What Real Estate Investors Need to Know About the Trump Tax Law

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If you’re a real estate investor, or planning to be, here’s information you need to know about tax law changes from the Trump Tax Plan.

It’s what real estate investors need to know about the Trump Tax Plan. These are the changes. In tomorrow’s blog, we’ll talk about strategy that goes along with the law.

After that, it’s up to you. What will you do to put the massive changes in place that occurred with the Trump Tax Plan? If you’re a home owner or an employee without a business, you’re going to pay more taxes unless you get proactive NOW!

If you’re a business owner or real estate investor, there are tax loopholes galore. But, only if you are ready to put them in action!

The path is clear Learn, Strategize, Implement and then Report. Luckily, you don’t need to do that by yourself. We can help.

There are three big changes to tax law for real estate investors:

100% Bonus Depreciation. You can now use bonus depreciation for qualifying purchases for your real estate. This is 100% bonus depreciation, right up front. The property doesn’t have to be new, just new to you. Your real estate property must already be purchased and in service. It can be either residential or non-residential property. The 100% bonus depreciation is effective starting 9/27/17 for personal property only.

20% Pass-through Tax Change. As a real estate investor, you should hold your property in a pass-through entity. Most likely that will be an LLC (limited liability company). If you qualify, you can take a 20% pass-through income reduction. In other words, if make $100K from the pass-through entity, you’ll only pay tax on $80,000 (less 20% x $100,000).

The income can’t be capital gains income, only income from the operation of your real estate (or business, but that’s a topic for another blog).

Question #1: Is your taxable income below the threshold? ($315K for married, filing jointly, $157.5 for single)

Question #2: If it’s below the threshold, you get the exclusion! Otherwise, do you qualify under the wage limitation?

The wage limitation, which applies ONLY if your income is over the threshold, is calculated as the greater of 50% of W-2 wages paid (or guaranteed payments made in the case of a partnership) or 25% of W-2 wages paid (or guaranteed payments) + 2.5% of depreciable assets.

The wage limitation is the highest amount you can take as an income reduction.

Tax Credit Change. A tax credit is a reduction in the tax you pay. Dollar for dollar, it is better than a deduction, which reduces your taxable income on which the tax is calculated.

We lost a tax credit for rehabbers, the pre-1936 property 10% tax credit. But, the IRS increased the 10% tax credit for historic property rehab to 20%. However, it has to be a federally designated historic property now.

It wasn’t part of the Trump Tax Plan, but you also need to talk about the TPR (Tangible Property Regulations) changes that came into effect in 2014 and then modified in 2016. They dovetail directly with the 100% Bonus Depreciation and the 20% Income Reduction.

The strategies just got a whole lot more fun!

Make sure you read the blog for Saturday, June 16, 2018, “Real Estate and Taxes Under the Trump Tax Plan.” It’s about strategies!

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