The Tax Cuts and Jobs Act has altered our finances and the profitability of investments. Much of the media coverage around the new rules has been on its negative sides. However, some positive financial opportunities exist for those who educate themselves and act on new breaks.
The new tax law both safeguards some crucial breaks and offers new ones. Some of these give real estate investors great advantages in accruing wealth and keeping tax liabilities down. For those already feeling the burn of filing income taxes, hope is out there. This advice is especially true for those who expand real estate investments or start real estate investing in 2018.
While the Tax Cuts and Jobs Act (TCJA) was one of the most controversial and confusing legal and tax changes in decades, the TCJA may actually bring many benefits to those who learn how to use them and seek out professional advice.
Who wins and loses will depend a lot on personal money moves made in the next few weeks. Accounting and tax advisors providing strategy and tax preparation services are also very crucial. Buying real estate in 2018 can make all the difference in your refund.
Bonus Depreciation For Business Owners And Real Estate Investors
The TCJA has opened a new window of opportunity for investors and property buyers to enjoy a 100% first-year bonus depreciation deduction. This break is retroactive for 2017 tax filings on property acquired and in service by September 2017. This break will be available until 2022, when it begins to be reduced by 20% per year until phased out.
The bonus depreciation deduction on improvements to real estate may apply to many home improvement changes.
Reduced Corporate Taxes
One of the biggest changes in the TCJA is the cut to the corporate income tax rate. The rate is now just 21%, down from a maximum rate of 35%. The TCJA has also incentivized corporations to bring back money from overseas and reinvest it in the U.S. New rates for repatriating and reinvesting money at home go as low as 8%.
Additionally, pass-through income from business entities such as LLCs now gets a 20% deduction on qualified income. This change allows successful existing real estate firms to expand and enjoy better profitability. Additionally, doing so can be more appealing and advantageous to launch new real estate startups or get started in real estate investing through legal entities like limited liability companies.
Internal Revenue Code Section 1031 allows real estate owners to trade up or diversify their investment portfolios without taking any immediate tax hit. These capital gains tax-deferring benefits have also been protected in the tax law overhaul. With the new income and depreciation breaks and other less-friendly parts of the TCJA, this may a crucial time to restructure real estate portfolios to reduce tax exposure, while setting up years of compounding gains and double-digit tax savings.
Retirement Account Investments And Contributions
One of the most critical sets of tax benefits saved in this tax law overhaul are those related to longer-term savings and investments. This includes contributions to Education Savings Accounts (ESAs) and Health Savings Accounts (HSAs), though most notably it applies to contributions and investments made in 401(k) plans and IRAs.
Depending on which type of account is used, individuals may enjoy immediate reductions to taxable income. While the stock market and cryptocurrencies may have recently given retirement investors a scare, rolling over to self-directed retirement accounts can help supersize allowable contributions. This move allows catching up on savings and enable investment in real estate. These accounts can invest directly in real estate, real estate businesses, private mortgages and mortgage loans notes, partnerships and IRA LLCs or real estate IRAs.
Many rules have changed with the passing of the Tax Cuts and Jobs Act. Some important ones didn’t change. Some individuals need to urgently act to avoid a harsh tax hit this year and looking forward. This is especially true for those with new limitations on state and local income taxes and in high property tax states. While much remains complicated, one thing is clear: The advantage will go to those who make smart business and real estate investments sooner rather than later. Speak to your tax accountant, financial planner and real estate advisor, and get advice for your unique situation. Then act promptly.
Call Scott A. Kunkel, CPA PC today in North Richland Hills at 817-498-1040 to have a chat about your real estate business health.
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