Accounting for Real Estate in New Jersey

Presti & Naegele helps New Jersey investors choose the most effective entity structure for their rental properties. While property investments carry certain risks, forming a separate legal entity can provide valuable protection and flexibility.

✔ A Limited Liability Company (LLC) combines the simplicity of a sole proprietorship with the liability protection of a corporation. It separates personal assets from business liabilities, limits exposure, and offers tax flexibility for those using real estate accounting in New Jersey.

With an LLC, rental income flows directly to your personal tax return without corporate taxation. You can also deduct eligible property-related expenses, such as mortgage interest and repairs. In New Jersey’s competitive real estate market, an LLC can enhance your professional credibility with partners and tenants. Many property owners prefer LLCs for liability protection, tax adaptability, and straightforward management, though S Corps may be an option 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 New Jersey

For property owners and investors in New Jersey, our Real Estate CPAs help explain how tax rules apply to your holdings. Accelerated depreciation is one strategy that can improve your tax position while managing your portfolio.

Depreciation allows you to recover the cost basis of a property over time, factoring in wear, deterioration, and outdated features. While most residential rental properties are depreciated over 27.5 years, accelerated depreciation enables New Jersey investors to take larger deductions in the early years of ownership, creating short-term 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 expenses exceed the income generated from these activities.

In New Jersey, rental properties are typically classified as passive activities. Mortgage interest, insurance, repairs, and depreciation often contribute to these losses. Similarly, investments in limited partnerships or other New Jersey real estate projects with minimal active involvement are also considered passive.

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 New Jersey property held for business or investment purposes and reinvest in another qualifying property, you can defer capital gains tax. The proceeds must be held by a qualified intermediary and cannot be received directly. “Like-kind” means similar in nature but not identical—such as swapping a retail building for a warehouse or a multi-family complex for undeveloped land.

A 1031 exchange can be repeated over time, letting New Jersey investors grow their portfolios while deferring taxes. Taxes are due only when you eventually sell for cash, at the applicable long-term capital gains rate. While this strategy defers taxes, it doesn’t eliminate them entirely. Under certain circumstances, even a former primary residence may qualify.

Strategic Advisory for Real Estate Growth in New Jersey

Stay ahead in New Jersey’s real estate market with our specialized real estate accounting services and experienced Real Estate CPAs. We keep track of market trends, identify opportunities, and provide insight so you can make informed investment decisions. Presti & Naegele is your trusted partner for navigating New Jersey’s diverse property environment.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Clear and accurate bookkeeping is key to successful real estate management in New Jersey. Our QuickBooks services are built for property owners and investors, simplifying accounting so you can focus on expanding and managing your real estate holdings. With our support, you’ll have reliable financial records for every property you own.

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