Author Topic: Effect of Republican Tax Bill on Rental Property  (Read 16211 times)

littleyip

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Effect of Republican Tax Bill on Rental Property
« on: December 17, 2017, 02:41:47 PM »
Does anyone know how the new tax bill will affect taxation/deduction of expenses like property tax and mortgage interest from rental income?  I do not have a pass-through entity.  It's just residential rental property owned in my name.
« Last Edit: December 17, 2017, 03:00:54 PM by littleyip »

tralfamadorian

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #1 on: December 17, 2017, 05:08:59 PM »
As of now, the only changes for investment real estate will be 1) depreciation schedule reduction down to 25 years just finished skimming the bill- they changed this in the final version (p.728) so depreciation schedules will stay as is and 2) the question of whether the changes to Sec 199A affect actively managed real estate.
« Last Edit: December 17, 2017, 06:00:49 PM by tralfamadorian »

cchrissyy

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #2 on: December 17, 2017, 07:31:49 PM »

all I've heard seems to deal with mortgage interest and prop taxes for personal residences and not impacting rental property income but that sure doesn't mean there's no need to worry.

posting to follow

Enigma

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #3 on: December 18, 2017, 12:41:37 AM »
I have been glued to the same question.  I keep checking the 'taxfoundation' in case things change.  According to the article (link below) "repealing the deduction for state and local income and sales taxes, but retaining the deduction for property taxes" is the most common road at this time.


https://taxfoundation.org/five-implications-retaining-property-tax-deduction-federal-tax-reform/

littleyip

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #4 on: December 18, 2017, 12:28:37 PM »
I think that link relates more to personal residences.  The current version of the bill looks to allow $10k in combined deductions for state and local income taxes and property taxes.

Does anyone know what tax code section covers deduction of mortgage interest and property tax from rental income?  Is it 26 U.S.C. 212?  The language of that code section is:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year—
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for the production of income; or
(3) in connection with the determination, collection, or refund of any tax.

I don't see any changes to this code section in the new tax bill, but was not sure if this is the right code section. 

SeattleCPA

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #5 on: December 18, 2017, 07:40:42 PM »
As of now, the only changes for investment real estate will be 1) depreciation schedule reduction down to 25 years just finished skimming the bill- they changed this in the final version (p.728) so depreciation schedules will stay as is and 2) the question of whether the changes to Sec 199A affect actively managed real estate.

The Sec. 199A stuff matters to real estate investors.

I've been trying to keep an up-to-date summary of high-level points here:

https://evergreensmallbusiness.com/sec-199a-qualified-business-income-deduction/



tralfamadorian

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #6 on: December 18, 2017, 09:11:27 PM »
As of now, the only changes for investment real estate will be 1) depreciation schedule reduction down to 25 years just finished skimming the bill- they changed this in the final version (p.728) so depreciation schedules will stay as is and 2) the question of whether the changes to Sec 199A affect actively managed real estate.

The Sec. 199A stuff matters to real estate investors.

I've been trying to keep an up-to-date summary of high-level points here:

https://evergreensmallbusiness.com/sec-199a-qualified-business-income-deduction/

Thank you for the clarification! I've seen REITs and syndications called out specifically elsewhere but yours is the first analysis I've seen that spells out where the little guys in the real estate world stand.

Slightly off topic but still on sec 199A- the newest version of the bill mentions trusts as being included- does that mean that trust beneficiaries below the income limit will qualify for the deduction as well?

SeattleCPA

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #7 on: December 19, 2017, 12:08:48 PM »
As of now, the only changes for investment real estate will be 1) depreciation schedule reduction down to 25 years just finished skimming the bill- they changed this in the final version (p.728) so depreciation schedules will stay as is and 2) the question of whether the changes to Sec 199A affect actively managed real estate.

The Sec. 199A stuff matters to real estate investors.

I've been trying to keep an up-to-date summary of high-level points here:

https://evergreensmallbusiness.com/sec-199a-qualified-business-income-deduction/

Thank you for the clarification! I've seen REITs and syndications called out specifically elsewhere but yours is the first analysis I've seen that spells out where the little guys in the real estate world stand.

Slightly off topic but still on sec 199A- the newest version of the bill mentions trusts as being included- does that mean that trust beneficiaries below the income limit will qualify for the deduction as well?

Here's a better listing of how the stuff works for little guys...

Pass-thru Income Deduction: Top 12 Things to Know

BTW, trusts, estates and publicly traded partnerships were added to the final conference version of bill.


LandlordGuy

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #8 on: December 20, 2017, 06:18:35 AM »
I am a landlord, I have a number of units (10-20) and I currently have them under my own name. I know this is ill advised but meh.

With the new tax law, I'm assuming it'll make more sense to do the income under an LLC, is that correct? Can someone explain this 20% deduction for pass through entities?

If I wanted to do that, would I have to move all my properties under the LLCs and do the leases under the LLCs? Would I only have to accept the rent into the account of an LLC? Or do I just have to declare the income under the LLC but can take the money personally, as in a check written to me as an example?

