Details on pass through deduction tax plan changes?

10 Replies

I’ve seen a few articles on last minute tax plan changes and they are stating there was a last minute change that allows for a greater reduction for real estate LLC’s with no to a few employees for rental income. Anyone have an article or details on that on how that will effect us?

Awesome! Was hoping you did an updated analysis 😀

Originally posted by @Brandon Hall :

We put together a google doc for real estate investors that breaks the plan down. You can find it here: https://docs.google.com/document/d/1wXgWAnxAvPcUVK...

Regarding someone without W-2 income but with qualified income from multi-member LLCs... the 20% deduction applies to "... 2.5% of basis from qualified property." This is confusing. Not your description, but the tax law changes.

For example, in 2018 I will have qualified business income from a 5 member LLC and I think I should be able to use this deduction. My ownership percentage (my Capital percentage) is about 25%. An accountant in California is doing the taxes. Will there be a new line on the K-1 to identify "basis subject to 199A" or do I use the partnership return balance sheet (Schedule L of 1065) in my calculation? And is this for new property or all property on the balance sheet (e.g. line 9a of Schedule L of 1065)?

Thanks for any insight. 

Originally posted by @Chris Martin :
Originally posted by @Brandon Hall:

We put together a google doc for real estate investors that breaks the plan down. You can find it here: https://docs.google.com/document/d/1wXgWAnxAvPcUVK...

Regarding someone without W-2 income but with qualified income from multi-member LLCs... the 20% deduction applies to "... 2.5% of basis from qualified property." This is confusing. Not your description, but the tax law changes.

For example, in 2018 I will have qualified business income from a 5 member LLC and I think I should be able to use this deduction. My ownership percentage (my Capital percentage) is about 25%. An accountant in California is doing the taxes. Will there be a new line on the K-1 to identify "basis subject to 199A" or do I use the partnership return balance sheet (Schedule L of 1065) in my calculation? And is this for new property or all property on the balance sheet (e.g. line 9a of Schedule L of 1065)?

Thanks for any insight. 

 I don't think we really know yet, but I think it will look something like the Domestic Production Activities Deduction is currently reported with W-2 wages and depreciable property allocated and stated separately on the K-1 for each partner. 

Brandon, Thanks for putting together this very detailed analysis, but it's way too much for me 😗 to absorb. 

In 2016, my Sched E bottom line from a rental property was $9K. I'm in the 25% marginal tax bracket. Does it make sense to set up a pass through corp to take advantage of the upcoming 2018 tax bill?

That one is beyond confusing. Right now, its not really a concern since my S corp still isn't showing a profit with all the depreciation I can take although it might be getting close. But I still have over 100k in carry forward losses to use so not sure how far in the future it will be when my company actually reports a profit.

That being said, what is the bottom line for a pass thru entity that only does rentals. Lets say the rental business after depreciation showed a profit of 20k.  What would I pay in taxes on that 20k? I thought I heard where 20% of that income was non-taxable? Is that correct?

I read thru your document but its still confusing how that affects something like the above.

If so, lets say the business made 100k in profit. Does that mean they get a deduction of 20k so that only 80k passes thru as profit/net income to the individual return and then we'd get the typical deductions on top of that?

Originally posted by @Tim Butters :
Originally posted by @Chris Martin:
Originally posted by @Brandon Hall:

We put together a google doc for real estate investors that breaks the plan down. You can find it here: https://docs.google.com/document/d/1wXgWAnxAvPcUVK...

Regarding someone without W-2 income but with qualified income from multi-member LLCs... the 20% deduction applies to "... 2.5% of basis from qualified property." This is confusing. Not your description, but the tax law changes.

For example, in 2018 I will have qualified business income from a 5 member LLC and I think I should be able to use this deduction. My ownership percentage (my Capital percentage) is about 25%. An accountant in California is doing the taxes. Will there be a new line on the K-1 to identify "basis subject to 199A" or do I use the partnership return balance sheet (Schedule L of 1065) in my calculation? And is this for new property or all property on the balance sheet (e.g. line 9a of Schedule L of 1065)?

Thanks for any insight. 

 I don't think we really know yet, but I think it will look something like the Domestic Production Activities Deduction is currently reported with W-2 wages and depreciable property allocated and stated separately on the K-1 for each partner. 

Found it!

Under SPECIAL RULES, (f)(1)(A)(iii) of the bill:
"...partner’s or shareholder’s allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the share holder’s pro rata share of an item. "

That's on Page 39 (of 1097). I am 3.55% through. At my current pace, I have about 534 hours left to go. I will have to finish tomorrow;)

Can somebody explain how the new tax bill's  limitation of business financing interest deduction to 30% of earnings applies to rental property mortgages?

Jeremy - business under $15M in annual gross receipts are exempt from the 30% limitation

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