I bought my First Rental Property, should I hire a CPA?

[Javier Acosta]

After saving up enough capital this previous year, I finally was able to buy my first property! I am very happy and currently doing the rehab to rent it out, but the question I have is; 

   - Should I hire a CPA for tax related purposes? I want to maximize every single aspect of my property, and regarding tax breaks I have no idea where to begin or what to do?

Any recommendations, if so does anyone have a reference for a good CPA (Real Estate knowledgeable) in El Paso, Texas?

[Brandon Hall]

@Javier Acosta

Congratulations on your first property! It's a great feat and now you'll have the itch to buy more and more.

It's good that you are asking this question on the forefront. I have helped several clients correct their own mistakes (and sometimes mistakes their non-savvy CPAs made) and I can tell you it's quite costly.

Generally speaking, real estate investors should absolutely have a CPA, regardless of how many properties they own. The tax code is simply too comprehensive to learn, court cases overrule one another, and you really need to optimize your time as an investor. Ideally you will find a real estate savvy CPA who invests themselves, has a practice that primarily serves real estate investors, and won't charge you an arm and a leg as you are beginning in your business. As your business grows, complexity grows with it and fees will be increased.

Do you need a CPA? If your answer to the majority of the questions below is "no," then I'd suggest hiring a CPA:

1. Can you run down your Hud-1 and know which costs to capitalize and expense?

2. Do you know when a property is placed into service?

3. Do you know how to treat expenses prior to the property being placed into service?

4. Do you know how to treat expenses after placing the property into service?

5. Do you understand the IRS Final Tangible Property Regs, the three safe harbors that come with those regs, and the BAR test if you can't take advantage of the safe harbors?

6. Do you know how to prioritize repairs and various expenses to maximize annual deductions?

7. Do you know how to find the cost basis for depreciation? (Hint: you cannot depreciate land and you cannot apply a random ratio of 80% even though non-real estate savvy CPAs tend to do one or both of those).

8. Do you know what schedule to report your rentals on? (A, B, C, D, E, F, etc).

9. Do you know how to track and take advantage of travel expenses?

10. Do you know how to optimize local transportation expenses?

11. Do you know the difference between a business trip and a regular commute?

12. Do you know much about the home office deduction? Do you know how it affects your ability to take local transportation expenses as a deduction?

13. Do you know how to take meal deductions?

14. Do you know how to keep your books?

15. Do you know how to appropriately keep your records to substantiate all of your deductions in order to successfully fend off an IRS audit?

16. Do you know how to maximize tax efficiencies through entity structuring? And do you know how to file tax returns for these entities?

17. Do you understand passive activity limits?

Obviously this is not an all-inclusive list and some of these questions are much more important than others. But you get the idea, I'm sure.

With that said, you want a real estate savvy CPA which may not be a local guy. Don't be afraid to go non-local as technology does a great job in allowing us to collaborate. Several of us have clients all over the U.S. and even globally. By going non-local, you expose yourself to a wider pool and increase your ability to receive high quality, tailored advice from someone who can relate to where you are in your investing career.

Hope this helps!