After much conflict and deliberation, Congress has finally passed a new tax bill for 2018. The new bill will certainly affect those who plan to or have invested in commercial real estate. Dubbed the bill with the “most comprehensive tax changes in recent history,” this new bill has in fact taken away a number of deductions but deep within the new bill you’ll find new loopholes real estate investors will benefit from for the very first time.
100% Bonus Depreciation Deduction
If you are an investor who needs to purchase assets for their business; anything from furniture, computers, etc., you are now given a 100% bonus depreciation deduction, given that those assets were purchased after 9/27/17. This means that the expenses of those assets would get an immediate write-off rather than having them depreciate over time. Unlike before, this new write-off now applies to both new and used assets.
$11M is Now Free From Estate Taxes
If you are a single investor, the amount on a property that is free from estate taxes has doubled to $11M for single people and $22M for married couples.
20% of Profit is Tax-Free
This loophole provides investors the benefit of only paying taxes on 20% of profits generated through LLCs, S Corporations, partnerships, sole proprietorships, and schedule E rentals. There are limitations to this deduction; some service based business will not qualify if they’re taxable income is above $207k/$415k and $157k/$315k for non-service based business. In addition to this, these deductions do not apply to dividends, interest, and capital gains income.
These are just a few amongst the 16 loopholes and limitations for real estate investors mentioned in Big Pocket’s article, “Hot off the Press: Real Estate Loopholes and Limitation in the New Tax Bill.” For the full list check out Bigpocket.com’s article.