The Tax Cuts and Jobs Act (TCJA) enacted changes to the Internal Revenue Code that affect many types of business. Real estate investors and landlords stand to benefit from many of the new law’s provisions. These changes to the business tax structure are permanent and relatively comprehensive. Landlords and property owners should consult their accountants and tax professionals for explanations of the changes.
The final law is complicated, creating many questions among those affected. Here is a brief view of some of the provisions:
The pass-through deduction will benefit residential landlords who own rental properties as sole proprietors, limited liability companies (LLCs), and partnerships. Profits earned from the rental activity is "passed through" to the individual tax returns of the owners who pay tax on it at their individual income tax rates.
As mentioned above, almost all residential landlords pay income tax on their rental profits at their individual tax rates. The TCJA reduces these individual rates beginning in 2018.
Beginning September 29. 2017, assets with a useful life of fewer than 20 years will qualify to be 100% expensed through bonus depreciation. While you cannot 100% expense a rental property, due to a higher useful life (27.5 years), you can expense certain assets within and on the property.
For real estate investors who are developing older buildings, the 10 percent credit for pre-1936 buildings has been eliminated. It is now limited to certified historic structures, where a 20 percent credit is applied.
Not all provisions have been changed. Here are some that are the same:
Almost all these and the many other changes in the new tax law are complicated and may affect companies differently. Landlords and real estate investors should consult their tax professional to understand the impact and scope of these changes before making decisions about future investment opportunities.