THE Thread on the Final GOP Tax Bill - Q&A

Tax, SDIRAs & Cost Segregation
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THE Thread on the Final GOP Tax Bill - Q&A

Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

Happy Holidays! As of today, the House and Senate have sent the GOP Tax Plan to the President to sign into law. 

I've seen numerous threads popping up about the GOP Tax Bill. I wanted to start a thread to consolidate questions and basically provide a user guide (via the Q&A) for years to come. 

I invite all tax pros on BP to contribute to this thread. It will be neat to see discussion on the tax bill itself, but also loopholes and strategies that develop once the massive bill has been digested. 

Link to the bill.

Key highlights from the bill: 

1. Mortgage interest deduction allowed on up to $750k of new acquisition debt starting Jan. 1, 2018. (Does not apply to rentals)

2. Interest paid on home equity loans that are not "acquisition debt" is not deductible. (Debt tracing rules will apply - if you use a HELOC to buy rentals, you can still deduct the interest).

3. State and Local Taxes (SALT) are limited to an aggregate $10,000.

4. A "freebie" deduction will be available beginning in 2018 for "combined qualified business income." Calculating the deduction can be complicated. Per our current understanding, you cannot use the deduction for activities generating passive losses. This includes sole props, meaning you do not need to utilize an entity (LLC/S-Corp) to qualify for the deduction as far as we can tell.

5. C-Corp tax rate reduced to 21%. 

6. AMT still exists but the exclusion is higher.

7. Bonus depreciation is now 100% for assets with a useful life of less than 20 years.

8. 529 plan funds can now be used to pay for public, private, and religious elementary and secondary education.

9. Penalty from Obamacare individual mandate has been eliminated.

10. Rehabilitation tax credit reduced in scope.

11. Domestic Production Activity Credit (DPAD) eliminated. 

12. Standard deduction increased, personal exemptions eliminated. 

What did not change:

1. Section 121 Exclusion - aka Capital Gain Exclusion on primary residence

2. Depreciation schedules. (Except for commercial properties on ADS). 

Ask away!

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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y

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  • Bob M.
    Investor · Saint Louis, MO · Member since 2014 · 37 posts · 14 votes
    8y

    Sorry if this has been asked already...

    Will the pass through changes affect Real estate Note investment income (interest) earned through an LLC? I.E. hard money loan interest earned by a LLC vs. owning the note in your personal name? Or does the deduction only apply to other types of income?

    Thanks for starting this thread!

    Bob

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Stuart M.:
    Originally posted by @Jack B.:

    From what I read, bonus depreciation can be taken even if the property was placed in service on the last day of the year. It sounds like even if I fix the roof on a rental and then move back into it, I can still take the 100% bonus depreciation for the roof.

    https://www.americanbar.org/newsletter/publication...

     I was under the impression that anything you do before it is placed in service is added to the basis.

    Tell me that his take is correct instead!  Some of us have 8 days to make decisions!

    It really helps if you point out a source, like I did. Anything you do and deduct improvements wise to a rental get's factored in to the basis when you move back in anyways, regardless of the old or new tax law. You buy a house for 100K. You take 10 in bonus and depreciation deductions while it's a rental. You move back in. Now when you sell, anything over 90K sale price is considered profit.  

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Varun Parkash:

    Please help answer my dumb question :

    Example: John makes 100k salary, pays 6k Nj state income tax, 12k property tax, 14k mortgage interest rate on a 550k loan for his primary residence.

    Now as per new rules, john can only declare 10k, but also as per new rules his mortgage is below 750k & he can declare 14k interest rate paid as well in taxes ?

    I thought that a combination of “state income tax + property tax + mortgage interest rate” can’t be declared on taxes beyond 10k as per my research.

    Correct me where I’m wrong? I want to know how and where is the 14k mortgage rate interest paid on a 550k mortgage declared on taxes?

