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The passage of the Tax Cuts and Jobs Act in December 2017 – the most comprehensive tax legislation in more than 30 years – will have far-reaching impacts.
How will tax reform affect real estate investors?
As with most things related to personal finance and investing, each investor’s situation is unique, and only personal review by a competent finance or tax expert could provide true guidance.
But it’s clear the new law’s changes could impact real estate investors, depending on each unique situation.
Potential impacts for real estate investors
Amanda Han and Matt McFarland from Keystone CPAs work almost exclusively with real estate investors.
They list what they believe are the most impactful changes (or in some cases no changes) from the new law for both full-and part-time real estate investors:
- Investing with an entity, such as an LLC or LLP, could allow 20 percent of flow-through income tax-free: For investors that use an entity to invest in real estate a change in the law will allow 20 percent of flow-through income from the entity to be tax-free if the investor qualifies.
- 100 percent bonus depreciation: For property acquired from September 28, 2017 through 2022 it’s possible to implement 100 percent bonus depreciation on the property.
- Entertainment expenses no longer deductible: If you were deducting entertainment expenses as part of your real estate investing business, starting in 2018 those are no longer deductible.
- 1031 property exchanges still allowed: It’s still possible for investors to purchase real estate as 1031 like-kind exchanges to defer capital gains taxes
Retirement accounts could provide tax advantages for real estate investors.
An item that remains unchanged is the ability for investors to use retirement accounts (such as Traditional and Roth IRAs) to invest in property.