Business Management

8 Top Tips to Take Advantage of New Tax Reform for 2019

Expertise: Business Management, Real Estate Investing Basics, Personal Finance, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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Do you want to take advantage of all the tax savings that are available to real estate investors under the new tax reform?

As a tax advisor by day and real estate investor by night, I’m here to share eight tax strategies you must know for 2019.

Tax Tip #1: Overlooked Deductions

As real estate investors, we are all pretty good about deducting our rental related expenses like interest, taxes, management fees. However, many investors often overlook legitimate deductions that are not property specific. Examples of commonly missed deductions include business related car expenses, business travel costs, business meals, education expenses, membership costs, real estate books, BiggerPockets memberships, and home office—to name a few. These expenses can add up during year and help you save some big tax dollars!

Tax Tip #2: Deducting Interest Expenses

Under the new tax reform, the IRS took away the interest deduction related to home equity line of credit (HELOC) on our primary homes. However, if you took out a primary home HELOC and used that money for real estate investments, you can still deduct the interest against the rental income or flip income! Make sure you talk with your tax advisor about the best ways to track and deduct these interest expenses.

Tax Tip #3: Investment-Specific Interest and Taxes

Another pitfall under tax reform is the new limitation on how much can be deducted for property taxes and mortgage interest on our primary homes. Please note that these limitations do not apply to real estate investments. As such, whether you are a landlord or flipper, you can still generally fully deduct the interest and taxes for your investment properties.

Related: The Ultimate Guide to Real Estate Taxes & Deductions

Tax Tip #4: Bonus Depreciation

On the bright side, tax reform did provide us with 100 percent bonus depreciation in 2019! So, if you are a real estate investor who is buying appliances, furniture, equipment, laptops, and other assets for your real estate business, you may be able to write off up to 100 percent of those costs immediately rather than having to take depreciation over multiple years. Remember, bonus depreciation strategy can be used with or without a legal entity, and it can be used with new or used assets.

Tax Tip #5: New 20% Tax-Free Treatment

Wholesalers, flippers, syndicators, real estate brokers, and real estate agents may all be eligible for a new 20% tax-free treatment under the new tax reform. This means that if you have eligible taxable income of $100, the first $20 of that may be completely tax-free! You would then only pay taxes on the remaining $80. We actually wrote an entire article on this great new tax benefit—be sure to check it out!



Related: IRS Code Section 199A: How the New 20% Pass-Through Deduction Affects Investors

Tax Tip #6: Safe-Harbor Rules

You may be wondering: What about landlords and investors of short-term rentals? What about investors doing the BRRRR strategy? Those income potentially also have the ability to receive a 20% tax-free treatment. The IRS came out with some safe-harbor rules on what you need to do in order to obtain that benefit—again, check out this article for more information.

Tax Tip #7: Opportunity Zones

Are you looking to sell your appreciated rental property but don’t want to pay capital gains taxes? Or maybe you are looking to sell some of your appreciated stock investments and move that money to real estate? Instead of paying taxes on the capital gains, you now have an “opportunity” with the brand-new Opportunity Zone laws to defer taxes on the gain.

Re-invest your capital gains within 180 days of the sale into qualified Opportunity Zone funds to defer your taxes. After holding onto the Opportunity Zone asset for five years, part of your deferred gain may to be permanently tax-free. In addition, if you hold your investment for more than 10 years, 100 percent of the post-acquisition gain on the Opportunity Zone property may be permanently tax-free! Check out our blog for more info on this strategy.

Tax Tip #8: Paying Towards Retirement

Before the end of the year, make sure you talk with your tax advisor on ways to pay towards your retirement rather than to pay the IRS. You may be able to contribute up to $56K to reduce your tax bill and have that money grow for you tax-deferred in real estate assets! The best type of retirement account and the maximum amount you can contribute will depend on the amount and type of income you earn in 2019. Make sure to strategize with your tax advisor about this opportunity before filing your taxes.

That is all for the eight tax tips you must know for 2019. As you probably already know, it’s not just about how much money you make–it’s about how much of it you get to keep. Thanks for joining us and happy investing!

Looking for expert tax tips to maximize your deductions this year? The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew MacFarland is written by experienced CPAs and geared towards investors. Pick up a copy from the BiggerPockets Bookstore!

Which of the above will you be taking advantage of this year? Any questions about these 2019 tax tips?

Leave a comment below!

