Accounting for Real Estate in San Diego

For investors across San Diego, Presti & Naegele assists in selecting the right business structure for rental property ownership. The right legal setup can offer both protection and flexibility as you grow your real estate portfolio.

✔ A Limited Liability Company (LLC) offers the simplicity of a sole proprietorship with the asset protection of a corporation. With real estate accounting in San Diego, LLCs are a preferred structure for their liability safeguards and tax benefits.

An LLC allows rental income to be reported on your personal tax return, avoiding corporate tax requirements. Property-related deductions—such as repairs, maintenance, and loan interest—can also be claimed. In a competitive and fast-growing real estate market like San Diego, using an LLC signals professionalism and reliability. While LLCs are commonly used for their flexibility, certain real estate professionals may consider S Corps depending on their operational and tax needs.

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 San Diego

Our Real Estate CPAs work with San Diego investors to apply accelerated depreciation—a strategy that offers greater tax deductions earlier in the ownership timeline.

Depreciation reflects the gradual decline in a property's value due to age and use. While standard residential rentals depreciate over 27.5 years, accelerated depreciation allows San Diego property owners to take more substantial deductions during the early stages of ownership, creating faster tax savings.

How Does Accelerated Depreciation Work?

Passive activities include any investment or business where the owner is not materially involved in daily operations. When expenses surpass income, passive activity losses (PALs) are generated.

In San Diego, most rental income is considered passive. Operating costs—such as interest, insurance, repairs, and depreciation—often lead to passive losses. The same applies to limited partnerships or low-involvement real estate investments across San Diego.

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 investment property in San Diego and reinvest the funds into a similar-use property, a 1031 exchange allows you to defer capital gains tax. A qualified intermediary must handle the funds—direct access will disqualify the exchange. “Like-kind” refers to properties used for the same general purpose, such as swapping a multi-unit residential building for commercial space or a vacant lot.

San Diego real estate investors can repeat the 1031 exchange process multiple times, deferring taxes until a property is ultimately sold for cash. Under certain guidelines, even a previously lived-in property could qualify.

Strategic Advisory for Real Estate Growth in San Diego

Navigate San Diego’s fast-moving real estate landscape with expert guidance from our Real Estate CPAs. Our real estate accounting services in San Diego provide the tools, insights, and strategies to support smart investments and long-term success. Presti & Naegele is a trusted partner for property owners across the region.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Reliable, organized bookkeeping is essential for property investors in San Diego. Our QuickBooks services are tailored to real estate owners, giving you a streamlined way to manage your property finances. With real estate accounting in San Diego from Presti & Naegele, you’ll always have clear, accurate financial data at your fingertips.

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