    It's a 10K SALT and property tax deduction limit. Mortgage interest for existing homes/loans that are over 750K are still deductible as usual, and those below 750K for new or existing mortgages are also deductible as usual for interest. 

    2Reply
  • Nicholas W.
    Investor · Germantown, WI · Member since 2012 · 206 posts · 364 votes
    8y
    Originally posted by @Bob M.:

    Sorry if this has been asked already...

    Will the pass through changes affect Real estate Note investment income (interest) earned through an LLC? I.E. hard money loan interest earned by a LLC vs. owning the note in your personal name? Or does the deduction only apply to other types of income?

    Thanks for starting this thread!

    Bob

    I'm not an expert but I'm pretty sure I know the answer. An LLC is indeed a pass through entity but as such interest income is not reported on your Schedule C it flows directly to your 1040. Since the 20% deduction is based on Schedule C (and schedule E) income it would be the same whether in your name or an LLC.

    1Reply
  • Chris K.
    Investor · Charlottesville, VA · Member since 2015 · 19 posts · 6 votes
    8y

    After reading all 205 replies, my question is this. 

    There have been a lot of scenarios talking about taxable income as generated by rent, but what if the income comes from the disposition of a previously-bought-and-held rental property that had appreciated in value?  Does that still get the 20% deduction?  Does it still apply even where the individual is not a real estate professional and instead just invests on the side of your regular W-2 job (making less than the 315k MFJ threshold)?   

    The way I've read everything, it would appear that you'd have to pay the 1250 recapture on the amount you had depreciated, but then you would get to deduct 20% of the profit (the difference between sale price and the original basis).

    0Reply
  • Chunyan Song
    Investor · Seattle · Member since 2017 · 13 posts · 2 votes
    8y
    Originally posted by @Joe Splitrock:
    Originally posted by @Brandon Hall:

    So my team and I have literally been sitting around all day to dream up new strategies for our clients (who are all real estate investors).

    Here's one that we've come up with.

    For new acquisitions, if the rental will likely generate passive losses, allocate more basis to land and take less depreciation. 

    The new pass-through deduction is a freebie. But the deduction is only available if you have net taxable income after all expenses, including depreciation and amortization. 

    So when you buy the next property, allocate more basis to land. This will reduce your depreciation expense. But if you have a smart tax advisor, you can likely net out the lost depreciation expense with this new freebie deduction. 

    The tax benefit is realized on the sell-side. When you liquidate a rental, you pay depreciation recapture taxes on the depreciation you've taken over the life of the rental. 

    So if you report less depreciation over the hold period, you pay less recapture taxes in the end. But best of all, it didn't hurt you during the hold period because you utilized this new freebie deduction each year to bring your taxable income down to $0.

    Note: this is not a relevant strategy if you purchase property that is likely to produce high amounts of net income after depreciation every year (NNN, Commerical, Large Apartments, Short-Term Rentals).

    Second Note: more planning will be required for folks that want to utilize cost segregation. You don't want to crush it on the cost seg side and not be able to utilize this freebie deduction because you no longer have net income to report. 

    This is an interesting strategy, but I see two issues:

    1.  I understand the IRS gives latitude on how you allocate value between land and structure. For example my county taxes split land and structure. I use the land value and subtract that from the purchase price to get basis. It is logical, defendable and consistent on all my properties. My concern would be if I suddenly started claiming half the purchase price as land value, it would be inconsistent with previous purchases and inconsistent with the county assessment. It seems an investor could be playing a dangerous game here.

    2. Between depreciation, expenses and interest, I have a net loss on my rental properties. I am not sure I could adjust the land value enough to make a significant profit. I ran some numbers and although I could force some profit, 20% credit would not be much money. It is better for me to take higher depreciation. I agree it would help when I go to sell, but assuming I perpetually exchange the properties, it doesn't matter.

