Accounting for Real Estate in Phoenix

Presti & Naegele works closely with Phoenix investors to determine the most suitable legal structure for their rental properties. The right entity setup can help reduce exposure to risk and make property management more efficient.

✔ A Limited Liability Company (LLC) provides a combination of personal asset protection and ease of use. For those using real estate accounting in Phoenix, an LLC is often the go-to choice for its liability coverage and flexible tax options.

An LLC structure allows rental income to pass through to your individual tax return, helping avoid corporate-level taxes. Phoenix landlords can also deduct eligible expenses, such as interest on loans or necessary repairs. In a city with a growing property market like Phoenix, forming an LLC is a smart way to present yourself as a serious and professional investor. While LLCs are common, some real estate professionals may benefit from exploring S Corporations for added shareholder structure and tax strategies.

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 Phoenix

For Phoenix property owners, accelerated depreciation is a powerful tool to reduce taxable income early in the investment timeline. Our Real Estate CPAs help you apply this strategy to make the most of allowable deductions.

Depreciation accounts for wear and tear over time. While standard depreciation for residential rentals follows a 27.5-year schedule, accelerated depreciation allows Phoenix investors to claim greater deductions in the earlier years of ownership.

How Does Accelerated Depreciation Work?

A passive activity is an investment where the taxpayer is not materially involved. When the expenses from these activities exceed the income, passive activity losses (PALs) are generated.

In Phoenix, rental income is usually treated as passive. Expenses such as maintenance, loan interest, depreciation, and insurance often lead to passive losses. This also applies to investments in Phoenix real estate partnerships or ventures where the investor is not actively participating.

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 selling a property in Phoenix that was used for business or investment purposes, you can use a 1031 exchange to defer capital gains taxes—provided the proceeds go through a qualified intermediary. The term “like-kind” simply means the replacement property must serve a similar investment function, not that it’s identical—such as trading a commercial retail unit for land or a duplex for an office space.

This strategy can be used repeatedly, allowing Phoenix investors to grow their portfolios tax-deferred. Taxes are only due when a property is sold for cash. In some cases, even a previously personal residence might qualify under specific requirements.

Strategic Advisory for Real Estate Growth in Phoenix

Build success in Phoenix’s real estate market with help from Presti & Naegele’s real estate accounting professionals. Our CPAs understand local trends and offer clear, strategic advice to support smart investing. From tax guidance to growth-focused strategies, we’re your trusted partner for real estate accounting in Phoenix.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Accurate financial tracking is essential for property success in Phoenix. Our QuickBooks services are built around the needs of real estate investors, helping you stay on top of your finances with clarity and confidence. With real estate accounting in Phoenix from Presti & Naegele, you’ll have reliable, organized records for each property in your portfolio.

CLIENT REVIEWS

WHAT OUR CLIENTS ARE SAYING