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 years with a focus on long-term hold residential and multi-family assets across multiple states. Formerly a tax advisor at the prestigious accounting firm Deloitte in the Lead Tax Group, focusing on tax strategies for the real estate industry and high net worth individuals, and at an international Fortune 500 Company in the high-tech industry in the Corporate Tax department, Amanda’s goal is to help investors with strategies designed to supercharge their wealth building. Amanda’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s best seller list. A frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies, Amanda has been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Amanda was a speaker at Talks at Google and is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine. She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

    Shawn C. Investor from Austin, TX
    Replied over 3 years ago
    Thanks for writing this article. I want to get into apartment invest in and this article along with your reference material will be of great service to me.
    Teresa
    Replied over 3 years ago
    Thanks for your wisdom on subject of interest. Happy Holiday Season.
    Jeff Rabinowitz Investor/Landlord from Farmington Hills, Michigan
    Replied over 3 years ago
    Private money is, primarily, a relationship business. If you have established the relationship it is easy to get private investors to look at your deals. If your deals are really deals and they fit the investors’ needs and circumstances they will commit.
    John Chico from Los Angleles CA/Phoenix AZ
    Replied 5 months ago
    Great article, This is one of the reasons that I am educating myself to start investing in Real Estate. My wife and I really took a hard hit this year on our taxes. We lost over 30k in write offs. Our tax advisor told us that we have to contribute more to our 401K and invest in Real Estate so I started researching and found Bigger pockets. I have been listening to pods cast every day.
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thanks for reading John!
    Teresia Sayler Investor from Snohomish, Washington
    Replied 5 months ago
    Tip #6 safe harbor for landlords. Assuming fully entitled otherwise, the 20% would apply to net rental income, not gross, correct?
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thank you for reading Teresia. The 20% is generally calculated based on taxable income. Thank you for your comment.
    Jerry W. Investor from Thermopolis, Wyoming
    Replied 5 months ago
    Amanda excellent article. Thanks for taking the time to share. Especially in this time of year. You must be pretty busy right now.
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thank you for your feedback Jerry. Taxes are on everyone’s mind right now so thought I would share this 🙂
    Annie Summers Rental Property Investor
    Replied 5 months ago
    Great article Amanda. Are you open for discussions on doing my taxes next year? I am looking for someone who, like you, is in the industry and is well-acquainted with these tax rules. Thanks!
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thank you for your email Ann. Feel free to visit our website to find out more information regarding our services. Thank you for reading.
    Gary Li Investor from Rowland Heights, California
    Replied 5 months ago
    Hi Amanda, I always read your articles and bought one of your book. questions for Tax Tip #8, I have W-2 and 401K, but all of the Real Estate Income are Rent Income, can I contribute the Rent Income to any retirement account?
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thank you for your comments Gary. Unfortunately rental income is considered investment income and not earned income and ask such itself is not eligible for retirement contributions.
    Ivan Lopez
    Replied 5 months ago
    Definitely great article Amanda and thanks for sharing, especially now during tax season! Looking forward for more tax tips, again thanks!
    Amanda Han Accountant from Fullerton, CA
    Replied 5 months ago
    Thank you for losing Ivan I’m glad you enjoyed it!
    Paul Gugger
    Replied 5 months ago
    Hi Amanda, I have a vacation rental that is managed by a vacation rental company, they rent it out, clean and change linens, toiletries ect. I do all the work on the place except that which I am unable to do and I hire people or businesses to do that. I drive about 5 1/2 hours to make repairs. I patch holes and paint, replace electrical plugs and light switches, I buy new furniture and haul it there in my truck, replace faucet’s, repair leaky toilets, replace garbage disposal, repair torn screens, replace rollers on windows and glass sliding door, change air filter, light bulbs, I sometimes buy furniture not assembled and put it together. I talked to my tax person and she says I can’t include this rental in my “Real estate professional status” because it is managed. again all they do is rent it and clean it. could you clarify this for me? Thank you in advance.
    Eddie Daniel
    Replied 5 months ago
    Hi Amanda, Thank you so much for all your very generous and educational input to this blog and for guiding us along the good path to legal profits. I think I have listened to all of your Podcasts with Scott and Brandon and even though you have covered this topic several times, I’m still unsure about a couple of details. Currently, I am a member of an LLC with 3 other people, my wife, my son, and my daughter-in-law. We’re just getting started and only have one property at this time. As you can imagine, this one property is by no means the major income source for any of us at this time, so I don’t think any of us can qualify as active participants, other than we are all involved in all purchases, offers, tenant vetting, etc. We are all equal, 25% owners in this LLC and we want to grow to many other properties. My question is about claiming LLC rental losses against my W-2 income. Again, I have listened to many podcasts on BiggerPockets and it has been stated several times that I should not be able to claim the approximate $2,000 loss, that shows up on my K-1. However, I have MANY friends in several states and they are ALL claiming these losses on their returns, even though there is no way they are qualifying as active participants either. Are they all breaking the law or am I missing a loophole somewhere? I have read most of Publication 925 (Zzzzzzzzz) and it even has examples in that document that seem to indicate that I can claim these losses against my W-2 income. I’m specifically talking about the example under the “Special $25,000 allowance” section, which, disregarding the MAGI related issues at the moment, seems to fit my situation exactly. Again, I am not looking to break the law to deduct these losses against my W-2 income, but I don’t want to miss out and be the only one not getting a perk that is rightfully mine. Can clear this up for us newbies? Thank You.