New Tax Reform- Great Read

5 Replies

Thank you for sharing that link! The NREI site always has great information for commercial real estate investors.

One observation: I am pretty sure that--contrary to what's stated in the article--the depreciation schedules are still 39 years for non-residential and 27.5 years for residential.

Does anyone know if the passive activity loss write off limit has been raised?

@Greg V.

LOSS PROVISIONS

New Limitations on “Excess Business Loss”

In general, the passive loss rules under Code Sec. 469Reg. § 1.469-5Code Sec. 469 provides a limitation on excess farm losses that applies to taxpayers other than C corporations. If a taxpayer other than a C corporation receives an applicable subsidy for the tax year, the amount of the “excess farm loss” is not allowed for the tax year, and is carried forward and treated as a deduction attributable to farming businesses in the next tax year. An excess farm loss for a tax year means the excess of aggregate deductions that are attributable to farming businesses over the sum of aggregate gross income or gain attributable to farming businesses plus the threshold amount. The threshold amount is the greater of (1) $300,000 ($150,000 for married individuals filing separately), or (2) for the 5-consecutive-year period preceding the tax year, the excess of the aggregate gross income or gain attributable to the taxpayer’s farming businesses over the aggregate deductions attributable to the taxpayer’s farming businesses.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act provides that the excess farm loss limitation doesn’t apply, and instead a noncorporate taxpayer’s “excess business loss” is disallowed. Under the new rule, excess business losses are not allowed for the tax year but are instead carried forward and treated as part of the taxpayer’s net operating loss (NOL) carryforward in subsequent tax years. This limitation applies after the application of the passive loss rules described above. (Code Sec. 461(l), as added by Act Sec. 11012)

An excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer’s trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. The threshold amount for a tax year is $500,000 for married individuals filing jointly, and $250,000 for other individuals, with both amounts indexed for inflation. (Code Sec. 461(l)(3), as added by Act Sec. 11012)

In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner’s or S corporation shareholder’s share of items of income, gain, deduction, or loss of the partnership or S corporation is taken into account in applying the above limitation for the tax year of the partner or S corporation shareholder; and regulatory authority is provided to apply the new provision to any other passthrough entity to the extent necessary, as well as to require any additional reporting as IRS determines is appropriate to carry out the purposes of the provision. (Code Sec. 461(l)(4), as added by Act Sec. 11012(a))

@Juan Vargas

Am I reading this right? Passive loss limitation is now $300k?

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