How important is getting an account for tax purposes when entering long term rentals

Question

I have just acquired my first two long term rental properties this year and am looking to take advantage of the tax benefits. How important is it to get with CPA to assist with tax benefits. I have spoke with my parents who have been in long term rental business for 30+ years and use an account to for their taxes. They do not believe it is necessary to spend thousands of dollars on an account with the two properties I own. Any thoughts or suggestions?

Basit Siddiqi · Answer

I agree that you shouldn't spend a couple of thousand dollars on an accountant if you have two small properties. It would likely kill all your cash-flow.In my opinion, filing + advice for someone with that portfolio size should be less.best of luck

Ashish Acharya · Answer

It’s not absolutely necessary to hire a CPA with just two rental properties, but it can be really helpful, especially when you’re new to the tax benefits and deductions available. A CPA can make sure you maximize those benefits (like depreciation, mortgage interest, repairs, PAL, etc.) and avoid costly mistakes. If your tax situation isn’t too complicated, you could try handling it yourself using good software, but if you want peace of mind, a CPA could be worth the investment.

Since your parents have experience, you might lean on their advice while you learn the ropes.

*This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Jonathan Feliciano · Answer

Hi Tyler. I agree with Austin. You can for sure try to do it yourself, but I think the smarter option would be to have a CPA help you, as they are experts in accounting and tax. I definitely don't think a CPA would charge "thousands" of dollars to prepare your tax return. Given your tax situation, I think a fair price you could expect to pay is between $500 - $1,000. I recommend reaching out to some local CPAs and requesting quotes from them. You should also ask if they do cost segregation analyses, as that might be extremely helpful in reducing your income tax liability.

You could pay a CPA to prepare your tax return for this first year and learn as much as possible from them. That way, in the following year, you can prepare your tax return by yourself. The first year is probably the most crucial year, as you will need to calculate the cost basis in your rental properties, which will influence your depreciation expense on Schedule E.

Account Closed · Answer

Hey Tyler, It's important to work with a real estate-focused accountant, especially as you begin managing rental properties, to ensure you're taking full advantage of available tax benefits. While your parents may have experience and a simpler approach, even with just two properties, you could miss out on key deductions like depreciation and interest without professional guidance. An accountant can help you navigate complex tax rules and keep your records in order, potentially saving you more than their fee. The cost of hiring an accountant could be offset by the tax savings they help uncover. However, if you feel confident using tax software and understanding rental property tax rules, you might manage without one. A consultation with a real estate-focused accountant can help determine if their ongoing services are worth the investment.

Becca F. · Answer

Wow I'm impressed. You have 29 properties and you use TurboTax. I have 4 properties and I'm getting a CPA for 2024 since I sold one (that was the 5th property) but I held it for less than a year, sort of like a did a bad flip but I did intend to rent it out (very long story).

I'm guessing the OP has two single family rentals and not some large apartment complex, if OP is still there.

Max Emory · Answer

Hey @Tyler Bilinovic, if you plan to purchase more properties go ahead and link up with an REI-savvy tax pro to form the relationship early so you're not scrambling as you're scaling.

Even with just 2 rental properties an REI-savvy tax pro is worth the money.

Bryan Martin · Answer

Congratulations on acquiring your first rental properties! It’s crucial to start off on the right foot with your taxes. Working with an accountant is important to ensure you’re maximizing your tax benefits and staying compliant with tax laws. Even with just two properties, a professional can help you navigate deductions, depreciation, and other tax strategies specific to real estate investing. You shouldn’t have to spend thousands on accounting services, but investing in a qualified accountant now can save you money and headaches down the road.

Allan C. · Answer

@Tyler Bilinovic my opinion is to get an accountant earlier in your investment career because your savings compound. Do you know how to claim various safe harbors (de minimis, small taxpayer, etc).

A tax professional can save you thousands for each property each year, which more than pays for itself. The goal isn’t to just make the most gross income, but to maximize the net - this is where a good accountant can do wonders.

For clarity, my accountant helps me minimize how much I capitalize each year within the tax laws. If you’re not maximizing your expense deductions each year, you are paying more taxes than you need.

Jason Malabute · Answer

Hi Tyler,

Since you have rental properties, it’s crucial to get excellent advice from your CPA, who can help you minimize your tax liability and save more of your hard-earned money. This savings can then be reinvested into more properties, allowing your portfolio to grow faster. This becomes even more important if you’re a high earner because taxes can eat up a significant portion of your income. Did you know that for most Americans, taxes are their highest expense each year?

Trying to save money by not getting the right CPA can be penny-wise but dollar-foolish. Think of it like trying to save money on a doctor and potentially jeopardizing your health just to save a few bucks. The same applies to your financial health when it comes to taxes.

Remember, when you pay for quality CPA services, you’re not just paying for tax compliance; you’re also paying for advisory services that help you make the best financial moves and tax strategies. A good CPA will provide greater value in advisory and tax savings through proactive tax planning than the fees they charge. They help you make decisions that lead to significant long-term tax savings, which often outweigh the cost of their services.

John Morgan · Answer

@Tyler Bilinovic

It’s simple to do yourself. You will be showing a paper loss on your rentals so you want be paying any taxes off them. I have 29 properties and use turbo tax to do my taxes. It walks you through everything. And it keeps track of all your capitalization from year to year with each property.

How important is getting an account for tax purposes when entering long term rentals

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