Real Estate Investor Bookkeeping and Tax Services

Buildings depreciate over 27.5 or 39 years, but parts of a property can qualify for 5, 7 or 15-year lives. With 100% bonus depreciation restored for property acquired after January 19, 2025, a cost segregation study can move large deductions into the first year. California doesn't allow bonus depreciation, so the state numbers differ.

Rental losses are generally passive. The $25,000 allowance for active participation phases out as income rises, while real estate professional status and short-term rentals follow different rules. Whether your losses offset other income depends on which rules apply to you.

Repairs are deducted, improvements are capitalized, and the safe harbors in between are often overlooked. The classification affects your deductions today and your gain when you sell.

Each property is tracked on its own: rents, security deposits held as liabilities rather than income, mortgage principal separated from interest, escrow for taxes and insurance, and management fees. Clean property-level books make cost segregation, refinancing and sales much easier.

Depreciation reduces your basis whether or not you claimed it. If prior years were missed, the deductions can often be caught up through an accounting method change instead of amending several returns.

Depreciation taken over the years is taxed at sale, up to 25% federally. A 1031 exchange can defer the gain with strict deadlines, and California requires annual reporting when California property is exchanged for property in another state. Sales are planned before the property is listed.