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The real estate industry in 2026 operates in a fundamentally different environment than just a few years ago. Elevated interest rates have reshaped development financing. Construction costs remain stubbornly high while rental rate growth slows across many markets. Property tax assessments climb even as valuations stagnate. Yet many real estate operators still rely on accounting systems designed for simpler times—systems that can't answer critical questions: What's the true all-in cost per unit? Which properties actually generate positive cash flow after all expenses? Are cost overruns being tracked before they destroy project margins?
Most companies discover financial problems only after quarterly statements reveal the damage. Properties that appeared profitable on paper suddenly show losses when true carrying costs emerge. Development projects exceed budgets by 20-30% without early warnings. Cash flow crises develop during long development cycles. Professional accountants for real estate offer the financial visibility and controls that separate thriving operators from distressed sellers. The real estate companies that thrive in 2026 won't be those with the largest portfolios—they'll be those with the most accurate financial visibility and tightest accounting controls.
In this article we cover the biggest accounting challenges real estate companies face in 2026, how each challenge impacts profitability and cash flow, practical solutions to address each challenge, and why specialized real estate accounting expertise matters more than ever.
Challenge 1: Revenue recognition complexity (ASC 606)
Real estate revenue recognition under ASC 606 requires careful analysis of performance obligations, transfer of control, and timing. Property sales, development contracts, and service arrangements each have different recognition criteria. Many companies still use cash-basis accounting or recognize revenue too early.
The impact: Improper revenue recognition triggers audit findings, requires financial statement restatements, and creates tax compliance issues. This misleads investors, lenders, and management about true financial performance.
How to solve it:
Identify distinct performance obligations: Analyze every transaction to identify separate performance obligations. A property sale with ongoing management services contains multiple obligations requiring separate revenue recognition.
Determine transfer of control: Document when control transfers to the buyer for each performance obligation. For property sales, this typically occurs at closing when legal title transfers.
Allocate transaction price properly: Allocate total consideration across all performance obligations based on standalone selling prices.
Use percentage-of-completion for development: Development contracts where control transfers over time require percentage-of-completion accounting based on costs incurred against total estimated costs.
Document all revenue decisions: Maintain detailed memos explaining revenue recognition conclusions for each transaction type. This documentation is critical during audits. Experienced accountants for real estate ensure proper ASC 606 implementation across all transaction types.
Challenge 2: Construction accounting and cost overruns
Development projects face constant cost changes. Material costs fluctuate. Labor availability tightens. Change orders accumulate. Without real-time cost tracking, projects exceed budgets by 20-30% before management realizes problems exist.
The impact: Cost overruns destroy development margins. A project budgeted at $10 million with 20% margin suddenly shows losses when actual costs hit $12.5 million.
How to solve it:
Implement project cost accounting: Use construction accounting software that tracks actual costs against budgets at the line-item level. Every invoice should be coded to specific projects and cost categories.
Update cost-to-complete estimates monthly: Don't rely on original budgets throughout the project. Update estimated costs to complete monthly based on actual costs incurred and current market conditions.
Track change orders immediately: Enter all change orders when approved, not when invoiced or paid. This keeps estimated total costs current.
Calculate cost variances weekly: Generate weekly reports showing budget vs. actual costs for every project. Flag line items exceeding budget by more than 5%.
Implement draw management systems: Track construction loan draws against project budgets and completion percentages to avoid drawing funds faster than work progresses.
Challenge 3: Interest capitalization vs. expense errors
Real estate companies often misclassify interest costs, either expensing interest that should be capitalized during development or capitalizing interest that should be expensed on stabilized properties. This distorts both development project profitability and ongoing operating performance.
The impact: Improperly expensing capitalizable interest understates development project costs and overstates current period expenses. Conversely, capitalizing interest on non-qualifying assets overstates asset values and understates true operating losses. A $10 million development project with $800,000 in interest over 18 months shows dramatically different results depending on treatment.
