A competent certified public accountant (CPA) in real estate can assist an investor in structuring transactions to minimize prospective tax liability while maintaining compliance. The tax burden significantly impacts the amount of wealth retained over the long term and the return on investment (ROI) whenever a property is sold.
Principal advantages of employing a real estate CPA:
The following are potential advantages of engaging a Real Estate CPA as opposed to an accountant:
Tax liability is minimized:
One of the most compelling reasons to engage a real estate CPA is that it may be to reduce tax liabilities. A qualified real estate CPA can find tax strategies to decrease or eliminate tax liability, even though many real estate investors already know how to submit a tax return.
Optimizing investments:
A certified public accountant (CPA) in real estate understands the nuances of state and federal tax regulations and how to use the rules to an investor’s advantage. A CPA can assist an investor in determining, for instance, whether the cash or accrual form of accounting is more profitable for a corporation, as well as the advantages and disadvantages of straight-line against accelerated depreciation.
Set up your real estate business:
Many investors purchase real estate as sole proprietorships because it is the simplest structure. However, something that is straightforward is only sometimes the best option. A real estate CPA understands the possible tax benefits of having a rental property under a legal structure, such as an LLC or S company, so an investor may make more responsible judgments regarding how to structure their real estate business.
Keep track of the modifications to the real estate tax code:
The U.S. tax system has become increasingly complicated over time. According to the Tax Foundation, the length of the tax code has soared from a few pages in the 1940s to more than 70,000 pages. As a result, a few modest adjustments here and there could substantially influence tax liability. A competent real estate CPA will keep abreast of tax code changes to assist investors in avoiding paying unnecessary taxes and breaking the law.
Offer counsel on business practices:
A business-focused investor might overlook important changes in the market and long-term real estate cycles, but a real estate CPA would not. For example, the Biden administration advocated a capital gains tax increase. As a result, some investors hurried and sold their properties before the end of the year to lock in gains at a reduced tax rate, so missing out on future property increases. While the present capital gains tax law has remained the same, a competent CPA can assist an investor in making sound buy and sell decisions based on objective data.
Assist in growing and expanding a real estate business:
A real estate investor whose long-term objective is to develop wealth may gain from having a real estate CPA on their team. As an investment portfolio increases, a CPA thoroughly understands the numerous tax implications of purchasing, owning, and selling rental property. Obtaining impartial professional advice from a real estate CPA while creating an investment strategy may assist an investor in generating money that may be transmitted from one generation to the next without incurring tax obligations.
Final thoughts:
Having a CPA on a real estate investment team can be advantageous in various ways, including lowering tax liabilities and maximizing investments. In addition, a CPA that specializes in real estate may be more equipped to assist an investor in keeping up with tax law changes, claiming every applicable deduction, and developing a tax-advantaged real estate portfolio geared toward long-term growth.