 |
|
Real estate income under the new tax law?
12-20-2017, 04:48 PM
|
#1
|
gone traveling
Join Date: Dec 2016
Posts: 733
|
Real estate income under the new tax law?
Does anyone have the details on how real estate income is going to be treated in 2018? I hear something on the radio, but not all the details, about it no longer being taxed at the normal income rate, but at a flat rate.
I look at this as being possibly good or bad, depending on the rate.
|
|
|
 |
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
12-20-2017, 05:13 PM
|
#2
|
Recycles dryer sheets
Join Date: Nov 2013
Posts: 163
|
If you’re filing rental income on Schedule E, good news. Sole proprietors, LLC’s and S corps get to deduct 20% of net rental income (independent of the itemized/standard deduction). The remainder passes through to the 1040 as before, to be taxed at (newly reduced) individual rates. The deduction is limited if you exceed $157.5K taxable income (or $315K married filing jointly). A link posted by jetpack on the tax thread gives details and examples.
https://www.watsoncpagroup.com/SubS.pdf
|
|
|
12-20-2017, 06:03 PM
|
#3
|
gone traveling
Join Date: Dec 2016
Posts: 733
|
|
|
|
12-20-2017, 08:43 PM
|
#4
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
This is going to make a Great Christmas. I think the law starts in 2018 though.
I wasn't sure it would include a Schedule E, but it seems like it does.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
12-20-2017, 09:05 PM
|
#5
|
Confused about dryer sheets
Join Date: Nov 2017
Posts: 5
|
I have to figure out how to bundle my bond holdings into a business. They function like one (I have employed each bond to go out and perform a function which generates revenue). However, I think that my business of buying bonds still is passive (direct) and income.
Congrats on the Real Estate changes it will be a very happy new year!
|
|
|
12-20-2017, 10:09 PM
|
#6
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
I have been reading a bunch of what is out there on rental income. I am not 100% convinces that a rental property, owned by an individual, gets a 20% deduction of the income.
I think if the person gets a K1, they get the 20% deduction. A multi-member LLC, S-Corp, C-Corp, etc. all get K1s.
A single member LLC uses a Schedule E and does not get a K1. A single member LLC is a disregarded tax entity.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
Real estate income under the new tax law?
12-21-2017, 04:51 AM
|
#7
|
Recycles dryer sheets
Join Date: Nov 2013
Posts: 163
|
Real estate income under the new tax law?
Here is another CPA’s opinion that individuals with Schedule E rental income qualify for the deduction.
https://evergreensmallbusiness.com/s...ome-deduction/
Quote:
In a nutshell, the Sec 199A Qualified Business Income tax cut gives the owners of pass-through businesses like sole proprietors, partnerships, S corporations and then real estate investors a deduction equal to 20% of qualified business income.
This deduction will produce big savings for many pass-through entities and real estate investors. But the deduction comes with some tricky calculations and complicated limitations. To understand and begin planning for the deduction, therefore, you need to dig into the details.
What is Sec 199A Qualified Business Income?
The qualified business income talked about in Sec 199A—that’s the new section of law that creates the deduction—includes the profit from an active trade or business and then also rental income as long as you operate as a pass-through entity.
More specifically, this means your qualified business income includes the bottom-line profits from an active trade or business as shown on the Schedule C form and in box 1 of a partnership or S corporation K-1, the rental income shown on a Schedule E form and in boxes 2 and 3 of a partnership or S corporation K-1, and then not the capital gains but rather the Sec. 1231 gains that may occur when a business sells assets used in the business.
|
|
|
|
12-21-2017, 08:41 AM
|
#8
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
If true, this is great news - for a time. It may encourage others to be landlords, which will create more competition and lower rents. Landlords will be able to rent for less, and still make money. Probably more housing will become available as rental are built.
Look for a great time to invest in RE if the landlord taxes go back up.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
12-21-2017, 12:07 PM
|
#9
|
Full time employment: Posting here.
Join Date: Mar 2014
Location: Dallas
Posts: 552
|
Quote:
Originally Posted by Senator
I have been reading a bunch of what is out there on rental income. I am not 100% convinces that a rental property, owned by an individual, gets a 20% deduction of the income.
I think if the person gets a K1, they get the 20% deduction. A multi-member LLC, S-Corp, C-Corp, etc. all get K1s.
A single member LLC uses a Schedule E and does not get a K1. A single member LLC is a disregarded tax entity.
|
Some of what you read may be confusing due to the fact that the language for pass-thru business was revised. Final bill included real estate investments explicitly among other things.
|
|
|
12-21-2017, 12:38 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 2,263
|
I'm down to one small rental house, so this is not a big deal for me. But if true, then obviously I'll take it. Helps make room for more Roth conversions inside the 12% bracket... and over time, that's big deal.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
|
|
|
12-21-2017, 03:25 PM
|
#11
|
gone traveling
Join Date: Dec 2016
Posts: 733
|
Unintended consequences
Quote:
Originally Posted by pjigar
Some of what you read may be confusing due to the fact that the language for pass-thru business was revised. Final bill included real estate investments explicitly among other things.
|
True story and what might happen because of the new tax law. I bought & owned two rental properties, while get this, renting! I got out fairly early in the real estate run up, and decided to rent for a year before buying in a different location. During that 3 year period we bought 2 properties that we rented out, while we rented from someone else.
