the building’s depreciable basis by 27.5 years for residential property or 39 years for commercial property, and you get your annual depreciation deduction. But the details underneath that calculation are where a real estate CPA’s experience matters most.
The depreciable basis isn’t just the purchase price. A real estate CPA calculates it by starting with the total acquisition cost (purchase price plus buyer-paid closing costs like title insurance, attorney fees, recording fees, and transfer taxes), then subtracting the value of the land. Land is never depreciable. The allocation between land and building is done using one of several methods: the property tax assessment ratio, an independent appraisal, or in some cases, the insurance replacement cost for the building. Each method can produce a different split, and the IRS will accept any reasonable method as long as it’s supported. A real estate CPA picks the method that gives you the most favorable allocation while staying defensible. On a $1 million property, the difference between a 20% land allocation and a 30% land allocation is $100,000 in depreciable basis, which translates to about $3,636 per year in additional depreciation deductions over 27.5 years.
Cost segregation takes this a step further. Instead of depreciating the entire building as a single asset over 27.5 years, a cost segregation study breaks the building into its component parts and assigns each component to the correct asset class under the Modified Accelerated Cost Recovery System (MACRS). Building components like cabinetry, countertops, decorative molding, certain electrical wiring, carpeting, appliances, landscaping, parking areas, and sidewalks qualify for shorter depreciation lives: 5 years, 7 years, or 15 years. By reclassifying these components out of the 27.5-year building class, you accelerate the depreciation deductions into the early years of ownership.
A real estate CPA evaluates whether cost segregation makes sense for each property based on the property’s value, the owner’s tax situation, and the current bonus depreciation percentage. On a $750,000 residential rental property, a cost segregation study might reclassify $180,000 (24%) into shorter-lived categories. With 60% bonus depreciation in 2024, you’d get $108,000 in first-year depreciation on those reclassified assets, compared to $6,545 per year under straight-line depreciation. The immediate tax savings at a 35% marginal rate would be roughly $37,800 in the first year, minus the cost of the study ($7,000 to $12,000 for a property of this size). The net first-year benefit is $25,800 to $30,800. That math works for most owners.
For properties purchased in prior years, a real estate CPA can still capture the benefit through a “look-back”. Cost segregation study combined with a Form 3115 change in accounting method. The entire catch-up depreciation from the reclassified assets, for all the years since the property was placed in service, is taken as a single deduction in the current year (reported as a Section 481(a) adjustment). We had a client who bought a commercial property in 2016 for $1.2 million and had been depreciating it over 39 years. In 2023, we did a cost segregation study that reclassified $310,000 into shorter-lived categories. The catch-up depreciation was over $240,000, taken entirely in 2023. That single deduction reduced his federal and state tax bill by more than $85,000 for the year. He’d been leaving that money behind for seven years without knowing it.
A real estate CPA also manages the ongoing depreciation schedules after a cost segregation study. Each reclassified component has its own recovery period and convention (half-year or mid-quarter). The depreciation schedule for a single property after cost segregation might have 40 to 60 individual line items on Form 4562, each with its own placed-in-service date, basis and recovery period. When you then make capital improvements to the property, those improvements need to be analyzed for their own component classification. Replacing the roof adds one line item. Renovating a kitchen might add a dozen, because the cabinets, countertops, appliances and lighting are each potentially different asset classes.
The interaction between depreciation and passive activity rules is another area where a real estate CPA’s experience matters. Accelerated depreciation from cost segregation creates larger rental losses. If those losses are passive (which they are for most W-2 earners above $150,000 MAGI), they’re suspended under IRC Section 469 until you have passive income to absorb them or until you sell the property. The suspended losses aren’t lost. They carry forward indefinitely. But if you qualify as a real estate professional, those losses are non-passive and deductible against all income. That’s why cost segregation paired with real estate professional status is such a powerful combination. A $200,000 depreciation deduction that reduces your taxable income from $400,000 to $200,000 is worth roughly $50,000 to $70,000 in federal tax savings, depending on your bracket and state.
The bonus depreciation phase-down schedule (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027) affects the timing of cost segregation studies. A real estate CPA should be advising you to do the study sooner rather than later if you’re considering one, because the first-year benefit decreases each year. At the same time, even without bonus depreciation, cost segregation still accelerates deductions through the shorter recovery periods. The 5-year property gets depreciated using 200% declining balance method, which front-loads the deductions. The 15-year property uses 150% declining balance. Both are faster than the 27.5-year straight-line method.
