DISCLAIMER: I am not a CPA or Tax Attorney! Please consult a qualified and trained CPA or Tax Attorney or better yet both.
This presentation is simply to increase your awareness that there has been some recent tax changes that may effect you.
- Take advantage of the LONG TERM capital gains tax rate when selling a property. Holding a property (1 year and 1 day) before you sale it can save you bundles. You can see from the table below you can save anywhere from 7-20% depending on your income tax bracket.
- Mortgage Note Tax Tip
- Mortgage note servicing company sends you 1099-INT which is interest income for tax purposes.
- However, if note purchased at discount then remember to include the principal portion of the PI payment to be taxed.
- Example: Buy note with Unpaid Principal Balance (UPB) of $50,000 for $40,000. You get payments of $500/month PI and until the UPB gets down to $40,000 you have to claim both the principal and interest portion of PI as income.
NEW TAX RULES
- Tax Cuts and Jobs Act (TCJA) Updates
- Bonus depreciation – The new tax law increases bonus depreciation from 50% to 100% for assets with useful lives of less than 20 years. If you buy personal property for your rental, such as carpet, appliances and equipment, you can now immediately write off the entire cost of those assets.
- New rules allows you to deduct the entire cost of eligible property effective for property placed in service and acquired after Sept. 27, 2017.
- Depreciation on the entire property hasn’t changed, with the life remaining 27.5 years for residential rental property.
- The Tax Cuts and Jobs Act (TCJA) imposes new limitations on deducting personal residence mortgage interest and state and local taxes BUT those limitations do not apply to rental properties.
- In addition, you can still write off all the other standard operating expenses for rental properties such as depreciation, utilities, insurance, repairs, maintenance, yard care and association fees.
- 1031 exchanges remain in effect for real estate.
- Pass-Through Deduction
- Most investors fit into the pass-through category, as they operate as sole proprietors, S-Corporations or LLCs.
- Without some other forms of income complications, the simplest application of this is that you can write off 20% of income after expenses from your rental property.
- There are limitations and rules if you have capital gains or dividend income and only a CPA can sort those out.