Connect
To Top

Tax Changes Slapped on Real Estate and Business Owners

In the realm of taxes, the Tax Cuts and Jobs Act (TCJA) has caused a lot of issues, as well as plenty of opportunity in the realm of taxes.

This is especially the case when it comes to dealing with real estate.

That being said, we will be taking a look at some of the most prominent provisions that will come influence the different facets involving real estate investors, property managers, and real estate agents.

The Qualified Business Income Deduction (QBID) and Real Estate Agents

The special term “Specified Service Trade or Business (SSTB) coined by the Section 199A provides individuals, trusts, and estates that derive their income from an SSTB will not be eligible for deduction of the trust, estate, or individual has taxable income that surpasses $207,500 (or $415,000 when it comes to the case of a married couple that has filed jointly).

Additionally, if there is an opportunity to have a ratable phase-out in terms of the deduction, whereby the income falls between $157,500 and $207,500 if it is a single filing, or $315,000 t0 about $415,000 in the event that the filing is one of a married couple that is done jointly.

Fortunately, when it comes to real estate professionals such as property managers, developers, agents, and brokers, they are not part of the SSTB definition.

Nevertheless, there are a couple of downsides that could result in the event of a deduction.

One of them could be if the given property in question should be leased by a certain SSTB and happens to be owned by greater than 50% by the SSTB owners in question, as well as the landlord, then the SSTB, as well as the rental activity, can be aggregated and made unavailable for any deductions to take place as per the limitation.

Indeed, such a situation terminates the need to increase the QBID in the event of an SSTB by diverting the income to a party that is not affected by the limitation.

In another instance, if a real estate professional has been provided with sufficient consulting or happens to have financial income that is affected by the SSTB limits, making those SSTB operations become an entirely different entity could result in the minimization of the total tax liability; specifically by minimizing the income that is affected by the QBID limitations.

SSTB limits are affecting marketing estates and housing estates affecting business owners

Property Factor Related by QBID

For those taxpayers that are part of the QBID limitation, there is a certain provision that gives real estate investors the ability to have more when it comes to their deduction.

When one is subjected to the limitation in question, they will have a 50% larger QBID of the W-2 wages, not to mention an extra 2.5% qualification of the business property.

Additionally, Section 199A further provides a reference of section 167 that talks on the definition of having a qualified business property which works on compliance time with the addition of extra special calculations.

Business properties might be severely affected by the tax slaps

Class Changes and Increased Depreciation

Businesses may add an additional 100% bonus depreciation on qualified property for those placed in service as well as those acquired from Sept 27, 2017, all the way to Jan 1, 2023.

Within the new laws, the qualified property will now be defined as tangible in terms of personal property, as well as having a recovery period of 20 years or minimal.

Indeed, the new law will eliminate the need for the original use of qualified property start with the taxpayer, in the event that the taxpayer has not initially used the given property and the given property was also not used from a pre-related party.

Moreover, the inclusion of property that has been used has shown a significant and desired change from the initial rules of depreciation.

the new law will eliminate the need for the original use of qualified property

Qualified Real Property (QRP) with Elect 179

While keeping in tabs with the bonus depreciation theme, TCJA will further increase the maximum amount to $1 million, which is the total taxpayer expense according to section 179, or phase-out threshold to $2.5 million.

Indeed, the $1 million limitation can be minimized by reducing qualified property cost that in under services, especially in the event that it exceeds $2.5 million.

TCJA will further expand the definition of section 179 so that it adds to specific tangible property that is depreciable and connected to furnishing lodging.

More in Finance & Business

You must be logged in to post a comment Login