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SJ Accounting Services LLC.

CPA, Virtual CFO & Tax Strategist. Revolutionizing the way you manage your business & finances.

10/28/2026

Owning rentals doesn't automatically make you a real estate professional in the eyes of the IRS.

Real estate professional status can let rental losses offset other income instead of being suspended, but it generally takes two things: more than half of your personal services during the year performed in real property trades or businesses you materially participate in, and more than 750 hours in those businesses. Both tests, every year.

For married couples filing jointly, one spouse generally has to meet both tests individually. Hours are not combined.

Illustrative example: an investor with a full-time W-2 job and four rentals does real work on weekends, but those hours are likely a small share of total services and under 750, so the status is hard to support. A spouse whose actual trade is real estate, with a contemporaneous log showing 780 hours across acquisitions, leasing, and management, has a very different file.

That's why the log matters. Reconstructing hours in April rarely holds up, and the books should support the story: property-level records, separate accounts, and clear documentation of what you did and when.

The time to build that record is during the year, not after it closes.

Wondering whether you qualify? Let's talk.

Disclaimer: Outcomes vary based on facts and circumstances. Tax rules change. Educational content only; not tax or legal advice.

10/26/2026

Moving out and keeping the house? Converting a home into a rental changes the accounting from day one.

A property becomes a rental when it is placed in service: ready and available for rent, whether or not a tenant has signed yet. That date starts the depreciation clock, and expenses from before that date, while the home was still a residence, are generally not rental expenses.

Illustrative example: an owner lists a former home for rent in November and signs a tenant starting January 1. If the property was truly ready and available in November, depreciation generally begins in the year of conversion, based on the property's basis at that point, not on the purchase price years earlier.

The bookkeeping should change at the same time: separate bank accounts, a dedicated ledger, and documentation of the property's condition and value when it converted. Mixing the old residence expenses into the new rental ledger is one of the most common cleanup jobs we see.

If a conversion is on your calendar, the placed-in-service date is a year-end item. Waiting until the tenant moves in can leave deduction time on the table.

Planning to convert a home to a rental? Let's talk.

Disclaimer: Outcomes vary based on facts and circumstances. Tax rules change; educational content only; not tax or legal advice.

10/23/2026

If your ledgers missed depreciation in past years, you may not need to amend every return to fix it.

Missed rental depreciation doesn't simply disappear. In many cases, a change in accounting method can let you correct prior years on the current year's return, catch up depreciation that was never claimed, and adjust the property's basis going forward, without amending each earlier return.

The correction generally happens on the return for the year you make the change, which is why timing matters. And what makes it work is documentation: purchase records, improvement invoices, dates placed in service, and books that reconcile.

Year-end is a practical window to review a portfolio's fixed-asset records and see whether a missed-depreciation correction makes sense, especially before a future sale locks in the numbers.

Curious whether your portfolio has depreciation left on the table? Let's talk.

Disclaimer: Outcomes vary based on facts and circumstances. Tax rules change. Educational content only; not tax or legal advice.

10/21/2026

A short-term rental is not automatically a passive activity.

Rental activities are generally treated as passive, which is where many owners see losses sit unused. But there is an exception: when the average guest stay is 7 days or less, the activity is generally not a per se passive rental. Where average stays run longer but significant services are provided to guests, other treatment may apply. Once the activity is out of the passive category, material participation becomes the deciding factor.

That is where documentation makes or breaks the position. Material participation generally means meeting one of the IRS tests, such as working 500 or more hours in the activity during the year, or doing substantially all the work.

Illustrative example: An owner who manages two short-term rentals, handling bookings, guest communication, cleaning coordination, and minor repairs, tracks roughly 15 hours a week during peak season in a contemporaneous log. That record supports a material participation position. An owner with a full-time job and no hour records may find the same activity treated very differently, no matter how much work actually happens.

The bookkeeping matters too: platform payouts, cleaning fees, lodging taxes, and per-property ledgers all feed the analysis.

