Accounting for Real Estate in Houston

Presti & Naegele works with Houston real estate investors to determine the best legal entity for structuring their rental assets. Forming a separate entity can provide valuable legal protections and operational flexibility—even when risks are part of the investment.

✔ A Limited Liability Company (LLC) blends the simplicity of a sole proprietorship with the asset protection of a corporation. For those using real estate accounting in Houston, an LLC offers liability protection, reduces risk exposure, and provides flexible tax treatment.

With an LLC in place, rental earnings pass directly through to your personal tax return—bypassing corporate tax layers. Property-related expenses, including repairs and loan interest, may also be deductible. In Houston’s active real estate market, establishing an LLC can boost your credibility with both tenants and business partners. Many landlords prefer the LLC route due to its ease of use, liability protection, and tax options, while S Corps may work for certain real estate professionals who need more structured ownership protections.

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 Houston

If you own property in Houston, our Real Estate CPAs can help you take advantage of tax rules that benefit your investments. One of those strategies is accelerated depreciation, which offers larger tax deductions early in the ownership timeline.

Depreciation helps account for the natural decline in value of your property over time. While standard depreciation for rental properties follows a 27.5-year schedule, accelerated depreciation allows Houston investors to reduce their taxable income sooner by front-loading those deductions.

How Does Accelerated Depreciation Work?

Passive activities refer to investments or business ventures in which the investor doesn’t materially participate. When the costs of managing these activities exceed the income they produce, you may incur passive activity losses (PALs).

In Houston, most rental income is categorized as passive. Typical operating expenses—such as property upkeep, insurance premiums, interest payments, and depreciation—can contribute to passive losses. The same holds true for investments in real estate partnerships around Houston where hands-on involvement is limited.

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 an investment property in Houston and reinvesting into a new one can qualify for a 1031 exchange, which defers capital gains taxes as long as certain conditions are met. You’ll need to use a qualified intermediary to hold the proceeds during the process, and you can’t take possession of the funds yourself. “Like-kind” simply refers to property used for similar purposes—not necessarily the same type—such as exchanging a strip mall for a distribution center or a duplex for raw land.

Houston investors can take advantage of multiple 1031 exchanges to grow their portfolios without immediate tax liability. Taxes are only triggered when the final property is sold for cash. In select situations, even a previously personal residence may meet the criteria.

Strategic Advisory for Real Estate Growth in Houston

Thrive in Houston’s real estate market with trusted support from our experienced Real Estate CPAs. Our real estate accounting services in Houston are built to help you navigate the local market, uncover investment opportunities, and make smart, informed decisions. At Presti & Naegele, we offer dependable guidance for real estate professionals across Houston’s ever-evolving property landscape.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

For Houston property owners, accurate bookkeeping is critical to your success. Our QuickBooks services are specially designed for real estate clients, helping simplify your accounting tasks and giving you clarity across your portfolio. With our real estate accounting in Houston, you'll have clean, reliable records that let you focus on managing and growing your investments.

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