Accounting for Real Estate in Seattle

Presti & Naegele helps real estate investors in Seattle determine the most effective way to structure their rental holdings. Selecting the right legal entity provides protection and streamlines property management.

✔ A Limited Liability Company (LLC) merges the straightforward operations of a sole proprietorship with the legal protections of a corporation. For those using real estate accounting in Seattle, LLCs are a smart way to reduce liability and gain flexible tax treatment.

An LLC allows rental income to flow through to your personal tax return, helping you avoid the double taxation that comes with corporate structures. Property owners in Seattle can also deduct eligible expenses, such as repairs and mortgage interest. In a real estate market as active as Seattle’s, forming an LLC can strengthen your image with partners and tenants. While LLCs are commonly used for their benefits, some investors may also explore S Corps for specific ownership and tax considerations.

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 Seattle

Seattle property investors can take advantage of accelerated depreciation to improve their tax position early on. Our Real Estate CPAs guide clients through this process to maximize upfront deductions and overall tax efficiency.

Depreciation helps offset the decline in a property's value over time. Residential rentals are typically depreciated over 27.5 years, but accelerated depreciation allows Seattle investors to claim larger deductions in the initial years of ownership.

How Does Accelerated Depreciation Work?

Passive activity refers to any real estate or business venture in which the investor doesn’t materially participate. When expenses exceed the income these activities generate, passive activity losses (PALs) occur.

In Seattle, rental income is generally classified as passive. Common expenses—such as maintenance, interest payments, depreciation, and insurance—can lead to passive losses. This also applies to partnerships or property ventures in Seattle where the investor plays a limited role.

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 an investment property in Seattle, a 1031 exchange allows you to defer capital gains taxes by using the proceeds to acquire another like-kind property. You must work through a qualified intermediary—funds cannot be received directly. “Like-kind” refers to properties used for similar investment purposes, such as trading a mixed-use building for undeveloped land or a duplex for an office space.

Seattle investors can continue deferring taxes by completing multiple exchanges over time. Capital gains are only triggered once a property is sold for cash. Under specific circumstances, even a previously owned primary residence may qualify.

Strategic Advisory for Real Estate Growth in Seattle

Take advantage of Seattle’s fast-evolving real estate market with our expert real estate accounting services. Our experienced Real Estate CPAs understand the local property landscape and work with investors to uncover tax strategies, improve efficiency, and support long-term growth. Presti & Naegele is a trusted partner for real estate professionals across Seattle.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Good bookkeeping is a must for real estate investors in Seattle. Our QuickBooks services are built specifically for property owners, helping simplify your accounting processes and keep your finances in order. With real estate accounting in Seattle from Presti & Naegele, you’ll stay organized, efficient, and ready to scale your portfolio.

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