Accounting for Real Estate in Denver

Presti & Naegele helps Denver property investors choose the most effective entity structure to manage risk and streamline operations. Forming the right legal entity can help protect personal assets while enhancing how your investments are handled.

✔ A Limited Liability Company (LLC) provides the ease of day-to-day management with the asset protection of a corporation. For clients seeking real estate accounting in Denver, LLCs offer flexible tax treatment and shield personal finances from business-related liabilities.

With an LLC, rental income is passed directly through to your personal tax return, avoiding corporate taxes. You can also deduct common property expenses, like loan interest or repair costs. In a competitive and growing market like Denver, operating under an LLC presents a more professional image to tenants and partners. While LLCs remain a popular option for their simplicity and legal protection, S Corporations may offer additional benefits for some real estate professionals with specific needs.

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 Denver

For Denver investors, our Real Estate CPAs help apply accelerated depreciation as a powerful tax strategy to reduce taxable income in the earlier years of ownership.

Depreciation accounts for wear and tear over time. While residential rental properties follow a 27.5-year schedule, accelerated depreciation allows Denver property owners to claim larger deductions early, helping them recoup value faster from their investments.

How Does Accelerated Depreciation Work?

A passive activity is an investment in which the owner doesn’t participate in day-to-day management. When losses from these activities outweigh income, passive activity losses (PALs) occur.

Rental income in Denver is generally classified as passive. Operating costs like interest payments, maintenance, insurance, and depreciation often result in passive losses. This also applies to local real estate partnerships or limited ventures in Denver where active involvement is minimal.

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 Denver and reinvesting the proceeds in a similar investment allows you to defer capital gains taxes through a 1031 exchange. The transaction must be managed by a qualified intermediary—you can’t receive the funds directly. “Like-kind” simply means both properties are used for similar investment purposes, such as exchanging a retail unit for undeveloped land or a duplex for a warehouse.

Denver investors often use this strategy repeatedly to expand their portfolios while deferring tax liability. Taxes are eventually owed only when a property is sold for cash. In specific scenarios, even a past personal residence could meet the requirements.

Strategic Advisory for Real Estate Growth in Denver

Tap into Denver’s real estate potential with our specialized real estate accounting services. Our knowledgeable Real Estate CPAs help you identify smart investment moves, remain tax-compliant, and manage your properties effectively. Presti & Naegele is proud to support real estate professionals across Denver’s dynamic and rapidly growing market.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

For real estate investors in Denver, detailed and accurate bookkeeping is essential. Our QuickBooks services are designed to fit the needs of property owners, giving you clear visibility into your finances. With our real estate accounting in Denver, you’ll stay organized and focused on expanding your investment portfolio.

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