This page answers common questions from real estate investors about choosing and working with an advisor. It gives short, general answers. For in-depth explanations of the tax topics themselves, see the companion site for real estate investors. The answers here are general education and not tax advice.
Who This FAQ Is For
This page is for people who own or are considering rental property and want to know what to ask an advisor. It does not try to teach the tax rules in depth. The companion site for real estate investors does that. Here, the focus is on the questions investors tend to ask when choosing and working with an advisor, and on brief answers that point you toward the topics worth exploring.
Why Real Estate Questions Need Careful Answers
Real estate tax rules depend heavily on facts: when you bought, how you use the property, how much time you spend, how the property is owned, and what your other income looks like. Two investors with similar properties can have very different results. That is why the answers below often say it depends and encourage you to ask an advisor to analyze your facts. A firm that answers real estate questions with clear conditions is usually more trustworthy than one that gives simple, confident answers to complicated questions.
Before You Talk to an Advisor
Gather a simple list of your properties with purchase dates, prices, and how each is used. Note whether each is a long-term or short-term rental and roughly how many hours you spend on it. Bring your last depreciation schedule if you have one. This information lets an advisor answer more precisely, and it will show you which records you should be keeping regularly.
A Word on Timing
Many real estate decisions are time-sensitive: an exchange has deadlines, a study is best evaluated before a return is prepared, and participation hours are earned during the year. Raising questions early gives you more options.
Frequently Asked Questions
Do I need an advisor with real estate experience?
It is helpful. Real estate has its own rules for depreciation, passive losses, exchanges, and entities, and an advisor who sees them often is more likely to recognize issues quickly. Ask about specific experience. See Questions Real Estate Investors Should Ask a Tax Advisor.
What is cost segregation?
It is an engineering-based analysis that identifies components of a property that may qualify for shorter depreciation lives, which can accelerate deductions. Whether it is worthwhile depends on the property, your ability to use the deductions, and your plans for the property.
Can a study create a deduction I can use right away?
Sometimes. Whether you can use it depends on passive loss rules, participation, basis, and other limits. Ask an advisor to analyze this before you commission a study.
What are the passive activity loss rules?
They generally limit the use of losses from passive activities, including most rentals, against other income. Exceptions exist, such as an allowance for small landlords and special treatment for real estate professionals.
What is real estate professional status?
It is a status that can allow rental losses to be treated as nonpassive if demanding hour and participation tests are met and documented. It must be earned each year, and it is commonly examined.
Do short-term rentals get special treatment?
Under certain conditions, a short-term rental with a short average stay may not be treated as a rental activity for passive loss purposes, and material participation then determines the result. This depends on facts and records.
What records should I keep?
Settlement statements, depreciation schedules, leases, invoices, bank statements, and, if you rely on participation tests, contemporaneous time logs. See the guides on documentation.
How does a 1031 exchange work?
A like-kind exchange can defer gain on real property held for investment or business use if strict timing and procedural rules are met, typically involving a qualified intermediary. It defers tax and does not eliminate it.
Should I hold property in an LLC?
LLCs are commonly used for liability and other reasons. Tax treatment depends on classification. Consult an attorney about liability and an advisor about tax. See the entity guides on the companion site.
Should an S corporation hold my rentals?
Often not. Several features of S corporations can make them a poor fit for holding appreciating or leveraged real estate. Discuss with an advisor.
What should I ask an advisor about state taxes?
Ask about filing requirements in states where you own property, how credits are handled, and how sales are reported. Out-of-state ownership can create nonresident filing obligations.
How should I choose between an advisor and a specialist provider for cost segregation?
They serve different roles. A specialist prepares the study, and an advisor helps decide whether it makes sense and how to report it. Ask how they coordinate.
Can an advisor promise a specific deduction from a study?
Not responsibly before the analysis. Estimates should be based on stated assumptions and presented as estimates. See Why Promises of Guaranteed Refunds and Savings Are a Problem.
What if I have already bought properties without a study?
A lookback study and an accounting method change may be options for property you still own. Ask an advisor to evaluate eligibility and benefit.
How do I evaluate the fit of a firm for real estate work?
Ask about experience with your property types, how the firm handles loss limits and documentation, and how it plans for sales. See Choosing an Advisor with Experience in Your Industry.
Can AE Tax Advisors help with real estate planning?
AE Tax Advisors provides planning for real estate investors. You can discuss your situation on a discovery call. See Who AE Tax Advisors Serves.
Want to Ask Your Questions Directly?
Book a discovery call with AE Tax Advisors to talk through your situation and ask the questions in these guides.
Book a Discovery CallEducational purposes only. This page is general education and is not tax, legal, or accounting advice. Descriptions of how AE Tax Advisors approaches engagements are general, and the scope, timing, and fees for any engagement are confirmed with you directly. Tax laws change and outcomes depend on individual facts. No result is guaranteed.