Why would someone do that you might ask? We couldn't find a similar property that was at or below rental cost. Now after the new tax law you could even pay a slight premium on the identical house next door to yours, and come out ahead by renting your house vs living in the house you bought.
|
|
|
12-23-2017, 03:05 PM
|
#12
|
Full time employment: Posting here.
Join Date: Dec 2006
Posts: 706
|
Hope it is true. Heard about it. Saw a newspaper article said it applies to Rental property also. Hm.....20% deduction...Sounds to good to be true.
However, would not be surprised if in the fine print, they take away depreciation deduction or something. Revenue neutral philosophy.
|
|
|
12-23-2017, 04:55 PM
|
#13
|
Recycles dryer sheets
Join Date: Oct 2007
Posts: 321
|
I do not understand how my situation will be looked at -
We have a Office Building with Three Tenants, DW has the building in a LLC & its income passes thru our Tax Return, i.e The LLC does not file its own Tax return.
Will we be able to deduct the 20% of its income from Taxes. ?
|
|
|
12-23-2017, 05:34 PM
|
#14
|
gone traveling
Join Date: Apr 2011
Posts: 3,375
|
Quote:
Originally Posted by wolf
However, would not be surprised if in the fine print, they take away depreciation deduction or something. Revenue neutral philosophy.
|
Well, that depreciation comes back to bite you upon sale.
|
|
|
12-24-2017, 10:32 AM
|
#15
|
Recycles dryer sheets
Join Date: May 2015
Location: NorCal
Posts: 207
|
Does anyone know if the 20% deduction also reduces MAGI (for purposes of determining ACA subsidy) or is the deduction done after the MAGI calculation. I'm trying to figure out how much taxable income I can have next year before falling off the ACA subsidy cliff.
|
|
|
12-24-2017, 01:22 PM
|
#16
|
Recycles dryer sheets
Join Date: Nov 2013
Posts: 163
|
Quote:
Originally Posted by FIREd_2015
Does anyone know if the 20% deduction also reduces MAGI (for purposes of determining ACA subsidy) or is the deduction done after the MAGI calculation. I'm trying to figure out how much taxable income I can have next year before falling off the ACA subsidy cliff.
|
The deduction is not included in AGI or MAGI. It applies “below the line” to reduce taxable income, whether or not you itemize.
|
|
|
12-24-2017, 03:21 PM
|
#17
|
Full time employment: Posting here.
Join Date: Dec 2006
Posts: 706
|
Quote:
Originally Posted by gerntz
Well, that depreciation comes back to bite you upon sale.
|
Agree. Depreciation is only postponed. However, in my case, here in California. My plan is to leave rental to heirs. Receive the step up in basis.
And the whole depreciation process starts over at the step up in basis rate.
(you do not have to pay for the depreciation you took in prior years.)
|
|
|
12-24-2017, 05:41 PM
|
#18
|
gone traveling
Join Date: Apr 2011
Posts: 3,375
|
Quote:
Originally Posted by wolf
Agree. Depreciation is only postponed. However, in my case, here in California. My plan is to leave rental to heirs. Receive the step up in basis.
And the whole depreciation process starts over at the step up in basis rate.
(you do not have to pay for the depreciation you took in prior years.) 
|
I didn't realize that angle. Thanks. But I doubt I want to be in the rental business till I croak. Now maybe if the son runs.........
|
|
|
12-24-2017, 06:13 PM
|
#19
|
Recycles dryer sheets
Join Date: Nov 2013
Posts: 163
|
Quote:
Originally Posted by wolf
Agree. Depreciation is only postponed. However, in my case, here in California. My plan is to leave rental to heirs. Receive the step up in basis.
And the whole depreciation process starts over at the step up in basis rate.
(you do not have to pay for the depreciation you took in prior years.) 
|
By the way, in a community property state, the same applies if one spouse passes. If the real estate was held as community property, the surviving spouse gets a full step up in basis. Not that I’d wish that on anyone, but it might apply where there is an age difference or illness.
|
|
|
12-24-2017, 07:04 PM
|
#20
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
You can also take a rental and turn it into a personal residence. There is no step up in basis for that either.
If you sell, the capital gains/recapture are pro-rated between business personal. Rent it for 5, reside in in for 5, and you only pay back half the depreciation recapture.
You can sell a rental (or two or three), do a 1031 to a future single retirement home. Rent it out for 2 years and move in. After 10 years, you only have to pay recapture/CG tax on 20% of the total.
There are lots of ways around the recapture tax. If the land went up faster in value than the building, a higher percent of the gain when you sell will be capital gains, not depreciation recapture.
Currently, you pay your regular tax rate on the depreciation recapture, up to a maximum of 25%. If you saved 28% in federal, plus state taxes, then move to a state tax free state, it may work in your favor too, I am not 100% sure on that.
I know if you do a 1031 from a state tax state, to a state tax-free state, then sell, you avoid the state income tax on the recapture.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
 |
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
Search this Thread |
|
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|