Category Archives: TaxCutsForRealEstateInvestors

How Will The Biggest Tax Cuts Ever Impact Real Estate Investors

  Issue 90 – Fort Worth Skyline

Introduction…Republicans were joyful Friday as they finalized their tax plan, bridging differences between the House and Senate bills and moving another step closer to getting legislation to President Trump by Christmas.

The income tax incentive to invest in real estate is alive and well under the Tax Cuts and Jobs Act.

Here are ten items that will impact real estate investors:

  1. Tax Cuts…The Tax Cuts and Jobs Act represents the largest one-time corporate tax rate cut in history.  The top corporate rate will drop from the current rate of 35% to 21%.  The bill lowers the taxes for most Americans and small business owners and corporate real estate investors and developers.
  2. “Pass through” entities…The vast majority of American businesses “pass through” its income to the owners.  These entities include S corporations, LLCs, partnerships, and sole proprietors.  Under the tax bill, these companies get to deduct 20% of their income tax-free until 2025 when it is scheduled to expire.
  3. Corporate Alt Min Tax…The final GOP bill gets rid of the corporate alternative minimum tax (AMT) which is a big relief for the business community.  The AMT carries a massive unproductive accounting cost for all that are impacted.
  4. Like-Kind Exchanges here to stay…The Section 1031 like-kind exchange which allows real estate investors to save millions of dollars when trading existing real estate for new property remains in tack.
  5. Business interest deduction unchanged…Fear over the mortgage interest deductions has been addressed when the personal residence loan that can deduct interest is limited to $750,000.   Forbes reported they thought this change would eliminate the economic incentive for many to buy homes.  Really?
  6. The longer holding period for long-term capital gains…The holding period to get long-term capital gains tax treatment on the sale of assets is increased from one year to three years.
  7. Limit on state, local, and property tax deductions…Individual taxpayers will face a $10,000 limit on deductions for state, local, and property tax deductions
  8. Individual Standard Deduction Increase…The Individual Standard Deduction is raised from $6,200 to $10,000. Or it could be raised to $12,000 depending on the source.
  9. Estate Exemption to double…Successful real estate investors who want to pass on their real estate to heirs got a break.  The current estate tax exemption for individual doubled from $5,490,000 to $11,000,000.  The current estate tax exemption for couples doubled from $10,980,000 to $22,000,000.  This is a new incentive for investors to build real estate fortunes.
  10. Individual Income Tax Rates Change...The existing individual income tax rates are 10%, 15%, 25%, 28%, 33%, and 39.6%.  These tax rates will be reduced to 10%, 12%, 22%, 24%, 32%, 35%, 37%.  More detail on this item in fiture issues of the newsletter.

In conclusion…The benefits of the GOP Tax Plan for real estate investors will be very significant.

Bill Moist, MS Taxation, CPA
Self-storage buyer and developer
References:  Heather Long, “The final GOP tax bill is complete.  Here’s what is in it.” Washington Post, 15 Dec 2017; Lara O’Keefe, “7 Items In The GOP’s Combined Tax Bill That Could Affect Real Estate, Bisnow, 13 December 2017; “GOP tax bill: A look at the final brackets, FoxBusiness, 15 Dec 2017