Real estate tax questions to settle before you hire a CPA

Owning a rental, selling a property, or moving a building into an LLC is ordinary work for some CPAs and a sideline for others. The return can look finished either way. The difference shows up in depreciation, passive losses, and an exchange that had a deadline nobody tracked.

Say which real estate problem you have

A single long-term rental is not a fix-and-flip, and neither one is a 1031 exchange. Cost segregation is a study, usually done by a specialist, that a CPA then has to put on the return correctly. Short-term rentals raise a different question about whether the activity is passive.

Tell the CPA the fact pattern in plain language: how many properties, which states, whether you or a manager does the work, and whether a sale or a refinance is coming. Someone who does this regularly will sort those facts quickly. Someone who does not will still take the return, and you will be the one who finds out later.

Depreciation, basis, and the year you sell

Ask how they set up depreciation when a property is placed in service, and how they treat improvements versus repairs. Ask what they need from the closing statement. On a sale, the closing statement, the original basis, and the depreciation already taken are the whole story. Missing depreciation from older years is a common cleanup, and it should be identified before the sale return is filed.

If you are considering a 1031 exchange, the qualified intermediary and the dates are not the CPA’s to invent after closing. Ask, before you sell, whether they have filed exchanges and what they need from the intermediary. An exchange that fails the timeline is a taxable sale no matter how carefully the return is worded.

Entities and states

Holding a rental in an LLC does not, by itself, change the federal tax treatment of a single-member rental. It can change liability and it can change state filings. A property in another state often means a state return even when you live somewhere else. Ask which state returns the fee includes.

Passive-activity losses are the other conversation. Real estate losses are not automatically deductible against wages. There are exceptions, and they depend on how much you participate and on your income. A CPA should be willing to say which exception they think applies and what records would support it. A shrug is a sign to keep looking.

A practical hiring test

Bring last year’s return, the depreciation schedule, and one closing statement. Ask them to point to the depreciation method and the states they would file. Ask whether cost segregation, if you are curious about it, is something they review or something they sell. You want a clear line between a study prepared by someone else and the return they will sign.

Listings that name real estate as a specialty are a starting filter, not a credential. The license row, the services, and this conversation are the rest of the check.