INSIGHTS

US GAAP vs. Tax Basis Reporting in
Real Estate

by Mark Thoma, CPA

ARTICLE | February 8, 2026

Executive Summary

Financial reporting in real estate often requires choosing between U.S. GAAP and tax-basis accounting. Each framework affects how assets, income, expenses, and disclosures are presented — and that choice directly influences lenders, investors, and internal decision-making.

Why the Reporting Basis Matters

Many real estate owners maintain two sets of financials: GAAP statements for external stakeholders and tax-basis statements for compliance. This dual approach increases reconciliation work and can introduce risk if book-to-tax differences are not clearly tracked.

1. Asset and Liability Measurement

GAAP

  • Requires allocating purchase price to all identifiable assets and liabilities, including intangible items such as in-place leases and above or below-market lease values.
  • Requires ongoing impairment testing for long-lived assets.

Tax Basis

  • Focuses primarily on tangible assets such as land, buildings, and improvements.
  • Does not require impairment testing.

2. Depreciation and Expense Recognition

GAAP

  • Uses straight-line depreciation over estimated useful lives.
  • Applies accrual accounting, recognizing expenses when incurred.

Tax Basis

  • Uses statutory depreciation methods, often accelerated through MACRS or bonus depreciation.
  • Expense recognition depends on tax rules and elections, which may accelerate or defer deductions.

3. Revenue Recognition

GAAP

  • Rental income is recognized on a straight-line basis over the lease term, smoothing rent escalations.
  • Gains on property sales are typically recognized when control transfers.

 

Tax Basis

  • Rental income generally reflects cash received or due, creating timing differences.
  • Property sales may qualify for installment sale treatment, deferring gain recognition as payments are collected.

Practical Implications for Real Estate Companies

Stakeholder Expectations

  • Lenders and institutional investors often require GAAP financial statements for comparability and transparency.
  • Privately held entities may prefer tax-basis reporting to reduce complexity and cost.

Dual Reporting Challenges

Maintaining two reporting bases creates ongoing book-to-tax differences in depreciation, revenue timing, and asset values. Without disciplined reconciliations, these differences can affect loan covenants and investor confidence.

Strategic Considerations

  • Review loan agreements and investor requirements before selecting a reporting basis.
  • Establish internal controls to manage reconciliations across multi-property portfolios.

Quick Comparison

Area

GAAP Reporting

Tax Basis Reporting

Primary purpose

Financial performance and comparability

Tax compliance

Asset valuation

Includes intangibles and impairments

Tangible asset focus

Depreciation

Straight-line

Accelerated methods

Revenue recognition

Earned, often straight-line

Cash or fixed and determinable

Disclosures

Extensive

Limited

 

Bottom line: Neither framework is universally better. The right choice depends on who relies on your financials, how you finance properties, and how much complexity your organization is prepared to manage.

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Mark Thoma, CPA

Mark Thoma, CPA

Principal

Mark Thoma is a Certified Public Accountant and a Principal at Larson Gross. In his role, Mark focuses on client advisory services and personal consulting, helping individuals and businesses navigate complex financial, tax, and accounting challenges with strategic, relationship-focused guidance. Mark holds active CPA licenses in the states of Washington and Arizona.