One more consideration: depreciation recapture. When you sell a property, all the depreciation you’ve taken (including the accelerated depreciation from cost segregation) is subject to recapture at a maximum 25% rate under IRC Section 1250. Cost segregation doesn’t create new recapture exposure. You’d owe the same recapture whether you took the deductions over 27.5 years or in the first five. But you got the tax benefit earlier, which means you had use of that money for years before the recapture comes due. And if you do a 1031 exchange instead of selling outright, the recapture is deferred along with the gain. A real estate CPA models the full lifecycle: purchase, depreciation, potential sale or exchange, and recapture, so you understand the complete picture before committing.
If you’re considering a cost segregation study, your real estate CPA should run a projection showing the net tax savings after the cost of the study, factoring in your marginal tax rate, passive activity status, state tax situation, and planned holding period. The tax planning team at The Reed Corporation does this routinely for our real estate clients, and we can tell you within a few days whether the study pencils out for your property.
What tax deductions can a real estate CPA help rental property owners claim?
Rental property owners are entitled to dozens of deductions that reduce the taxable income from their properties. Most owners know the obvious ones: mortgage interest, property taxes, insurance. The value of working with a real estate CPA is in the deductions you don’t know about, the ones that require specific elections, proper classification, or documentation that a general accountant might not think to prepare.
Mortgage interest is the biggest deduction for most used rental properties. Interest on acquisition debt, refinance debt (to the extent of the original acquisition debt), and home equity debt used for property improvements is fully deductible on Schedule E against rental income. A real estate CPA tracks the amortization schedule and ensures only the interest portion (not the principal) is deducted, and properly handles refinance situations where the new loan exceeds the prior loan balance. The excess interest on a cash-out refinance is deductible only if the cash-out proceeds are used for the rental property itself. If you used the cash-out to buy a car, that portion of the interest isn’t allocable to the rental.
Property taxes are deductible in full against rental income. This is different from the $40,000 SALT cap that applies to property taxes on your personal residence. The SALT limitation under Section 164(b)(6) does not apply to property taxes paid on rental real estate, because those taxes are business expenses deductible on Schedule E, not itemized deductions on Schedule A. We see this mistake on self-prepared returns where the owner lumps all property taxes together under the $10,000 cap. Your real estate CPA should be deducting rental property taxes separately on Schedule E with no limitation.
Repairs and maintenance get a full current-year deduction if properly classified. This includes plumbing repairs, electrical fixes, painting (interior or exterior), broken window replacement, appliance repair, patching the roof, fixing the furnace, replacing doorknobs, and similar activities that maintain the property in its current condition. A real estate CPA applies the tangible property regulations under Treas. Reg. 1.263(a)-3 to distinguish repairs from improvements. The de minimis safe harbor election allows you to deduct items costing up to $2,500 per invoice ($5,000 with audited financials) even if they’d otherwise be considered improvements. The small taxpayer safe harbor under Rev. Proc. 2015-20 lets you deduct improvements up to the lesser of $10,000 or 2% of the unadjusted basis of the building if you meet the criteria. Each of these elections needs to be made on the tax return. A real estate CPA makes them automatically.
Travel expenses to rental properties are deductible but frequently missed. Mileage to and from the property for maintenance, repairs, tenant showings, rent collection, and inspections is deductible at the IRS standard mileage rate (70 cents per mile for 2024). If your rental property is out of state, airfare, hotel, and 50% of meals are deductible for trips where the primary purpose is managing the property. We’ve had clients with rental properties in Florida who fly down quarterly for inspections and maintenance. Those trips are fully deductible as long as the primary purpose is the rental activity, not a vacation. Keep receipts and a contemporaneous log of activities performed during the trip.
Professional fees are another category a real estate CPA ensures you’re capturing. This includes fees paid to property management companies (typically 8% to 12% of gross rents), legal fees for lease drafting or eviction proceedings, accounting and tax preparation fees allocable to the rental properties, and appraisal fees for refinancing or insurance purposes. HOA dues, condo association fees, and co-op maintenance charges are deductible. So are tenant screening costs, credit check fees, and advertising expenses for finding new tenants.