The hours run through December 31. If a short-term rental is part of your plan this year, the participation log is a year-end item, not a tax-season one.

Want your short-term rental records reviewed before the year closes? Let's talk.

Disclaimer: Outcomes vary based on facts and circumstances. Tax rules change. Educational content only; not tax or legal advice.

10/19/2026

Selling a rental doesn’t always free every suspended loss at once.

Passive losses you couldn’t deduct generally carry forward and may offset future passive income while you continue to own the property.

If you sell your entire interest in a fully taxable sale to an unrelated buyer, remaining suspended losses are generally released and may offset income beyond the sale. A partial sale usually doesn’t trigger the same full release; some losses may remain suspended. With an installment sale, the release may be spread over the years gain is recognized.

Before a sale, check that your passive-loss carryforward schedule is current. Knowing the balances by activity can help you understand the tax timing and plan the transaction.

For year-round tax planning for real estate investors, it can help to review the numbers before a sale is underway. Outcomes vary based on facts and circumstances, and tax rules change. Educational content only; not tax or legal advice.

10/16/2026

A higher 1099 threshold doesn’t mean vendor tracking can wait until January.

For 2026 payments, the threshold for certain information returns, including Form 1099-NEC for reportable nonemployee compensation, rises from $600 to $2,000. If you must file 10 or more information returns in total, across form types, you generally must e-file.

Example: A property manager pays the same landscaping contractor 12 invoices of $185. Each invoice is small, but the $2,220 annual total may put the vendor over the reporting threshold. Tag payments to the vendor and property in your ledger throughout the year so the total is easy to review.

A few practical checks:
• Decide worker status based on the actual working relationship, not just a contract or W-9.
• Collect a completed W-9 before paying a new contractor.
• Track service fees separately from documented materials or reimbursements; don’t assume reimbursements are automatically excluded.
• Many payments to corporations are generally exempt, with exceptions. Payments by payment card or qualifying third-party networks generally have separate 1099-K reporting handled by the processor.

Review vendor records and W-9s before year-end. Clean, property-level books can make filing far less of a scramble.

Figures are illustrative. Rules can change, and reporting obligations depend on the facts and circumstances.

10/14/2026

Could your real estate entity change where its state tax deduction lands on the federal return?

Some states allow partnerships, LLCs taxed as partnerships, and S corporations to elect a pass-through entity tax (PTET). When the election and payment meet applicable rules, the entity may deduct the tax federally rather than having owners claim it as personal state and local tax, where the SALT cap may limit the deduction.

For 2026, the SALT cap is $40,400 and begins phasing down above roughly $505,000 of modified AGI. But a PTET election isn’t automatically beneficial. State availability, annual election deadlines, owner type (individual, trust, or corporation), nonresident owners and composite filings all matter. The entity-level deduction may also affect the owners’ qualified business income (QBI) calculation.

Example: If a partnership is considering a $28,000 PTET payment, it should model the federal deduction, state credits to owners, and cash timing, not assume the payment equals tax savings. Good records should capture the entity tax accrual, owner credits, K-1 reporting, and any estimated-tax adjustments. Forecasting cash needs before the election deadline can help avoid surprises.

Consider reviewing the state rules and owner-by-owner impact with your tax professional before electing. Figures are illustrative, not individualized tax, accounting, legal, or investment advice. State rules and federal thresholds change, and outcomes vary with facts and circumstances.

10/12/2026

You sold a rental with a carry-back note. So why does your income statement show a fraction of the gain?

When a seller finances the buyer, the installment method generally spreads gain across the years payments are received. The gross profit percentage is applied to principal collected, rather than recognizing the entire gain at closing.

Example: A $600,000 sale, less $35,000 selling costs and a $265,000 adjusted basis, produces $300,000 of gross profit. At a 50% gross profit percentage, a $150,000 down payment produces approximately $75,000 of gain recognized in year one; the remaining gain is deferred as the note is collected.

