New Tax Plan and Real Estate Investments & Business Structure

5 Replies

Hey BP, hope everyone enjoys the end of the year and has a an excellent holiday season! 

A friend and I were discussing the new tax plan and how it will affect our respective small businesses and real estate investments, and can't quite figure what to make of the changes. We each own S - corps that would benefit a good amount from the deductions on pass through business income. My wife and I also rent one of our units on Airbnb and have had promising results. I'm wondering if there is enough change in the tax bill, potentially in other areas that I am not aware, that would make it worthwhile to make our Airbnb rental business an S-corp also. I'm not sure the income would be enough to make it worth it. We hope to gross around $30k from the one unit in 2018 and have plans to add another unit to the business in the new year. 

If it is worth it to be an S-corp, would the business have to own the house? We currently occupy the second unit. I've heard S-corps are a bad option to hold real estate. I've already read that there will be new rules/limits on deductions such as mortgage interest and property taxes. Does anybody have a more clear understanding? How would the new tax plan affect commercial real estate investments made by an LLC? Is incorporating a way to avoid any negative changes to the plan from a home ownership/investing standpoint?

I'm sure I'm not alone in being super confused by a lot of this stuff, and I plan on consulting my CPA. But I thought I'd try and go into that meeting with at least some clarification and better understanding on the subject. 

Any thoughts? How will these changes affect you? What else are the BP investors worried or excited about in regards to the tax bill?

Thanks! 

@Christian Scully I asked my accountant this same question earlier today, he recommended that I keep the LLC. I guess the questions is are the tax savings worth the costs and extra corporate maintenance of the S-corp. I personally think they are.

@Haniel Monjaras thanks for the reply. That's logical. I'm wondering what the revenue minimum is to make it worth it. Incorporating my full time business added expenses and additional business taxes, but that business makes enough to where I can take advantage of the pass-through income. 

Our Airbnb business is not yet incorporated and we are deciding whether or not to do that.

@Christian Scully if you already have the LLC. your accountant can help you file an S-Corp election. You can even file the election to encompass the current years taxes, he should be able to tell you down to the last dollar how much you'll save by making the election.

I appreciate it @Haniel Monjaras . Don't think we'll quite be at that point for the one unit so maybe it's not worth it. Curious if anyone else has thoughts on the subject? 

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