How to solve it:
Identify qualifying assets: Interest must be capitalized on assets undergoing construction, development, or preparation for intended use. Once a property is substantially complete and ready for use, interest capitalization stops. A real estate tax accountant can establish proper capitalization policies for your portfolio.
Track capitalization periods precisely: Document project start dates, substantial completion dates, and any suspension periods. Interest capitalization begins when three conditions are met: expenditures are being made, borrowing costs are incurred, and activities to prepare the asset are in progress.
Calculate avoidable interest: For specific construction loans, capitalize actual interest incurred. For general borrowings, calculate weighted-average rates applied to construction expenditures.
Stop capitalizing at stabilization: When properties reach substantial completion (typically 90%+ complete and ready for intended use), immediately switch from capitalizing to expensing interest.
Document policies clearly: Maintain written capitalization policies explaining when capitalization begins and ends, how rates are calculated, and how suspensions are handled.
Review quarterly: Each quarter, review all properties under development to ensure proper capitalization treatment and identify properties reaching substantial completion requiring treatment changes.
Challenge 4: Property tax management and appeals
Property tax assessments increase regularly, often exceeding actual property value increases. Many companies pay assessed amounts without analysis or appeal, wasting thousands to millions yearly.
The impact: A $50 million property portfolio with 2% effective tax rate pays $1 million yearly. If assessments are 20% too high, that's $200,000 annually in overpaid taxes—$1 million over five years.
How to solve it:
Track assessed values vs. market values: Maintain a schedule showing assessed values, market values, and effective tax rates for every property. Properties where assessed values exceed market values by more than 10% warrant appeal consideration.
File appeals on overassessed properties: File appeals for properties where assessed values significantly exceed market values. Even partial reductions save thousands yearly. Your real estate tax consultant should systematically identify appeal opportunities.
Use qualified appraisers: Engage qualified appraisers to prepare detailed valuation reports for appeal proceedings. Appeals based on professional appraisals succeed far more often.
Monitor assessment notices: Create calendars showing assessment notice dates and appeal deadlines for every property. Missing deadlines means accepting overassessments for another year.
Budget for future increases: Property tax appeals may take 12-18 months to resolve. Continue paying assessed amounts while appeals process.
Challenge 5: Cost segregation and depreciation optimization
Most owners depreciate entire buildings using 27.5 or 39-year lives. This ignores shorter-lived components like carpeting and fixtures that qualify for 5, 7, or 15-year depreciation. Without cost segregation studies, owners miss significant tax savings.
The impact: A $5 million commercial building might have $1.5 million in components qualifying for shorter lives. Proper classification saves $20,000-$30,000 yearly in taxes.
How to solve it:
Perform cost segregation studies: Engage qualified specialists to analyze building components and reclassify assets into proper depreciation categories. Studies typically cost $5,000-$15,000 but generate tax savings of 5-10x that amount. A qualified real estate tax preparer coordinates these studies with overall tax strategy.
Complete studies at acquisition: Perform studies when acquiring properties or completing new construction to maximize the depreciation acceleration period.
Update studies for renovations: Major renovations create new cost segregation opportunities. Analyze renovation costs rather than simply capitalizing everything to building improvements.
Use bonus depreciation: Combine cost segregation with bonus depreciation rules allowing immediate expensing of qualifying property.
Track depreciation by component: Use fixed asset management software that tracks individual components with different depreciation lives.
Challenge 6: Insurance accounting and claims tracking
Real estate portfolios carry multiple insurance policies—property, liability, flood, earthquake, umbrella coverage—each with different premiums, deductibles, and coverage periods. When losses occur, tracking claims through investigation, adjuster negotiations, and settlement takes months while proper accounting treatment becomes complex.
The impact: Without proper insurance accounting, companies either overstate expenses by recording full premiums in single periods or understate recoveries by failing to record insurance receivables when losses occur. A major property casualty might involve $500,000 in immediate repairs, $300,000 in business interruption losses, and $200,000 in expected insurance recovery—requiring careful accounting across multiple periods.
