Accounting for Real Estate in Tennessee

Presti & Naegele assists Tennessee investors in choosing the right legal entity for their real estate ventures. The right structure can help limit personal liability and streamline the way you manage your property assets.

✔ A Limited Liability Company (LLC) blends simple day-to-day operations with important liability protections. For those using real estate accounting in Tennessee, forming an LLC offers flexible tax benefits and helps protect your personal assets from property-related risks.

LLCs offer the benefit of pass-through taxation, meaning rental income is reported directly on your personal tax return, avoiding corporate taxation. Investors in Tennessee can also deduct eligible property expenses, such as mortgage interest, maintenance, and repairs. In a fast-growing real estate market like Tennessee’s, an LLC can enhance your professionalism and protect your bottom line. While many opt for LLCs, some real estate professionals may consider S Corporations based on their tax and ownership 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 Tennessee

Accelerated depreciation is a smart tax strategy that helps Tennessee investors reduce taxable income more quickly. Our Real Estate CPAs guide you through this process to ensure you’re maximizing deductions early in the life of your property.

Depreciation is used to account for wear and tear over time. Although residential rentals typically depreciate over 27.5 years, accelerated depreciation allows property owners in Tennessee to front-load deductions for early tax benefits.

How Does Accelerated Depreciation Work?

Passive activity refers to business or investment efforts in which the owner does not materially participate. When expenses exceed income, this results in passive activity losses (PALs).

In Tennessee, rental income is typically considered passive. Expenses such as depreciation, maintenance, insurance, and interest often contribute to passive losses. This also applies to Tennessee-based real estate partnerships or ventures 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.

Selling a Tennessee property used for investment and reinvesting in another like-kind property qualifies for a 1031 exchange, which allows you to defer capital gains tax. The funds must be managed by a qualified intermediary and cannot be accessed directly. “Like-kind” means both properties serve similar investment purposes—whether that’s trading an apartment complex for undeveloped land or a commercial building for a multifamily unit.

Tennessee investors can use this strategy repeatedly, postponing taxes until a final sale for cash. In specific situations, even a previously occupied primary residence may be eligible under certain criteria.

Strategic Advisory for Real Estate Growth in Tennessee

Thrive in Tennessee’s growing real estate market with the help of Presti & Naegele’s expert Real Estate CPAs. Our real estate accounting services in Tennessee are tailored to support investor success across a wide variety of property types. From tax strategies to long-term planning, we provide the tools and insights you need to stay competitive.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Accurate bookkeeping is key to efficient property management in Tennessee. Our QuickBooks services are customized for real estate investors, helping you maintain clean, organized records across your portfolio. With real estate accounting in Tennessee from Presti & Naegele, you’ll have a reliable financial foundation to scale your investments.

CLIENT REVIEWS

WHAT OUR CLIENTS ARE SAYING