Real estate tax
Tax returns and planning for real estate investors.
One rental or a portfolio across several states. Long-term and short-term rentals, property held in partnerships and LLCs, and K-1s from deals you did not sponsor.
Federal and state, in every state you own in.
The deduction you already earned and never took
Depreciation is the reason rental property works on a return at all. Two allocations decide how large it is, and both are usually made once, by default, and never revisited.
The first is how much of the purchase price went to land, which is not depreciable. Most returns take the county assessor’s ratio because it is the number printed on the tax bill, and it is rarely the best supportable figure. The second is which parts of the building are not 27.5-year property: appliances, flooring, cabinetry, paving, fencing. On most returns nobody has ever asked.
Neither is stuck, and you do not amend prior returns to fix them. A change in accounting method on Form 3115 carries a section 481(a) adjustment that brings the entire cumulative understatement into the current year, with no three-year limit and no amendments. On a new client’s first return it is regularly the largest single item we find.
Whether it is worth doing is a different question, and it turns on the one most of the advice skips: whether the passive loss rules will let you use the deduction at all.
Included in a typical engagement
The returns, and the planning that decides what goes on them.
Return preparation
Individuals, partnerships and S corporations. Depreciation schedules rebuilt from the closing documents rather than rolled forward from the previous preparer’s file.
Cost segregation
The study itself is a third-party engineering job, billed separately and not by us. We decide whether it is worth running, choose engineered against virtual, review the report and file the Form 3115 catch-up.
Passive losses
Material participation testing, grouping elections, and a direct answer on whether real estate professional status is actually available to you.
Short-term rentals
The seven-day exception, what it requires, and whether your property and your calendar qualify. Covered in depth on our short-term rental page.
Buying and selling
1031 timelines and the same-taxpayer rule, installment sales, and the recapture number modeled before the property is listed rather than after.
Books and K-1s
Bookkeeping kept property by property, syndication K-1s, and multi-state filings that reconcile to the return and to the lender package.
When to bring us in
The work that changes the number happens around the transaction. A return prepared in March can only report what already happened.
Before you close, because the price, the closing date and whose name goes on the deed each change the answer and are all fixed at closing. Before a restructuring, because entity changes made in the wrong order can break an exchange you have not done yet. Before you list, because the recapture, the released passive losses and any 1031 decision land in the same year and interact.
If you are mid-year with a preparer you are otherwise happy with, a second look at the depreciation schedule alone is often worth it.
Frequently asked questions
Do I need a real estate CPA, or will any CPA do?
For one rental producing a small loss, most competent preparers will get it right. The gap opens around depreciation allocations, cost segregation, participation testing and dispositions. These are the places where the default treatment is defensible but expensive. The practical test: has your preparer ever asked to see a closing statement, or asked how many hours you spend on the properties? If not, nobody has looked at the two things that decide the most.
I have a full-time job. Can I qualify as a real estate professional?
Almost certainly not on your own. The first hurdle is not the 750 hours. It is that more than half of all personal services you perform in any trade or business must be in real property trades or businesses, which a full-time job outside real estate usually ends. Where it does work is a couple in which one spouse does not work elsewhere and runs the portfolio, since the tests apply spouse by spouse on a joint return. It is a factual test decided on contemporaneous records, not an election.
Can I still do a cost segregation study on a property I bought years ago?
Yes, and without amending anything. Form 3115 pulls the whole cumulative understatement into the current year. An engineered study with a site inspection generally runs $3,000 to $4,000; a virtual study, for smaller properties, is generally $1,000 or less. We do not perform studies, which are an engineering exercise. We scope them, review the report and put it on the return. See when a study is worth it.
Does putting a rental in an LLC save tax?
No. A single-member LLC is disregarded and a multi-member LLC is a partnership; either way the income reaches your return in substantially the same amount. They are worth forming for liability separation and for how a multi-owner deal is split, not for tax. An S corporation, by contrast, is usually a mistake here: distributing appreciated property out is taxable, and shareholders get no basis for entity debt, which is exactly the basis a leveraged rental needs.
Why are my rental losses not reducing my tax bill?
Because section 469 treats renting property as passive by definition, regardless of hours. Passive losses offset passive income and nothing else; the rest suspends on Form 8582 until you have passive income or you sell. Three ways out: the $25,000 allowance, phasing out between $100,000 and $150,000 of modified AGI; the short-term rental exception, needing an average guest stay of seven days or less plus material participation; and real estate professional status. Above all three sits section 461(l), which for 2026 carries losses over $256,000 ($512,000 jointly) forward as an NOL.
What happens to my suspended losses when I sell?
A fully taxable sale of your entire interest to an unrelated party releases them. Under section 469(g) they stop being passive and become deductible against your other income in the year of sale. That makes the disposition year unusually consequential: the released losses, the recapture, the capital gain and any 1031 decision all land together and interact. It is worth modeling before the property is listed, not after it is under contract.
I am a passive investor in syndications. Is that the same work?
Narrower, but not automatic. Syndication K-1s carry passive losses, at-risk limitations, a filing obligation in each state the deal operates in, and often a large first-year loss from the sponsor’s own cost segregation study. The recurring questions are whether you can use the loss at all, whether state filings are being missed, and what happens at the capital event.
What does it cost?
It depends on how many properties and entities are involved, how many states you file in, and the condition of the books. We quote a fixed fee after the call and before any work begins, rather than an open-ended hourly arrangement. If the call makes clear we are not the right fit, we will say so, and there is no charge for finding that out.
REAL ESTATE TAX
Talk to a CPA about your real estate return
Have last year’s return, the depreciation schedule and a closing statement on hand. Thirty minutes is usually enough to say what is being missed, whether a study is worth running on your property, and whether the losses you are generating are usable at all.