The scurry that took place as 2017 came to an end had
everyone’s head spinning. Trying to
figure out how Trump’s tax reform would affect individuals and families was met
with both praise and criticism. Here is
the good and the bad of how it affects real estate INVESTORS.
-You can utilize a Section 179 bonus depreciation for assets
with less than 20 years of useful life. What does that mean? It means all
of those huge renovation projects that flippers complete are now 100%
deductible instead of being depreciated over time. You can deduct appliances, major equipment,
flooring, large exterior remodels…the works.
-If you are setup as an LLC, partnership, S-Corp, or as a
sole proprietorship then you just got a little (big) coupon to cash in when
reporting your rental income. If you
qualify, you will be able to deduct 20% of your net rental income (or business
income) on your tax return. You will
effectively only be taxed on 80% of your net rental income (or business income)
if you are considered a non-personal service business. That doesn’t sound good for real estate
brokers and agents but as it turns out, you can qualify for the deduction if
your business income is under $157,500 (single tax payer) or $315,000 (couples
-Commercial property owners will be able to Section 179
depreciate up to $1 million of the cost of a property, up from $500,000.
-Inventory is LOW and will continue to stay low with the net
rental income deduction noted above. This just continues to make it difficult for first time home buyers and
it beefs up the competition between investors.
-You can no longer deduct interest from home equity
lines. This is such a popular option for
investors to finance their projects. Unfortunately, this evens out the playing field for lending options.
-Net operating losses from 2018 and on are no longer able to
be carried back and they are capped at 80% of future year’s taxable income. Ouch, that one will sting for real estate