    My situation may be different than others. I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income. I could see this strategy being more effective for people who pay cash for their properties. If I subtract my mortgage interest, the properties start getting more profitable.

    Thanks for all your insight, especially the strategies on how to use the new rules to your clients advantage. 

     Hi Joe, you said "I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income". Do you mean you have w-2 income from another job? If so, how do you claim a loss against it with real estate activities? I have high income from my full time w-2 job, and my CPA said there is not much tax planning I can do as long as I am earning w-2 income... 

    0Reply
  • Javi Chipi
    Accountant · Miami, FL · Member since 2016 · 88 posts · 30 votes
    8y
    The new 179 expanded definition applies to commercial properties.
    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Peace Lily to answer that question, an analysis would need to be run using your numbers. 

    @Eric Ashby unadjusted basis is purchase price, plus certain closing costs, less value allocate to land. 

    @Elizabeth Goff the $157.5k threshold is taxable income. Basically, the sum of all income streams. 

    @Danae Meurer I don't believe NOLs apply to passive losses.

    @Stuart M. No, property management is a service based business and does not qualify unless your taxable income is below the threshold amounts ($157.5 if single // $315k if married)

    Bonus depreciation is only eligible on 20 year-or-less property. Rental property does not qualify. However, certain components of non-residential (NNN, short-term rentals, office, etc) will qualify for 100% expensing.

    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Dmitriy Fomichenko if the interest is qualified business income, you are subject to the new pass-through rules. I'm not sure that interest qualifies. 

    @Varun Parkash state and local taxes are capped at $10k. Mortgage interest is allowed to be deducted on the first $750,000 in new acquisition debt. So in your example, you get a $10k income+property tax write-off and $14k in interest. 

    @Bob M. we're not sure yet. It depends on whether the interest income qualifies as qualified business income.

    @Chris K. from my understanding, I don't believe capital gain is considered "qualified business income" but I could be wrong. Capital gain is a factor in the calculation though, so it's important to plan around.

    2Reply
  • Stuart M.
    Boca Raton, FL · Member since 2017 · 111 posts · 45 votes
    8y
    Originally posted by :

    @Stuart M. No, property management is a service based business and does not qualify unless your taxable income is below the threshold amounts ($157.5 if single // $315k if married)

    OK, lets go back to your original example.

    You buy a 2M property that profits 400k, but you're limited to 50k deduction (2.5% of 2M.)

    What if the numbers were different - you buy a 1.5M property (or combination thereof) and the profit is 300k, keeping you under the 315k income limit.  The 2.5% limit is 37.5k deduction.  However, say you also own a property management company that charges you 300k to manage your property, and that company makes the 300k profit.  You are under the 315k income limit, so it doesn't matter that its a service company.  And the 2.5% (37.5k) limit no longer matters, right?  You get the whole 60k deduction, right?

    Or does the 2.5% limit not apply at all if you are under 315k profit?

    I remember when this was going to be "tax reform" to "simplify" the tax code.

    I wonder how long it will be before CPAs all agree on the way around the 2.5% limit.

    0Reply
  • Stuart M.
    Boca Raton, FL · Member since 2017 · 111 posts · 45 votes
    8y

    One more question I haven't really thought out, but tell me if there's a path here.

    There's a 10k limit on property taxes.  Businesses can write off the entirety though.

    What prevents you from moving your house into an LLC if your prop taxes are over 10k and paying rent to the LLC who can now write off the whole deal (property taxes, unlimited interest, etc.) Oh, and your standard deduction just doubled to 24k.

    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Stuart M. if the property generates $300k in income, if that's your only income and you're married, than you would fall below the $315k taxable income limit and can deduction 20% on the $300k. The $315k limit is on taxable income, so all other income that you receive must be factored in. 

    If you self-charge PM fees and your total taxable income stays under the $315k limit, then yes you can still take the 20% deduction. 

    We're having a grand time at our firm crafting creative strategies. We'll be posting about them in the coming months. 

