Accounting for Real Estate in Philadelphia

For investors throughout Philadelphia, Presti & Naegele helps identify the most appropriate legal structure for their real estate holdings. Choosing the right entity can reduce risk and offer valuable tax and operational advantages.

✔ A Limited Liability Company (LLC) blends the simplicity of a sole proprietorship with the liability protection of a corporation. If you're using real estate accounting in Philadelphia, an LLC offers a practical solution to shield personal assets and take advantage of tax flexibility.

An LLC allows you to report rental income directly on your individual tax return, avoiding the double taxation that comes with corporate structures. You can also deduct qualifying expenses like maintenance and mortgage interest. In a competitive market like Philadelphia, setting up an LLC can help present you as a more established and professional landlord. While LLCs are often preferred for their ease and protections, some active real estate professionals may benefit from exploring S Corporation structures for additional shareholder advantages.

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 Philadelphia

Property owners in Philadelphia can improve their tax efficiency through smart planning—and accelerated depreciation is one of the key tools available. Our experienced Real Estate CPAs help clients apply this method to reduce taxable income early in the investment cycle.

Depreciation reflects the wear and decline in a property's value over time. Residential rental properties usually depreciate over 27.5 years, but accelerated depreciation allows Philadelphia investors to take larger deductions earlier, providing greater short-term tax benefits.

How Does Accelerated Depreciation Work?

A passive activity refers to any business or investment in which the owner doesn’t play an active, day-to-day role. When costs exceed the income from those investments, you end up with passive activity losses (PALs).

In Philadelphia, rental income is typically considered passive. Common costs—like insurance, repairs, loan interest, and depreciation—often contribute to these losses. The same applies to real estate partnerships or investments in the Philadelphia area where the investor has limited involvement.

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 business or investment property in Philadelphia and reinvest the proceeds into another like-kind property, a 1031 exchange allows you to defer capital gains taxes. You must work with a qualified intermediary—directly receiving the funds disqualifies the transaction. The term “like-kind” means the property must be used for similar investment purposes, such as trading a multi-family unit for a commercial space or an office building for raw land.

Philadelphia investors can use this tax-deferral method repeatedly to expand their portfolios without triggering capital gains tax until a cash sale occurs. In some scenarios, even a former primary residence might meet the criteria under specific rules.

Strategic Advisory for Real Estate Growth in Philadelphia

Succeed in Philadelphia’s diverse real estate market with the support of our experienced Real Estate CPAs. Our real estate accounting services in Philadelphia are built around the needs of local property owners and investors. We track local market shifts, analyze opportunities, and deliver insight-driven strategies to help you make confident, informed decisions.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Good bookkeeping is critical for real estate investors in Philadelphia. Our QuickBooks services are designed for the unique needs of property owners, making it easier to manage finances and stay organized. With our real estate accounting in Philadelphia, you’ll gain clear, accurate records that support your day-to-day operations and long-term growth.

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