Insurance premiums beyond the basic landlord policy are often missed. Umbrella insurance premiums allocable to the rental properties, flood insurance, earthquake insurance, rent guarantee insurance, and even workers’. Compensation insurance if you have employees working on the property are all deductible. If you have a combined umbrella policy covering your personal assets and rental properties, a real estate CPA will allocate the premium between personal (non-deductible) and rental (deductible) based on the coverage amounts.
Utility expenses paid by the landlord are deductible: water, sewer, trash, gas, electric, internet (if provided to tenants as an amenity), and phone lines dedicated to the rental business. If you pay for landscaping, snow removal, or pest control at the rental property, those are deductible too. Individually, these might seem small, but across four or five properties, they can add up to $8,000 to $20,000 per year.
The Section 199A qualified business income deduction is one of the most valuable and most overlooked deductions for rental property owners. If your rental activity qualifies as a trade or business (either because the IRS safe harbor in Rev. Proc. 2019-38 is met, or because the activity meets the general trade-or-business standard), you can deduct 20% of the net rental income as a Section 199A deduction. For a rental generating $100,000 in net income, that’s a $20,000 deduction. The safe harbor requires 250 hours of rental services per year and separate books and records for each rental. A real estate CPA sets up the tracking and makes the safe harbor election. It’s a statement attached to the return, and missing it means losing the deduction.
Home office deductions for a space used exclusively for managing rental properties are available to owners who actively manage their rentals. If you have a dedicated room where you handle bookkeeping, tenant communications, and property management tasks, you can deduct a proportionate share of your home expenses (rent or mortgage interest, utilities, insurance) allocable to that space. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum). The actual expense method can produce a larger deduction if your home costs are high. Our bookkeeping team can help you track these expenses properly throughout the year.
Depreciation itself is the largest non-cash deduction. Beyond standard straight-line depreciation, a real estate CPA looks at bonus depreciation on qualified improvement property, cost segregation opportunities, and the Section 179 deduction for certain tangible personal property used in the rental (like appliances and equipment). The interaction between these provisions and the passive activity rules determines how much of the depreciation actually reduces your current-year tax. A real estate CPA models this for each client every year. If you want to see how many of these deductions you’re currently missing, start with a consultation and bring your last two years of returns.
How does a real estate CPA help with 1031 exchanges and deferring capital gains?
A 1031 exchange lets you sell one investment property and buy another while deferring the capital gains tax and depreciation recapture tax that would otherwise be due at sale. It’s the most powerful tax deferral strategy available to real estate owners, and it’s also one of the most technically demanding. The role of a real estate CPA in a 1031 exchange starts well before the sale and extends through the purchase of the replacement property and the setup of its depreciation schedule.
The first thing a real estate CPA does is determine whether a 1031 exchange makes sense for you. Not every property sale benefits from an exchange. If your gain is small, the transaction costs of a 1031 (qualified intermediary fees, additional legal fees, and the constraint of having to identify and purchase a replacement property within strict deadlines) may not be worth the deferral. If you’re in a low-income year and your capital gains rate is 0% or 15%, paying the tax now and having unrestricted use of your proceeds might be the better move. A real estate CPA models both scenarios: the tax cost of selling outright versus the cost and constraints of a 1031 exchange.
If the exchange makes sense, the real estate CPA coordinates the mechanics. The first step is engaging a qualified intermediary (QI) before the sale closes. The QI is a third party who holds the sale proceeds in escrow. You can’t receive the money yourself, even for a day, or the exchange is blown. The QI must be in place and the exchange agreement must be signed before the closing of the sale. We’ve had situations where a seller was three days from closing and hadn’t set up a QI. We got it done in time, but barely. Don’t cut it that close.
Once the relinquished property is sold, the 45-day identification clock starts. You have exactly 45 calendar days to identify potential replacement properties in writing to your QI. The identification rules allow three variations: the Three-Property Rule (identify up to three properties regardless of value), the 200% Rule (identify any number of properties as long as their combined fair market value doesn’t exceed 200% of the relinquished property’s value), or the 95% Rule (identify any number, but you must acquire 95% of the total identified value). Most of our clients use the Three-Property Rule because it’s the simplest and most flexible. A real estate CPA helps you evaluate replacement properties during this 45-day window, modeling the tax implications of each option, including the amount of boot you’d receive if the replacement has less debt or lower value than the relinquished property.
