Accounting for Real Estate in California

Presti & Naegele assists property investors across California in choosing the most effective entity structure for managing their real estate portfolios. The right legal setup can provide liability protection and operational flexibility.

✔ A Limited Liability Company (LLC) combines simple administration with legal safeguards. For clients using real estate accounting in California, LLCs offer a reliable way to separate personal assets and take advantage of flexible tax options.

An LLC allows rental income to flow through to your individual tax return—avoiding corporate taxation. Investors across California can also deduct qualified expenses such as repairs, interest, and maintenance. In a competitive real estate market like California’s, operating through an LLC adds professionalism and helps limit liability. While LLCs are a top choice for many, some real estate professionals may find S Corporations useful depending on their structure and tax goals.

Legal Structure: How real estate owners pay taxes depends on the structure of their business.  At P&N, we can evaluate your situation and recommend the right entity for your business.

Sole Proprietorship – A sole proprietorship is the simplest form of business, where the owner and the business are one.

Limited Liability Company (LLC) – An LLC combines the liability protection of a corporation with the flexibility of a partnership.

Partnership – A partnership involves two or more individuals or entities sharing ownership and responsibilities.

S-Corporation – An S-Corporation is a pass-through entity that combines features of

corporations and partnerships.

UNDERSTANDING ACCELERATED DEPRECIATION in California

Our Real Estate CPAs guide California investors through the benefits of accelerated depreciation, a tax strategy that allows for larger deductions early in the ownership period.

Depreciation reflects the natural wear and decline of a property. While residential real estate typically depreciates over 27.5 years, accelerated depreciation gives California property owners the chance to reduce taxable income more significantly in the early years of investment.

How Does Accelerated Depreciation Work?

Passive activities include real estate or business investments in which the taxpayer is not actively involved. When these investments generate more expenses than income, passive activity losses (PALs) result.

Rental income across California is generally considered passive. Regular costs like depreciation, loan interest, insurance, and upkeep can contribute to passive losses. This classification also applies to real estate partnerships or limited ventures throughout the state.

Exceptions to the passive loss rules include:

• $25,000 Allowance: If you actively manage the real estate and earn less than $100,000 during the year, you can deduct up to $25,000 in passive losses against ordinary income.



• Real Estate Professionals: Real estate professionals who materially participate in their real estate activities are not subject to the same passive loss rules. They can use real estate losses to offset income from other active sources.
  

Material participation is a key factor. If you actively manage the real estate (e.g., handle day-to-day operations), your losses may not be strictly passive. Real estate professionals who meet specific qualifications can also avoid the passive loss treatment.

Selling a property in California and reinvesting into another of similar investment use allows you to defer capital gains taxes through a 1031 exchange. The transaction must be handled by a qualified intermediary—you can’t receive the proceeds yourself. “Like-kind” refers to the investment purpose of the property, not the exact type—such as trading a commercial office building for raw land or an apartment complex for a shopping center.

California investors can defer taxes through repeated exchanges, only owing capital gains when a property is sold for cash. In some cases, even a previous primary residence might qualify under the right conditions.

Strategic Advisory for Real Estate Growth in California

Make smarter real estate decisions across California with help from our experienced Real Estate CPAs. Our real estate accounting services in California are built to help you stay tax-efficient, evaluate opportunities, and manage investments with clarity. Presti & Naegele is your trusted resource for navigating California’s varied real estate environment.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Accurate, up-to-date bookkeeping is a must for real estate investors in California. Our QuickBooks services are built specifically for real estate, making it easy to manage your records and financials across multiple properties. With real estate accounting in California from Presti & Naegele, you’ll have a clean, organized foundation to support your portfolio’s success.

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