The real estate market crash has been brutal to Las Vegas homeowners who have become underwater with their mortgages or have lost their homes through foreclosures and short sales. For others who are more fortunate, the low housing prices in Las Vegas have provided them with the opportunity to purchase their first primary residence or investment property. First-time homeowners and real estate investors who previously prepared their own tax returns may suddenly find themselves overwhelmed and may seek the help of a CPA. Some of the accounting and tax challenges that real estate owners face are:
- Correctly reporting amounts on the settlement statement. Also known as a HUD-1 or closing statement, this is the document usually printed on legal-size paper that shows the purchase price of a home and all of the costs incurred at closing. Some amounts on the settlement statement may be deductible in the year you purchase your home. Other items are added to the basis of the property, potentially providing a depreciation deduction or reducing the amount of tax you will need to pay when you sell your home. In some cases, amounts may be amortized and deducted over the life of the loan.
- Classifying real estate activities on a tax return. If you rent out a home, is it considered a passive activity for tax purposes? Do you qualify as a real estate professional and are therefore able to take advantage of special tax breaks? Are you involved enough in real estate activities to have the money you make from flipping homes subject to self-employment tax? There are many questions that your CPA can help answer.
- Determining whether certain costs are repairs or improvements. Many of the best deals for real estate in Las Vegas are foreclosures, but some of these homes require significant repairs or improvements. For example, you may have to replace a water heater, put in new carpet, or hire a painter. Are these costs deductible repairs or depreciable improvements?
- Bookkeeping for multiple real estate investments. If you own several rental homes and manage them yourself, you’ll want to make sure you are well-organized for tax time. Some real estate investors use QuickBooks, a popular accounting software, to keep track of income and expenses for various rental properties. A QuickBooks feature called “classes” allows a rental property owner to run profit and loss statements for several different properties within a single data file. Other real estate investors have separate bank accounts for each property or use other methods to successfully do the bookkeeping for multiple investments.
If you have discovered accounting for real estate transactions to be a daunting task, feel free to contact me or another Las Vegas CPA from Wallace Neumann & Verville providing tax and accounting services to individuals involved in real estate.