The New Tax Law and Rental Real Estate
There is good news for most rental property owners. The 2018 Tax Cuts & Job Act (TCJA) not only reduces income tax rates but also provides breaks for rental real estate owners.
The TCJA includes a new tax deduction that helps most rental real estate property owners for income earned through pass-through entities. The amount of this deduction depends on the property owner’s taxable income and, usually, the value of their rental property. As with the prior law, rental property owners can deduct mortgage interest and state and local real estate taxes on rental properties. The new limits on deductions of personal residences do not apply to rental property owners so long as they refrain from engaging in personal use of their rental properties. Thus, most rental real estate owners can continue to write off standard operating expenses for properties they rent.
IRS Code Section 179 Changes
The definition of eligible property for deductions now includes depreciable tangible personal property used to furnish apartments, such as furniture and appliances. Also, the IRS has increased the maximum deduction for qualified rental properties placed in service after December 31, 2017 from $510,000 to $1 million. Rental property owners will also be able to deduct the entire cost of eligible properties for the first year entered into service. Do note, however, that under Section 179, your deductions cannot create or increase your overall tax loss from business activities. Consequently, to take full advantage of this break, you will need substantial taxable business income.
There are still some issues needing clarification. We expect the IRS to provide more detail soon. If you have questions, we invite you to contact us.
For more information concerning Professional Tax Services, call 661-259-1967. Through the EZ2 Thrive program, Professional Tax Services provides unlimited complimentary advice on income and payroll taxes. For information on how you can receive advice at no cost, visit www.scvprotaxservices.com.
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