Accounting for Real Estate in New York

Presti & Naegele assists New York investors in selecting the best entity structure for their rental properties. While all investments carry some level of risk, creating the right legal entity can provide critical protections and advantages.

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

An LLC allows rental income to flow directly to your personal tax return without corporate-level taxation. It also makes it possible to deduct eligible property expenses, including mortgage interest and necessary repairs. In New York’s competitive property market, operating through an LLC signals professionalism to partners and tenants. Many choose LLCs for their liability protection, tax adaptability, and ease of management, though S Corps may be beneficial for certain active real estate professionals seeking 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 York

For property owners and investors in New York, our Real Estate CPAs explain how tax rules impact your holdings. Accelerated depreciation is one strategy that can strengthen your tax position while managing your property portfolio.

Depreciation allows recovery of a property’s cost basis over time, accounting for wear, deterioration, and functional obsolescence. While residential rental properties are generally depreciated over 27.5 years, accelerated depreciation lets New York investors take larger deductions earlier in the ownership period, creating greater short-term advantages.

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 outweigh the income generated.

In New York, rental property income is generally considered passive. Mortgage interest, insurance, maintenance, and depreciation all contribute to passive losses. Likewise, investments in limited partnerships or other New York real estate projects with minimal involvement are also treated as 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 New York property held for investment or business 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” refers to properties that are similar in nature but not identical—for example, exchanging an office building for retail space or a multi-family rental for vacant land.

A 1031 exchange can be used multiple times, allowing New York investors to expand their portfolios while deferring taxes. Taxes are only due when you sell for cash, and then at the applicable long-term capital gains rate. While this defers taxes, it does not eliminate them entirely. Under specific conditions, even a former primary residence may qualify.

Strategic Advisory for Real Estate Growth in New York

Stay competitive in New York’s dynamic real estate market with our specialized real estate accounting services and experienced Real Estate CPAs. We follow market trends, uncover potential investment opportunities, and provide insight to help you make confident property decisions. Presti & Naegele is your trusted partner for navigating New York’s varied and fast-paced real estate market.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Well-organized bookkeeping is essential for success in New York real estate. Our QuickBooks services are designed for property owners and investors, making accounting simpler and more efficient. With our assistance, you can focus on managing and expanding your real estate portfolio while knowing your financial records are accurate and up to date.

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