The Tax Cuts and Jobs Act has changed the dynamics of our finances and the profitability of investments. While much of the press coverage around the new rules has been on its drawbacks, there exist some positive financial opportunities for those who educate themselves and act on new breaks.
The new tax law both protects some crucial breaks and provides new ones. Some of these give real estate investors great advantages in building wealth and passive income and keeping tax liabilities down. For those already feeling the pressure of filing income taxes and who may be cringing in anticipation of meeting with their accountants, there is hope — especially for those who expand real estate investments or get started with 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, and with some headlines making the changes sound like tax armageddon for those living in high-cost states like New Jersey, New York, and California, 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, and accounting and tax advisors providing strategy and tax preparation services. As we dig further into the facts and some of the lesser-known provisions of the new law, many may be surprised to find that buying real estate in 2018 can make all the difference in how big tax bills or refund checks are over the next five years.
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 rooves, air conditioning and heating systems, ventilation, alarm systems, fireproofing and more.
Reduced Corporate Taxes
One of the biggest changes in the Tax Cuts and Jobs Act is the cut to the corporate income tax rate. It is now just 21%, down from a maximum rate of 35%. The TCJA has also made it far more attractive for 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 allows successful existing real estate firms to expand and enjoy better profitability while making it more appealing and advantageous to launch new real estate startups or get started in real estate investing through legal entities like limited liability companies.
-The Advantages Of Investing In Real Estate For Big Tax Savings In 2018