New Tax Bill’s Impact on Residential Real Estate Investing
The Tax Cuts and Jobs Act, was signed into law on December 22, 2017. Prior to its passing, the tax bill went through a series of rewrites and revisions in the House and the Senate. Originally, the tax bill contained several items that would have had a negative impact on the real estate industry. In spite of this, the National Association of Realtors (NAR) worked to ensure that the tax benefits of home ownership and investing were added back in.
Fortunately, the final version contains some big wins for investment property owners. Here are the highlights:
10 Highlights of the New Tax Bill
1. Primary home gain sale exclusion stays the same.
Gains of $250k single or $500k for married couples on properties that are lived in as a primary home for at least 2 out of the last 5 years.
2. Home equity line of credits (HELOC) for primary homes MAY NOT be deductible starting in 2018.
If the HELOC proceeds are used to acquire or improve an investment property, the related HELOC interest IS tax deductible!
3. Mortgage interest still deductible for investment property.
4. Business entertainment expenses are NOT tax deductible starting in 2018 and Meals capped at 50%.
5. 100% bonus depreciation on assets purchased after 9/27/17
Immediate write-off versus the need to depreciate it over time. Certain limitation apply.
6. 1031X stays for real property.
7. Capital gains remain in affect, so selling after a year of rental service qualifies for better tax treatment
8. Tax preparation fees no longer deductible…unless against rental income.
So make sure to allocate a reasonable percentage of your tax preparation fees to Schedule E to lock in that tax benefit.
9. Tax-free transfers upped to $11M for single people and $22M for married people.
It may still be a good strategy to wait to transfer appreciated investment properties to beneficiaries upon death to obtain tax-free gain during the investor’s lifetime.
10. Certain flow-through business income gets 20% deduction.
This benefit is available for income earned through LLCs, S Corporations, Partnerships, Sole Proprietorships, and Schedule E rentals. Certain service based businesses will not qualify if the taxpayer’s taxable income is above $207k/$415k. For non-service based businesses with income above 157k/315k, additional limitations need to be factored in if taxable income is above this threshold. This deduction does not apply to interest, dividends, and capital gains income.
After a brief scare when the original bill was proposed, the final tax bill product appears to be pretty favorable to residential real estate investors.
Discuss this article with your CPA when preparing your taxes in 2018 for a better understanding of how the new tax bill law impacts you.
For more information on how EquityTeam can help you leverage these new tax bill changes to grow your portfolio, contact us today!