How to solve it:
Allocate premiums properly: Prepay annual insurance premiums create prepaid assets that should be expensed ratably over coverage periods. Don't expense entire annual premiums when paid—allocate monthly.
Track policies by property: Maintain detailed insurance registers showing coverage amounts, deductibles, premium amounts, coverage periods, and renewal dates for each property separately.
Record loss contingencies promptly: When insurable losses occur, immediately record the loss and establish a receivable for expected insurance recovery (reduced by deductibles and any coverage disputes).
Document claims thoroughly: Maintain complete claim files including loss documentation, adjuster reports, repair estimates, correspondence, and settlement agreements. Professional accountants for real estate ensure proper claim accounting and recovery tracking.
Reconcile recoveries received: Match insurance checks received against recorded receivables. Investigate discrepancies between expected and actual recoveries promptly.
Allocate costs to properties: Multi-property master policies require allocation of premiums across individual properties for property-level profitability analysis.
Budget for deductibles: Self-insured retention and deductibles create out-of-pocket costs. Budget adequate reserves for expected losses within deductible amounts.
Challenge 7: CAM reconciliation and tenant disputes
Common Area Maintenance reconciliation requires tracking shared expenses, allocating costs across tenants, comparing actual expenses to estimates, and billing differences. Manual processes create errors, delays, and disputes.
The impact: Incomplete or late CAM reconciliations leave thousands uncollected. Errors trigger disputes that damage tenant relationships and result in legal costs.
How to solve it:
Implement property management software with CAM tracking: Use software that allocates costs across tenants based on lease provisions and generates reconciliation statements automatically.
Reconcile CAM within 90 days of year-end: Most leases require reconciliation within 90-120 days. Delays beyond deadlines may forfeit collection rights.
Document allocation methodology: Maintain detailed documentation explaining how each expense category is allocated to prevent disputes.
Review lease terms carefully: Lease terms vary significantly regarding which expenses are included, caps on increases, and allocation methodologies.
Communicate with tenants proactively: Send preliminary reconciliation summaries before final bills to allow discussion of unusual items.
Challenge 8: Multi-entity consolidation complexity
Real estate companies typically operate through multiple legal entities—one per property or development. Consolidating financial statements across dozens of entities is time-consuming and error-prone.
The impact: Manual consolidation delays financial reporting by weeks. Errors produce inaccurate consolidated statements. Management lacks timely information for decision-making.
How to solve it:
Use consolidation accounting software: Implement software that automatically aggregates entity-level statements, applies elimination entries, and handles ownership percentages. Comprehensive accountants for real estate implement consolidation systems that provide portfolio-wide visibility.
Standardize chart of accounts: Use identical chart of accounts across all entities to enable automated consolidation without manual mapping.
Document intercompany transactions: Maintain detailed records of all intercompany transactions to support elimination entries and prevent consolidation errors.
Create consolidation checklists: Develop checklists ensuring all elimination entries are made for intercompany loans, income and expenses, and investments.
Perform consolidations monthly: Monthly consolidations identify issues quickly rather than discovering problems during year-end audits.
Challenge 9: Cash flow management during development cycles
Development projects have long cash outflow periods before generating revenue. Development loans require equity contributions before draws. This creates cash flow stress requiring careful forecasting and reserve management.
The impact: Inadequate cash flow forecasting leads to missed vendor payments, stop-work orders, and loan covenant defaults. Projects delay or fail entirely due to cash shortages.
How to solve it:
Create detailed cash flow forecasts: Build project-level cash flow forecasts showing weekly projected outflows and inflows. Update forecasts weekly based on actual results.
Maintain development reserves: Keep cash reserves covering 10-15% of project budgets to absorb unexpected costs or draw delays.
Front-load equity contributions: Contribute equity early rather than waiting for loan-to-cost ratios to require it. This provides a cash buffer for draw timing mismatches.
