03/30/2018
How will the new tax rules affect your business?
Here are the highlights:
1. A home equity line of credits (HELOC) for primary homes are no longer tax deductible starting in 2018 UNLESS it is an investment property NOT personal expenses.
2. Interest deduction is limited to the first $750k of debt taken out after 12/15/17 on primary and second homes UNLESS it is an investment property.
3. Business entertainment expenses are no longer tax deductible starting in 2018.
4. ALL business meals are only 50% tax deductible.
5. If you are an investor purchasing business assets (equipment, furniture, fixtures, appliances, computer, etc.) for your real estate activities, there is now a 100% bonus depreciation deduction available if the asset is purchased after 9/27/17. Bonus depreciation can be applied to vehicles used in a real estate business although subject to certain limitations.
6. Section 179 now allows for certain taxpayers to take an immediate deduction of up to $1M on assets placed in service for a business. Examples: include roofs, heating, HVAC, fire protection, and security systems.
7. The new tax bill limits the deduction of certain business interest expense to 30% of taxable business income except for most real estate investments.
8. Although 1031X is repealed for most business assets, it remains intact for real property (for tax deferment).
9. If you do decide to sell a property outright, capital gains rates remain in effect under the new law. Holding properties for over one year can qualify for a lower tax rate as in previous years.
10. Tax preparation fees are no longer deductible in 2018 as an itemized deduction. However, the fees are still deductible against rental income.
11. The amount that is free from estate taxes has doubled 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.
12. With the C Corporation’s new lower tax rate of 21%, certain active real estate business may pay lower taxes by operating in this entity structure.
Although corporation tax rates are lowered, the downside of double-taxation still remains in effect, so make sure to discuss any entity modifications thoroughly with your tax advisor before making any changes to your entity structure. For the many investors who own rental properties, C Corporations are still not recommended to hold title to these rentals from a tax perspective.
13. The new tax reform provides certain flow-through business income with a 20% deduction, which essentially makes 20% of the profit to be tax-free.
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.
14. Investors involved in flipping are no longer eligible for a Domestic Production Activity Deduction (DPAD) on their earnings.
All the best,
Liz Lovejoy,
Good Hands Solution Specialist
Congress just passed one of the most comprehensive tax changes in recent history. Deductions will be removed, but new loopholes and benefits will be added.
