A Certified Public Accountant (CPA) is an important member of your real estate investing dream team because they help you navigate the tax implications of buying, owning, and selling properties.
The right CPA will help you set up your real estate business in a tax-efficient way and ensure you’re taking advantage of every opportunity to minimize your tax liability.
Their role goes far beyond just filing your taxes—they provide valuable guidance in planning and structuring your investments.
What Do They Do?
CPAs are responsible for helping you with tax planning and tax preparation.
This includes making sure your real estate investments are structured to maximize tax benefits and preparing both your personal and business tax returns.
They can also help you understand the implications of different tax strategies as you buy, sell, and rent out properties.
Here’s what a CPA typically handles:
- Tax Planning and Entity Formation – CPAs help you decide how to structure your real estate investments, whether that’s forming an LLC, entering into partnerships, or another entity type. They ensure that your entities are set up in a way that maximizes tax efficiency and protects your assets. They also help you plan for tax impacts when buying, selling, or holding rental properties, making sure you’re taking advantage of deductions, depreciation, and other tax benefits.
- Tax Preparation – Your CPA prepares your personal tax return and any entity returns, ensuring that you’re reporting all income, expenses, and deductions correctly. This is especially important when dealing with multiple properties, rental income, and the specific tax rules that apply to real estate investors.
When Do You Involve Them?
You’ll want to involve a CPA before you purchase your first investment property to help with planning and structuring your investments. They’ll assist with forming your entity and ensure everything is set up properly from the start. Throughout the year, they’ll provide guidance on how to manage your finances and prepare for tax season.
You’ll also work closely with them after purchasing a property to handle the ongoing tax implications of your investments. This could include tracking your income, expenses, and deductions, and preparing your tax returns each year.
Why Are They Important?
Here’s why CPAs are a critical part of your dream team:
- Maximizing Tax Benefits – They help you understand and utilize key tax strategies like depreciation, the 1031 exchange, and deductions for property management and maintenance expenses.
- Ensuring Compliance – They ensure you’re following all relevant tax laws and filing the correct paperwork on time, which prevents costly penalties and audits.
- Strategic Guidance – CPAs help you think long-term, providing advice on when to sell properties, how to structure partnerships, and the best way to manage rental income to reduce your tax burden.
Other Items of Note
- Tax Planning for Sales and Purchases – CPAs can help you plan for the tax impact of selling a property, including strategies to defer taxes, such as using a 1031 exchange. They also guide you on how to structure purchases to maximize deductions and reduce tax liability.
- Entity Formation and Structure – Your CPA will help you choose the right structure for your real estate business, such as forming an LLC to protect your personal assets and optimize tax benefits. They also advise on how to handle partnerships and joint ventures.
- Collaboration with Other Professionals – CPAs often work closely with your attorney and bookkeeper to ensure that all aspects of your financial and legal strategies are aligned, especially as your portfolio grows.