Accounting for Real Estate in New York City

Presti & Naegele assists NYC real estate investors in selecting the right business entity for rental properties. While investing in rental properties can carry financial risks, forming a separate legal entity offers strong advantages for protection and efficiency.

✔ A Limited Liability Company (LLC) blends the simplicity of a sole proprietorship with the structural benefits of a corporation. It safeguards personal assets from business-related liabilities, limits personal risk exposure, and offers tax flexibility for those engaged in real estate accounting in New York City.

With an LLC, rental income can pass directly to your personal tax return, avoiding the extra layer of corporate taxation. You can also deduct allowable property-related expenses, including mortgage interest and necessary repairs. Operating as an LLC signals professionalism to both tenants and business partners. In NYC’s competitive real estate market, LLCs are often preferred for their liability protection, tax flexibility, and straightforward management. For some investors, S Corps may also be worth considering for their shareholder protections and potential tax benefits, particularly for those actively involved in accounting for real estate.

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 City

As a property owner or investor in New York City, our Real Estate CPAs can help you understand how tax rules affect your holdings. One of the most valuable tools available is accelerated depreciation, which can enhance your tax position while you manage your real estate portfolio.

Depreciation allows you to recover a property’s cost basis over time by deducting for wear and tear, aging, or outdated features. While residential rental properties typically depreciate over 27.5 years, accelerated depreciation lets investors in NYC front-load these deductions, creating more substantial tax benefits during the early years of ownership.

How Does Accelerated Depreciation Work?

A passive activity is an investment or business in which the taxpayer does not materially participate during the tax year. Passive activity losses (PALs) happen when total expenses and losses from passive ventures outweigh the income they produce.

In the New York City real estate market, examples include owning rental properties where income and losses are generally treated as passive. Expenses such as mortgage interest, insurance, maintenance, and depreciation contribute to these losses. Investments in limited partnerships or other NYC real estate ventures with limited personal involvement 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 an NYC property held for business or investment purposes and replace it with another qualifying property, you can defer capital gains taxes on the sale. The proceeds must be held by an independent third party in escrow and used to buy the replacement property without being received directly. To qualify, both properties must meet the IRS’s “like-kind” definition—meaning they are similar in nature, not necessarily identical (e.g., an apartment building for raw land or a retail strip for an office space).

There’s no limit to how many times you can complete a 1031 exchange. You can continue rolling over gains from property to property, allowing your NYC real estate portfolio to grow tax-deferred. Eventually, when you cash out, you’ll pay capital gains tax just once—at the applicable long-term rate. While this strategy defers taxes, it does not eliminate them. Under certain conditions, even a former principal residence in NYC may qualify for a 1031 exchange.

Strategic Advisory for Real Estate Growth in New York City

Stay competitive in the fast-paced NYC real estate market with our real estate accounting services and dedicated Real Estate CPAs. We provide insights on local market trends, help identify promising growth opportunities, and guide you in making informed, strategic decisions. Presti & Naegele is your committed partner for navigating the ever-changing world of real estate in New York City.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Efficient bookkeeping is essential for thriving in New York City’s real estate scene. Our QuickBooks support is designed specifically for real estate professionals, simplifying the accounting process so you can focus on managing and growing your property investments. With Presti & Naegele, you’ll experience smoother, more streamlined financial operations for your NYC real estate ventures.

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