Boot is the technical term for anything you receive in the exchange that isn’t like-kind real property. Cash boot is the most obvious: if you sell for $800,000 and only reinvest $700,000, the $100,000 difference is taxable boot. Mortgage boot is less obvious: if the relinquished property had a $500,000 mortgage and the replacement only has a $350,000 mortgage, the $150,000 in debt relief is treated as boot unless you offset it by putting additional cash into the deal. A real estate CPA calculates the boot exposure before you commit to a replacement property so you know exactly how much of the gain will be taxable. We’ve had clients change their financing structure on the replacement property specifically to avoid boot that would have created a $40,000 or $50,000 tax bill.
The 180-day deadline for closing on the replacement property is the second hard deadline. There are no extensions. If your 180th day falls on a weekend or holiday, it doesn’t get pushed to the next business day. If your tax return (including extensions) is due before the 180th day, the earlier date controls. A real estate CPA calendars these deadlines and monitors the transaction to make sure nothing slips.
After the exchange closes, the real estate CPA’s work shifts to setting up the replacement property correctly on your tax return. The basis of the replacement property is not its purchase price. It’s calculated using the exchange basis formula: basis of relinquished property, minus boot received, plus boot paid, plus gain recognized, minus the old property’s liabilities assumed by the buyer, plus the new property’s liabilities assumed by you. This calculation determines your depreciable basis from now on, and getting it wrong means your depreciation deductions will be wrong for every year you hold the property. We track exchange basis using a detailed worksheet that follows the IRS Form 8824 reporting format.
The depreciation setup after a 1031 exchange has its own rules. The portion of the replacement property’s basis that carries over from the relinquished property (the “exchanged basis”) continues to be depreciated using the old property’s method and remaining recovery period. Only the “excess basis,”. Meaning any additional value in the replacement property above the exchanged basis, starts a new depreciation schedule with a new 27.5-year or 39-year life. This two-layer depreciation schedule is something a real estate CPA handles routinely but a general accountant may not be familiar with. Errors here compound over time and create problems when the replacement property is eventually sold or exchanged again.
Serial exchanges, where you exchange from one property into another, and then years later exchange that property into a third, create a chain of deferred gains and adjusted bases that must be tracked across the entire history. We have clients who have done four or five exchanges over 20 years. Their current property’s basis traces back to the original purchase two decades ago. Lose any link in that chain and you can’t prove your basis in the current property. A real estate CPA maintains the full exchange history as a permanent file.
Reverse exchanges (buying the replacement before selling the relinquished property) and improvement exchanges (using exchange funds to improve the replacement property before taking title) are more complex variations that require an Exchange Accommodation Titleholder (EAT) to hold title temporarily. These structures are legal and well-established, but the documentation and compliance requirements are substantially more demanding. A real estate CPA who does these regularly knows the requirements and works with the EAT and real estate attorney to execute them properly. We handle these at The Reed Corporation and coordinate all parties involved.
One last point: the step-up in basis at death under IRC Section 1014 means that deferred gains in a 1031 exchange chain may never be taxed if the property is held until the owner passes away. The heirs receive the property with a stepped-up basis equal to its fair market value at the date of death, wiping out all the deferred gain. This is why real estate investors often say “exchange until you die.” A real estate CPA factors this into the long-term planning conversation, because it changes the calculus of whether to sell, exchange, or hold.
When should a rental property owner hire a real estate CPA instead of doing taxes themselves?
The honest answer is: the moment you buy your first rental property. But we know that’s not how it works in practice. Most rental property owners start by doing their own taxes, either with TurboTax or by handing their numbers to whatever accountant prepared their return before they owned real estate. They switch to a real estate CPA after something goes wrong: an IRS notice about unreported rental income, a surprise tax bill when they sell a property, suspended losses they didn’t know they had, or a nagging feeling that they’re paying more tax than they should be. By the time they make the switch, they’ve usually left a few years’. Worth of deductions unclaimed. The earlier you bring in a real estate CPA, the less cleanup there is to do.
That said, there are specific inflection points where the decision becomes unavoidable.
You own more than one rental property. A single rental property with one tenant, no significant repairs, and straightforward financing can be handled on a self-prepared return with some care. Two or more properties multiply the complexity. Each property has its own depreciation schedule, its own expense tracking, its own allocation of land versus building, and potentially its own entity structure. The passive activity limitations under IRC Section 469 apply at the aggregate level, meaning your losses from one property interact with income from another. The Form 8582 (Passive Activity Loss Limitations) is not intuitive, and errors in how you group your rental activities can result in deductions being suspended when they could have been allowed, or vice versa. A real estate CPA manages the interactions across your whole portfolio.