Track draw timing carefully: Monitor construction loan draw request timing and funding timing. Submit draw requests immediately when milestones are met.
Negotiate favorable payment terms: Negotiate 45-60 day payment terms with major vendors rather than standard 30-day terms.
Line up backup capital: Establish relationships with mezzanine lenders or private equity sources before problems arise.
Challenge 10: Lease accounting compliance (ASC 842)
ASC 842 requires lessees to record operating leases on the balance sheet as right-of-use assets and lease liabilities. Many companies haven't properly implemented ASC 842, creating compliance issues.
The impact: Non-compliance triggers audit findings and requires financial statement restatements. Understated liabilities mislead lenders about true obligations.
How to solve it:
Inventory all leases: Create a complete lease inventory including office leases, equipment leases, vehicle leases, and ground leases.
Calculate lease liabilities: For each lease, calculate the present value of future lease payments using appropriate incremental borrowing rates.
Implement lease accounting software: Use specialized software that calculates lease liabilities, generates amortization schedules, and creates journal entries automatically.
Record all leases properly: Record initial lease entries recognizing right-of-use assets and lease liabilities with periodic expense and liability reduction entries.
Update for modifications: Track lease modifications and update calculations promptly for extensions, terminations, or payment changes.
Challenge 11: Property valuation and impairment testing
Real estate companies must test properties for impairment when indicators suggest carrying values may exceed fair values. Without proper valuation processes, companies either miss required impairments or write down properties unnecessarily.
The impact: Missing required impairments overstates asset values and net worth. Taking unnecessary impairments understates financial performance. Either mistake damages credibility with stakeholders.
How to solve it:
Monitor impairment indicators: Track indicators triggering impairment testing: significant market value declines, major tenant losses, increased vacancy, or adverse regulatory changes.
Obtain qualified valuations: Engage qualified appraisers to determine fair values when impairment testing is required. Your real estate tax consultant coordinates valuation timing with tax planning strategies.
Test properties individually: Perform impairment testing at the property level rather than portfolio level.
Calculate undiscounted cash flows: Initial testing compares asset carrying value to estimated undiscounted future cash flows from the asset.
Document all conclusions: Maintain detailed memos documenting impairment indicator analysis, cash flow projections, and impairment conclusions.
Challenge 12: 1031 exchange compliance and timing
1031 exchanges allow deferring capital gains taxes by reinvesting proceeds in replacement properties. Strict timing rules (45 days to identify, 180 days to close) make compliance challenging. Mistakes disqualify exchanges, triggering immediate tax liability.
The impact: Disqualified exchanges result in immediate capital gains tax liability that could have been deferred. On a $5 million property sale with $3 million gain, disqualification costs $600,000-$1 million in taxes.
How to solve it:
Use qualified intermediaries: Engage qualified intermediaries to hold sale proceeds. Direct receipt of proceeds disqualifies the exchange.
Identify replacement properties within 45 days: Submit written identification of potential replacement properties to the qualified intermediary within 45 days.
Close within 180 days: Complete purchase of replacement property within 180 days and before the tax return due date for the year of sale.
Match or exceed values: Replacement property value must equal or exceed relinquished property value. Any cash not reinvested is taxable. An experienced real estate tax preparer ensures all 1031 requirements are met.
Use like-kind property: Both properties must be held for investment or business use. Maintain documentation showing investment intent.
Create exchange timelines: Build detailed timelines for each exchange showing identification and closing deadlines.
Challenge 13: Exit readiness and buyer due diligence
Most real estate investors eventually exit through property sales, portfolio sales, or business sales. Yet many maintain financial records that are incomplete, inconsistent across properties, or lack the documentation buyers require during due diligence. Poor financial documentation kills deals or dramatically reduces sale prices.
