Pennsylvanians who invest in real estate, whether for a personal residence, rental property, or investment, need the help of a CPA to navigate the complex tax issues involved in order to maximize profit and minimize their tax burdens. At PSTAP, we offer ongoing education to accountants and CPAs, including in the area of real estate. Please visit the course catalog on our website and watch for upcoming seminars on real estate in order to give your clients the best advice and most up-to-date tax support and to grow your practice.
For your clients whose only real estate property consists of a personal residence and perhaps a vacation property, your clients will need your guidance on home office deductions, depreciation of major expenses such as replacing a roof, and tax issues surrounding the selling of one home and buying of another. These tend to be straightforward issues for most accountants, tax preparers, and CPAs. Rental properties and real estate investment businesses are more complicated and are best handled by a CPA.
Rental real estate
Rental properties may be in the form of renting out part of a building that you also live in or renting out a building that is not your personal residence. It is critically important for your clients to keep meticulous records. In your capacity as a CPA, you can advise them on the best manner in which to maintain these records. It is best if they invest in a good bookkeeping program, or even better, utilize a program that can integrate with yours so that you have access when completing financial statements and taxes.
Examples of some issues to address for rental property:
- Properly recording rental income, expenses paid by renters as rental income, and rent paid in kind (such as a painter doing a paint job for the client in lieu of paying rent)
- Properly completing Schedule E forms for each property owned
- Properly dividing allowable expenses between Schedule E and Schedule A when the client rents out a portion of the property in which he lives
- Proper depreciation of the rental property (separate from the value of the land) as well as capital improvements (new roof, etc.)
- Other tax issues associated with the buying and selling of property, best use of capital gains or losses to maximize tax advantages and minimize tax liabilities
Real estate investment
Real estate investment businesses have their own unique tax and financial issues that need to be carefully monitored and analyzed throughout the year to help the investor maximize profit. Your client would do best to hire you as an ongoing member of his team of advisors. Many real estate CPAs pursue additional training, even getting a real estate license, in order to provide this niche industry with the service they require. This is a very lucrative field for CPAs.
As an advisor to a real estate investor, you can recommend the most advantageous legal structure for their particular goals, whether that be sole proprietor, LLC, or S corporation.
You can help evaluate the potential value of specific properties, cash flow projections, and accurate tracking of all expenses associated with the purchase or sale. Different types of purchases have different tax implications, such as rental properties, real estate development, business properties, and real estate investment trusts. By teaming up with the investor, you can advise on the tax implications of each, completing analysis of tax deductions and credits, best depreciation methods, and other key tax and accounting issues to help your client make the best financial decisions.
Throughout the year, you are there to track and advise on expenditures, provide financial reports, and recommend tax-friendly business decisions.
In a 1031 exchange, which allows investors to defer capital gains taxes by reinvesting income from the sale into a similar property, your guidance will keep your client in compliance with all tax laws and relevant regulations.
With your detailed knowledge of federal, state, and local tax laws and up-to-date knowledge of recent relevant changes to the tax code, you can advise on the best application of capital gains or losses and provide strategies for maximizing tax advantages and minimizing tax liabilities.
You are an invaluable asset to your clients when it comes to real estate investments, whether that be the family home, a rental, or investment properties. Continue your education in these important areas in order to provide your clients with the very best service and expand your practice into a lucrative niche.
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