Bookkeeping matters: record the note receivable, split each payment between principal and interest, and maintain a deferred-gain schedule that reconciles to the annual installment-sale reporting, such as Form 6252. The tax return and the property’s books can legitimately tell different stories in year one.

The note should carry an adequate stated interest rate. A below-market rate may trigger imputed interest under applicable federal rate rules. Some gain components may not spread and may be recognized in the sale year, depending on the facts. Frequent, dealer-like selling can produce ordinary income and may jeopardize installment treatment. A 1031 exchange defers gain rather than spreading it.

Before year-end, consider reviewing carry-back note structures, note-receivable tracking, and deferred-gain schedules with SJ Accounting Services LLC’s virtual CFO or virtual controller team. Figures are illustrative, not individualized tax, accounting, legal, or investment advice; outcomes vary with the facts and circumstances.

10/09/2026

Your investors got their distribution. So why is their capital account down?

Distributions and profits are different numbers. A partnership can distribute more cash than its book income, reducing an investor’s capital account even though cash went out the door.

Example: A 20-unit multifamily partnership has $1,500,000 of investor equity. In year one, the property produces $150,000 of net operating income before depreciation. After $72,000 of depreciation, book income is $78,000. The partnership distributes $120,000. The extra $42,000 is a return of capital. Cash out, but capital accounts down.

An investor receiving a $10,000 distribution may see their capital account decline while their K-1 shows modest income. That can look like an error until the capital-account rollforward shows beginning balance, contributions, income or loss allocations, distributions, and ending balance.

A common reporting failure is building investor statements from a bank balance in a spreadsheet instead of reconciled partnership books. Allocations, depreciation, and capital accounts then fail to tie. Unclosed books also delay K-1s, affecting investors’ personal returns and extension planning.

A repeatable quarterly package should include a capital-account rollforward, cash-flow summary, reserves held, distributions paid, operating results versus budget, and an updated distribution outlook. Partnership-level books should maintain separate capital accounts, follow the operating agreement, and document reserve targets for capital work and debt service before distributions are declared.

Preferred returns, promote or carried interest, and non-pro-rata distributions can change outcomes.

SJ Accounting Services LLC provides Virtual CFO and Virtual Controller support for partnership bookkeeping, capital-account rollforwards, investor reporting, and K-1 readiness.

Figures are illustrative and not individualized tax, accounting, legal, or investment advice. Need a clearer reporting process? Let’s discuss what your partnership needs.

10/07/2026

Your construction loan converted. So why does the permanent lender say your project costs don’t match your books?

Conversion typically follows a certificate of occupancy, stabilization/occupancy threshold, or DSCR test. Before it, the permanent lender, and often the construction lender, requires cost certification: final cost by code, tied to the approved budget and original sources-and-uses, with paid invoices, final lien waivers, and a reconciled last draw.

Why the gap? Developers tracked draws, not a true budget. Causes include unpapered change orders; inconsistent capitalization of construction interest and fees; soft costs such as design, permits, impact fees, legal, and insurance misallocated or placed in one bucket; unsupported contingency; unreleased retainage; and commingled owner and contractor contingencies.

Example: A 12-unit project had a $3.1M budget and $450K interest reserve. Certified cost was $3.18M: $52K in lender-unreported change orders plus $28K in interest posted to project costs instead of the reserve. The build was essentially on budget, but documentation and classification delayed conversion for weeks.

Fix it with project-level books, cost codes mapped to the budget and lender schedule of values, and monthly budget-versus-committed-versus-actual reporting with projected cost to complete. Delays can extend construction-rate interest and jeopardize rate-lock or loan-term deadlines.

Reconcile before conversion. SJ Accounting Services LLC offers Virtual CFO and Virtual Controller support for project accounting, budget-to-actual cost-code reporting, cost-certification preparation, interest-reserve and retainage tracking, and lender or investor reporting.

Figures are illustrative, not individualized tax, accounting, or legal advice.

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