Accounting for Real Estate in Texas

Presti & Naegele works with Texas real estate investors to determine the most effective legal structure for managing their holdings. Choosing the right entity provides personal liability protection and streamlined management.

✔ A Limited Liability Company (LLC) merges simplicity with legal security. For those using real estate accounting in Texas, an LLC provides flexible tax advantages and helps separate business liabilities from personal assets.

An LLC allows your rental income to be reported on your individual tax return—avoiding the extra layer of corporate taxes. Texas property owners can also deduct qualifying costs like maintenance, loan interest, and property repairs. In a highly active market like Texas, establishing an LLC helps present a professional image while protecting your personal finances. While LLCs are widely used, S Corporations may be a good option for some investors seeking more defined ownership structures and tax planning flexibility.

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 Texas

Accelerated depreciation is one of the most effective tax tools available to real estate investors in Texas. Our Real Estate CPAs help clients apply this method to reduce taxable income and improve cash flow in the early years of property ownership.

Depreciation accounts for the natural aging and wear of a property. While standard residential depreciation spans 27.5 years, accelerated depreciation enables Texas investors to claim higher deductions upfront for faster tax savings.

How Does Accelerated Depreciation Work?

Passive activity refers to any business or investment where the taxpayer is not materially involved. When expenses from these activities exceed the income, passive activity losses (PALs) occur.

In Texas, most rental income is treated as passive. Typical expenses—including depreciation, interest, maintenance, and insurance—can generate passive losses. This classification also applies to limited real estate partnerships and passive investment ventures across the state.

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 Texas and use the proceeds to purchase another of similar use, a 1031 exchange enables you to defer capital gains taxes. To comply, the funds must be held by a qualified intermediary—direct access disqualifies the transaction. “Like-kind” simply means both properties are held for investment purposes, whether it's a multifamily building traded for land or a warehouse swapped for a retail center.

Texas investors can take advantage of multiple exchanges over time, deferring taxes until a final cash sale. In some situations, even a previously lived-in home may qualify under the appropriate guidelines.

Strategic Advisory for Real Estate Growth in Texas

Take control of your real estate investments across Texas with the help of our experienced Real Estate CPAs. Our real estate accounting services in Texas are designed to deliver clarity, efficiency, and smart financial strategies. Whether you're managing one property or a growing portfolio, Presti & Naegele supports your success in every major market throughout the state.

STREAMLINE FINANCIAL OPERATIONS WITH QUICKBOOKS EXPERTISE

Keeping accurate records is essential for managing real estate in Texas. Our QuickBooks services are customized for real estate investors and landlords, making it easy to track income and expenses across all your properties. With real estate accounting in Texas from Presti & Naegele, you’ll stay organized and ready to make informed investment decisions.

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