The impact: Buyers conduct extensive due diligence on historical financials, rent rolls, expense records, capital improvements, and tax compliance. Properties with incomplete records sell for 10-20% less than comparable properties with clean documentation. A $20 million portfolio might lose $2-4 million in value purely from documentation deficiencies.
How to solve it:
Maintain property-level records for 5+ years: Keep complete financial records for each property showing monthly income, expenses, capital improvements, and tenant activity for at least five years. Buyers want to see historical trends.
Keep organized rent rolls: Maintain detailed rent rolls showing current lease terms, expiration dates, square footage, rent per square foot, tenant improvement allowances, and lease options. Update monthly.
Document capital improvements separately: Track capital improvements separately from operating expenses with supporting invoices, permits, and completion documentation. This proves value-add investments.
Organize tenant files: Maintain complete files for every tenant including signed leases, amendments, correspondence, and payment history.
Track and resolve title issues early: Address title exceptions, easement issues, or encroachment problems years before sale rather than during due diligence when leverage is lost.
Prepare quality of earnings analysis: Normalize historical financials removing one-time expenses, owner-specific costs, and non-recurring items to show true stabilized cash flow.
Engage advisors 12-18 months early: Work with accountants for real estate and business brokers well before planned sale timing. This allows fixing documentation gaps, optimizing tax structure, obtaining updated appraisals, and positioning properties for maximum value.
Create data room materials: Assemble comprehensive due diligence materials including financials, rent rolls, lease files, service contracts, environmental reports, and title documents, organized logically.
Why choose NSKT Global for real estate accounting?
Specialized real estate expertise: Generic accounting firms don't understand real estate's unique challenges: ASC 606 revenue recognition, construction accounting, cost segregation, or CAM reconciliation. NSKT Global specializes in real estate accounting, bringing deep industry knowledge to every engagement. We speak your language and provide solutions that work in real property operations. Our team of experienced real estate tax accountants understands property-specific compliance and tax optimization strategies.
Real-time financial visibility: We set up systems providing real-time visibility through weekly project cost reports, property-level profitability reports, and cash flow forecasts updated weekly showing your liquidity position three months ahead.
Complete compliance management: From ASC 606 to ASC 842 to 1031 exchanges to multi-state tax filings, we handle the entire compliance burden so you can focus on property operations. You'll never miss filing deadlines or face penalties. Our real estate tax consultants manage all regulatory requirements systematically.
Proactive tax planning: We project your yearly tax liability quarterly and identify tax-saving opportunities throughout the year: cost segregation studies, 1031 exchanges, entity structure optimization, and depreciation strategies—saving tens of thousands to hundreds of thousands yearly.
Development project expertise: Our construction accounting systems track costs in real-time, flag budget variances immediately, and provide accurate cost-to-complete projections. We've helped dozens of developers avoid cost overruns through better financial visibility.
Scalable solutions for growing portfolios: Whether you own 3 properties or 300, our solutions scale to your portfolio size. Small operators receive the same expertise as large REITs, with pricing matched to business size. As you grow, our systems grow with you.
Final thoughts
The real estate companies thriving in 2026's market won't be those with the largest portfolios or newest properties. They'll be companies with clear financial visibility, strong accounting controls, and the ability to make data-driven decisions quickly. When margins compress and every property matters, knowing which assets generate true cash flow and which drain resources becomes the difference between surviving and joining distressed sale statistics.
The thirteen accounting challenges outlined here represent critical areas where specialized expertise prevents costly mistakes and identifies profit opportunities competitors miss. Professional accountants for real estate solve these challenges simultaneously through integrated systems and property-specific expertise. Choosing experienced real estate tax accountants determines whether you navigate 2026's market successfully or lose value through poor financial management.
NSKT Global provides the real estate-specific accounting expertise owners need to navigate market volatility, maintain complete compliance, preserve cash flow during downturns, and position for profitable growth during market recoveries. The difference between thriving and struggling often comes down to having dedicated accountants for real estate who provide real-time visibility, proactive guidance, and specialized expertise.
