Accounting for Real Estate in Nashville

Presti & Naegele assists Nashville real estate investors in determining the best entity structure for their rental property holdings. While property investments involve risks, forming the right business entity can provide significant advantages and protections.

✔ A Limited Liability Company (LLC) blends the operational ease of a sole proprietorship with the liability protections of a corporation. It separates personal assets from business liabilities, limits personal exposure, and offers tax flexibility for those engaged in real estate accounting in Nashville.

An LLC allows rental income to pass directly to your personal tax return, avoiding corporate taxation. It also enables deductions for eligible property-related expenses, such as mortgage interest and necessary repairs. In Nashville’s competitive real estate market, an LLC demonstrates professionalism to tenants and business partners. Many investors prefer LLCs for their liability protection, tax adaptability, and straightforward management. S Corps may also be considered for certain active real estate professionals seeking additional shareholder 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 Nashville

For Nashville property owners and investors, our Real Estate CPAs help explain how tax rules affect your holdings. One effective tool is accelerated depreciation, which can improve your tax position while managing your properties.

Depreciation allows recovery of a property’s cost basis over time, accounting for wear, deterioration, and outdated features. While residential rental properties are generally depreciated over 27.5 years, accelerated depreciation lets Nashville investors take larger deductions earlier, offering meaningful short-term tax benefits.

How Does Accelerated Depreciation Work?

A passive activity is an investment or business where the taxpayer does not materially participate during the year. Passive activity losses (PALs) occur when related expenses exceed the income generated.

In Nashville, rental property income is generally considered passive. Expenses such as mortgage interest, insurance, upkeep, and depreciation can create passive losses. Similarly, investments in limited partnerships or other real estate projects in Nashville with minimal active participation are also considered passive activities.

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.

When you sell a Nashville property used for business or investment purposes and reinvest in another qualifying property, you can defer capital gains taxes on the sale. The proceeds must be held by a qualified intermediary and cannot be received directly. “Like-kind” properties must be similar in nature but not identical—for example, trading a retail building for undeveloped land or a multi-unit rental for a warehouse.

A 1031 exchange can be completed multiple times, letting Nashville investors roll over gains and expand their portfolios without immediate tax obligations. Taxes are owed only when you eventually sell for cash, at the applicable long-term capital gains rate. While this approach defers taxes, it doesn’t erase them entirely. In some cases, even a former primary residence may qualify.

Strategic Advisory for Real Estate Growth in Nashville

Gain an advantage in Nashville’s growing real estate market with our specialized real estate accounting services and experienced Real Estate CPAs. We track market developments, identify profitable opportunities, and provide the insight you need to make confident property decisions. Presti & Naegele is your trusted partner for navigating Nashville’s diverse real estate landscape.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Accurate bookkeeping is the foundation of success in Nashville real estate. Our QuickBooks services are designed for property owners and investors, simplifying accounting so you can focus on acquiring, managing, and expanding your real estate portfolio. With our support, you’ll have organized, reliable records for your Nashville properties.

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