SeattleCPA

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #9 on: December 20, 2017, 10:45:42 AM »
You don't need the properties under an LLC to use the deduction.

You may need wages or good records of the undepreciated basis of your property depending on your income.

See "Thing #8" in this blog post I did:

https://evergreensmallbusiness.com/pass-thru-income-deduction-dozen-things-every-business-owner-must-know/

LandlordGuy

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #10 on: December 20, 2017, 12:13:12 PM »
I've read through that now, does the W2 income need to come from the properties or can it be anywhere? I have about 2 million in equity and 2 million in loans. That being said I dont think I have any income after deprecation and all of that, so does that mean even though I earn an income (but not on paper) this would be not valuable to me?

sol

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #11 on: December 20, 2017, 12:28:30 PM »
That being said I dont think I have any income after deprecation and all of that, so does that mean even though I earn an income (but not on paper) this would be not valuable to me?

That has been my interpretation, yes.  The 20% pass through deduction is available to landlords, but only applies to net income after deductions.  That makes it pretty useless in most rental situations, because you're already offsetting your gross income with depreciation and mortgage interest and insurance and maintenance costs.

oldmannickels

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #12 on: December 20, 2017, 12:58:25 PM »
That being said I dont think I have any income after deprecation and all of that, so does that mean even though I earn an income (but not on paper) this would be not valuable to me?

That has been my interpretation, yes.  The 20% pass through deduction is available to landlords, but only applies to net income after deductions.  That makes it pretty useless in most rental situations, because you're already offsetting your gross income with depreciation and mortgage interest and insurance and maintenance costs.

You could do something like prepay a bunch of expenses right now to shift a lower income/loss to 2017 and a bigger income in 2018 to get a bigger deduction.

sol

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #13 on: December 20, 2017, 02:07:28 PM »
I don't think it would matter, as the deductions for rental real estate are on the schedule E, which basically isn't changing.  They're separate from the personal deductions, which are definitely changing.

oldmannickels

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #14 on: December 21, 2017, 05:27:16 PM »
I don't think it would matter, as the deductions for rental real estate are on the schedule E, which basically isn't changing.  They're separate from the personal deductions, which are definitely changing.

Yea but Sch E deductions are worth more in 2017 because of the rate changes and the 20% net income deduction in 2018. So a $500 deduction in 2017 would be worth <$400 in 2018.

sol

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #15 on: December 21, 2017, 08:34:32 PM »
Yea but Sch E deductions are worth more in 2017 because of the rate changes and the 20% net income deduction in 2018. So a $500 deduction in 2017 would be worth <$400 in 2018.

In my case, my rental "profit" after depreciation and expenses is pretty paltry already.  Saving an extra 20% on a few hundred dollars per year of residual profit is still better than a poke in the eye, but it's not getting me all excited either.

BABYHOCKEY

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #16 on: December 26, 2017, 10:56:39 AM »
Hi I am same situation as original post.
I have residential rental property owned in my name. I do not have a pass-through entity.
Can I expenses property tax and mortgage interest from rental income even  under the new trump tax?


oldmannickels

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #17 on: December 26, 2017, 11:26:23 AM »
Hi I am same situation as original post.
I have residential rental property owned in my name. I do not have a pass-through entity.
Can I expenses property tax and mortgage interest from rental income even  under the new trump tax?

Yes

BABYHOCKEY

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #18 on: December 27, 2017, 06:57:19 AM »
Thank you!

BABYHOCKEY

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #19 on: December 28, 2017, 04:18:11 PM »
I pre paid my residential 2018  1st & 2nd Qtr real estate tax for 2017 deduction (I think IRS said OK)

Anyone know Can I pre pay 2018 1st & 2nd rental property real estate tax for 2017 deduction too? or this is separate thing?

FamVestor

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Re: Effect of Republican Tax Bill on Rental Property
« Reply #20 on: January 16, 2018, 03:58:20 AM »
I just made a video on this exact question, There is no reason to fear: https://youtu.be/wUvYRKFvdeE

For those Buy & Hold Rental Real Estate Investors who have been concerned with the 2018 Tax Law that put a cap on personal property tax deductions to $10,000.

If you are house hacking: Property taxes on the portion of the property that you occupy are reported on Schedule A and are subject to the new limitation($10k).

Property taxes on the portion of the property that your tenants occupy are reported on Schedule E and are not subject to the new limitation.

We househack(owner-occupy) a 4-family home. That costs $12,000 in taxes. We also have a 3 fam with $14,000 in taxes.

So I would put $12k/4= $3,000 deduction on my schedule A for my personal portion of the quadplex.

Then the remaining $9,000 + $14,000 = $23,000 in schedule E.

And since the $10k combined cap on property tax deduction + state income tax is only limited to schedule A (personal property tax deductions). I will not be losing out on any deductions. Hope you all are in a similar boat.