You’re considering or have completed a 1031 exchange. If you’re selling a property and thinking about exchanging into another one, you need a real estate CPA before the sale closes. The basis calculations, boot analysis, depreciation setup on the replacement property, and Form 8824 reporting all require precision that self-preparation can’t reliably deliver. An error on the exchange reporting doesn’t just affect one year. It affects every year of depreciation from now on and the eventual gain calculation when the replacement property is sold. We’ve corrected 1031 exchange reporting errors from prior-year returns that had been producing wrong depreciation deductions for a decade. The cost of fixing those errors was significantly more than the cost of having a real estate CPA handle the exchange correctly in the first place.
Your rental income is significant relative to your total income. If your rental properties generate $50,000 or more in gross rents, the stakes on your return are high enough that professional preparation pays for itself. At $100,000 in gross rents with expenses of $70,000 and depreciation of $20,000, the net rental income of $10,000 might seem modest. But the way those $70,000 in expenses are classified (repairs versus improvements, properly allocable versus personal), the accuracy of the $20,000 depreciation calculation, and the passive activity treatment of the net income or loss all have direct tax consequences. A real estate CPA’s fee of $1,500 to $4,000, depending on the number of properties and entities, is a fraction of the tax savings from proper classification and filing.
You’re trying to qualify as a real estate professional. Real estate professional status under IRC Section 469(c)(7) is the highest-stakes designation on a rental property owner’s return. It converts passive rental losses into non-passive losses that can offset wages, business income, and investment income. For owners with large portfolios and significant depreciation, REPS can save $30,000 to $100,000 or more per year in federal taxes. But the documentation requirements are strict, the IRS audits REPS claims aggressively, and the consequences of claiming it incorrectly include disallowed losses, back taxes, and penalties. A real estate CPA helps you document the 750-hour requirement with a contemporaneous log, makes the grouping election to treat all rentals as a single activity, and ensures the return is prepared in a way that’s defensible if examined.
You own short-term rentals on Airbnb or VRBO. Short-term rental tax treatment is more complicated than long-term rental tax treatment. The distinction between Schedule C and Schedule E reporting depends on the average rental period and your level of participation. Self-employment tax applies to Schedule C income but not Schedule E income. The 14-day exclusion under IRC Section 280A(g) creates a unique planning opportunity if your rental period is limited. State and local occupancy taxes add another layer. And the material participation documentation for STR operators is scrutinized by the IRS, particularly for owners who also work full-time jobs. A real estate CPA who works with STR operators knows these distinctions and handles them correctly.
You’re buying or selling a property and need to plan for the tax impact. The time to talk to a real estate CPA is before you close, not after. If you’re buying, we can advise on entity structure (hold in your name, a single-member LLC, a multi-member LLC, or an S-corp), land-versus-building allocation, cost segregation feasibility, and first-year deductions. If you’re selling, we can calculate the expected capital gains tax and depreciation recapture, evaluate whether a 1031 exchange makes sense, and help you time the sale to manage your bracket. These conversations are most valuable before the transaction closes, when you still have options. After closing, many of the planning opportunities are gone.
You’ve received a notice from the IRS or state tax authority. IRS notices related to rental property commonly involve unreported rental income (CP2000 notices matching 1099-MISC or 1099-K from Airbnb against your return), disallowed rental losses, or examination of REPS claims. A real estate CPA knows how to respond to these notices, prepare the supporting documentation, and represent you if the case escalates to an examination or appeals. Our IRS representation service handles this for our clients.
You’re overwhelmed and falling behind on record-keeping. If your rental property records are a shoebox of receipts, a pile of bank statements, and a vague memory of what you spent on repairs, you need help. A real estate CPA paired with a good bookkeeping setup can get your records organized, your depreciation schedules corrected, and your basis tracking established so that every future year is clean. The upfront investment in getting organized is a one-time cost. The annual savings from proper preparation last as long as you own the properties.
The cost of a real estate CPA versus self-preparation is real, usually $1,000 to $3,000 more per year depending on your situation. But the question you should ask isn’t “what does the CPA cost?” It’s “what am I missing by not having one?” The answer, in our experience, is almost always more than the fee. If you’d like to find out what a real estate CPA would do differently on your return, send us an inquiry and bring your last two returns. We’ll tell you exactly what we find.
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