What Is a CPA in Real Estate and What Do They Do?

A Certified Public Accountant (CPA) is a licensed accounting professional providing financial services to individuals and businesses. This designation signifies expertise in accounting, taxation, auditing, and financial planning, obtained through rigorous education, examination, and experience. Becoming a CPA typically requires a bachelor’s degree, 150 semester hours of college education, passing the Uniform CPA Examination, and relevant work experience under a licensed CPA. Within the real estate industry, CPAs apply their financial knowledge to property investment, development, and management. Their involvement helps real estate professionals and investors navigate complex financial landscapes and optimize ventures.

Core Financial and Accounting Services

CPAs provide foundational financial and accounting services for real estate businesses and investors. These services establish a clear financial picture and support daily management.

One primary service involves bookkeeping and record-keeping. CPAs manage financial transactions, categorize income and expenses, and maintain detailed financial records specific to real estate operations. This includes tracking rental income, property management fees, development costs, repair invoices, and utility bills.

CPAs also prepare financial statements, which offer a snapshot of financial health and performance. These include balance sheets, income statements, and cash flow statements, tailored for real estate entities. A balance sheet details assets, liabilities, and equity at a specific point, while an income statement summarizes revenues and expenses to show profitability. Cash flow statements track the actual movement of cash, important for real estate’s often irregular income and expense patterns.

Beyond historical reporting, CPAs assist with budgeting and financial forecasting for real estate projects or portfolios. They help clients create financial plans that project future income and expenses, aiding in cash flow management and strategic decision-making. This analysis allows investors to anticipate financial needs and evaluate potential returns.

CPAs offer financial advisory services, contributing to the financial health and operational efficiency of real estate businesses. This can involve setting up internal control systems to safeguard assets and ensure data integrity, and providing advice on streamlining financial processes. Their expertise helps property owners and managers maintain accurate financial records for monitoring performance and ensuring compliance.

Real Estate Specific Tax Planning and Compliance

CPAs serving the real estate sector possess specialized tax knowledge, enabling investors to navigate complex regulations and optimize their tax positions. This area focuses on strategies unique to real estate, distinguishing it from general tax preparation.

CPAs advise on tax-efficient legal structures for real estate investments, such as Limited Liability Companies (LLCs), S-Corporations, or partnerships. The choice of entity structure has significant implications for income taxation, liability protection, and asset transfer. Many real estate investors favor LLCs for liability protection and flexible tax treatment, often electing to be taxed as a partnership or S-Corporation to avoid double taxation.

Depreciation strategies are a core component of real estate tax planning, allowing investors to deduct the cost of their investment property over time. CPAs help optimize these deductions, typically spread over 27.5 years for residential properties and 39 years for commercial properties. A cost segregation study identifies and reclassifies property components, like appliances or carpeting, to shorter depreciable lives (e.g., 5, 7, or 15 years). This acceleration of depreciation can lead to larger upfront deductions, reducing taxable income and improving cash flow.

Another strategy CPAs guide clients through is the Like-Kind Exchange, governed by Section 1031. This provision allows investors to defer capital gains taxes on the sale of investment properties if proceeds are reinvested into another “like-kind” property within specific timeframes. To qualify, the replacement property must be identified within 45 days of the relinquished property’s sale, and acquisition completed within 180 days. CPAs ensure compliance with these rules for deferring taxes.

CPAs also navigate Passive Activity Loss (PAL) rules, which generally limit deducting losses from passive activities, like rental real estate, against non-passive income. An exception exists for taxpayers who qualify as a “real estate professional.” To meet this status, an individual must perform over 50% of their personal services in real property trades or businesses and spend over 750 hours in those activities during the tax year, with material participation. If these criteria are met, rental losses can offset other income.

Managing capital gains and losses from property sales is another area where CPAs provide guidance. Profits from selling real estate are subject to capital gains tax, categorized as short-term (held less than a year) or long-term (held a year or more). Long-term capital gains typically benefit from lower tax rates (0%, 15%, or 20% depending on income), compared to short-term gains taxed at ordinary income rates. CPAs help investors understand these distinctions, minimize tax liability, and address depreciation recapture, where previously deducted depreciation may be taxed at a higher rate (up to 25%) upon sale.

Finally, CPAs handle the preparation and filing of various tax returns, including individual, corporate, and partnership returns, incorporating real estate-specific tax considerations. They ensure adherence to Internal Revenue Service (IRS) regulations, reducing the risk of audits and penalties. Their role extends to monitoring tax law changes for ongoing compliance and identifying new opportunities for tax savings.

Due Diligence and Transactional Support

CPAs provide analytical and advisory support throughout real estate transactions, from initial acquisition evaluation to eventual disposition. This expertise helps clients make informed decisions.

Financial due diligence is a service CPAs offer before a real estate acquisition. They review financial records, including leases, operating expenses, and income streams, to identify financial risks and opportunities. This process verifies seller representations and assesses the property’s true financial performance, helping uncover hidden liabilities or overstated revenues.

CPAs develop financial models and cash flow projections for new developments, renovations, or acquisitions. These feasibility studies assess a project’s financial viability and estimate potential returns. By forecasting future income and expenses, CPAs help investors understand a real estate venture’s potential profitability and liquidity.

Deal structuring advice is another area where CPAs contribute. They analyze financing options, evaluate partnership agreements, and advise on sale terms to optimize transaction outcomes. Their insights help clients structure deals to align with financial goals and minimize adverse tax or financial consequences.

CPAs also assist with the financial integration of newly acquired properties. This involves incorporating the new asset’s financial data into existing accounting systems, ensuring consistent record-keeping and reporting. This integration maintains an accurate and consolidated view of an investor’s real estate portfolio.

Finally, CPAs provide guidance on disposition planning, advising on the financial implications of selling properties. They help analyze a sale’s potential impact on an investor’s overall financial position, including optimizing the sale price and understanding tax consequences. This planning ensures property sales are executed advantageously.