In This Article:
- Advantages of the 2018 Tax Cuts
- How to Take Advantage of the New Tax Act of 2018
- How Rental Property Landlords Benefit from 199A
- Major 2018 Tax Takeaways for Real Estate Investors
- Additional FAQs for Investors
If you’re like most investors, one of the main reasons you buy real estate is because it’s highly taxed advantageously. So anytime the government begins to fiddle with tax laws, real estate investors take notice. Last year, President Trump proposed new legislation that made some big changes for how real estate investors are taxed. The Real Wealth Network has helped out; providing great information that can help you get your arms around the subject and how it relates to you as an investor.
Advantages of the 2018 Tax Cuts
“On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act. At their core, these 2018 tax cuts result in lower taxes for individuals and businesses throughout the United States.
The lower tax rates create the opportunity for individuals to invest in high yield rental properties, as well as standard investment properties. The three main advantages for Trump’s new tax plan are reduced tax rates, the addition of several tax deductions, and the lowering of the corporate tax rate from 35 percent to 21 percent [Read More].”
- Reduced Tax Rates
- Additional Tax Deductions Available
- C Corporation Tax Rate Reduced to 21%
How to Take Advantage of the New Tax Act of 2018
“The qualified business income deduction with buying and hold real estate is now listed at a 20 percent tax deduction on taxable income. In theory, these deductions will allow real estate investors to deduct portions of their real estate investment properties. For example, the passive income earned from rental properties should result in deductions, which can lead to more money earned and saved [Read More].”
- New 199A: Pass-Through Deduction to Qualify for the 20% Deduction
- 20% Deduction on Taxable Income
- 100% Bonus Depreciation
- Avoid Real Estate Tax with Section 121 together with 1031 Exchange
How Rental Property Landlords Benefit from 199A
“This new rule states that rental activity can qualify as a business. Since it is considered a business, you might be eligible to deduct up to 20 percent of your net rental income. The latter deduction, coupled with the other deductions (such as those outlined in the 100% bonus depreciation), ensure that you will be effectively taxed on approximately 80 percent of your rental income [Read More].”
- S Corporation vs Sole Proprietor Tax
- Benefits of a C Corporation Tax Status
Major 2018 Tax Takeaways for Real Estate Investors
“As 2018 rapidly comes to a loss, it is important that real estate investors and active landlords take the following three steps:
- Plan your Schedule A.
- Control income via charitable donations, using retirement accounts, and leverage C Corporations to control income so that you qualify for the 20 percent deduction.
- Explore the potential benefits of C Corporations vs. Sole Proprietor vs. LLC vs. S Corporation [Read More].”
Additional FAQs for Investors
The Real Wealth Network also took the time to address some of the most common questions coming from investors on Trump’s new tax plan. The following questions were asked, you can read the response here: [Investor FAQ].
- Does the 199A also apply to income in an IRA or in a PPM from syndication?
- If all of my investments are in my self directed IRA, is there any way to use any of these new tax write-offs?
- Is there any advantage to taking a dividend instead of a wage?
- How to avoid the mandatory state tax for LLCs?
- With the right LLC set up can a private lending qualify for the new 20% tax savings?
- Can you take the 20% tax savings for your rental property if it is managed by a property manager?
- What would be the most tax-efficient structure for passive income LLC treated as a C-Corp?
Conclusion
Bottom line? If you want to lower your taxes, keep buying real estate. Real estate has always been a great way to save on the biggest expense of your lifetime…but it’s only getting better! Keep an eye out for more posts as we plan on revisiting these topics again as new information surfaces.
The Real Wealth Network has been mentioned before on our blog as one of the Top 5 Investor Podcasts You Need to Follow in 2019. We’re grateful for all the wonderful information and research they continue to provide.