    Re: Your Second Question - if you did this, you would have to prove that there was an economic reason other than tax avoidance to transferring into an LLC. If there's no economic substance, you can't do something like that.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Chunyan Song:
    Originally posted by @Joe Splitrock:
    Originally posted by @Brandon Hall:

    So my team and I have literally been sitting around all day to dream up new strategies for our clients (who are all real estate investors).

    Here's one that we've come up with.

    For new acquisitions, if the rental will likely generate passive losses, allocate more basis to land and take less depreciation. 

    The new pass-through deduction is a freebie. But the deduction is only available if you have net taxable income after all expenses, including depreciation and amortization. 

    So when you buy the next property, allocate more basis to land. This will reduce your depreciation expense. But if you have a smart tax advisor, you can likely net out the lost depreciation expense with this new freebie deduction. 

    The tax benefit is realized on the sell-side. When you liquidate a rental, you pay depreciation recapture taxes on the depreciation you've taken over the life of the rental. 

    So if you report less depreciation over the hold period, you pay less recapture taxes in the end. But best of all, it didn't hurt you during the hold period because you utilized this new freebie deduction each year to bring your taxable income down to $0.

    Note: this is not a relevant strategy if you purchase property that is likely to produce high amounts of net income after depreciation every year (NNN, Commerical, Large Apartments, Short-Term Rentals).

    Second Note: more planning will be required for folks that want to utilize cost segregation. You don't want to crush it on the cost seg side and not be able to utilize this freebie deduction because you no longer have net income to report. 

    This is an interesting strategy, but I see two issues:

    1.  I understand the IRS gives latitude on how you allocate value between land and structure. For example my county taxes split land and structure. I use the land value and subtract that from the purchase price to get basis. It is logical, defendable and consistent on all my properties. My concern would be if I suddenly started claiming half the purchase price as land value, it would be inconsistent with previous purchases and inconsistent with the county assessment. It seems an investor could be playing a dangerous game here.

    2. Between depreciation, expenses and interest, I have a net loss on my rental properties. I am not sure I could adjust the land value enough to make a significant profit. I ran some numbers and although I could force some profit, 20% credit would not be much money. It is better for me to take higher depreciation. I agree it would help when I go to sell, but assuming I perpetually exchange the properties, it doesn't matter.

    My situation may be different than others. I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income. I could see this strategy being more effective for people who pay cash for their properties. If I subtract my mortgage interest, the properties start getting more profitable.

    Thanks for all your insight, especially the strategies on how to use the new rules to your clients advantage. 

     Hi Joe, you said "I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income". Do you mean you have w-2 income from another job? If so, how do you claim a loss against it with real estate activities? I have high income from my full time w-2 job, and my CPA said there is not much tax planning I can do as long as I am earning w-2 income... 

     Between depreciation, capex and mortgage interest, my properties overall have a small loss. My W2 income is my day job. You can claim rental loss against your W2 income if you are active in your rentals and if you don’t exceed the salary limits. Or if you qualify as a real estate professional. My guess is your W2 salary is too high. 

    We do intentionally make capex investments to keep the quality of our properties high and to enjoy the tax benefit. That way in the future our properties will not have deferred maintenance. 

    1Reply
  • Mahesh K.
    Investor · San Diego, CA · Member since 2011 · 18 posts · 3 votes
    8y

    Bruce Norris has a podcast in which he asks CPA's (Keystone CPA) whether interest income generated from Trust Deeds can be considerd as businees income. The answer was interest income (along with dividend income, capital gains) is specifically called out as not being considerd business income and hence will not qualify for the 20% deduction.

    1Reply
  • Chunyan Song
    Investor · Seattle · Member since 2017 · 13 posts · 2 votes
    8y
    Originally posted by @Joe Splitrock:
    Originally posted by @Chunyan Song:
    Originally posted by @Joe Splitrock:
    Originally posted by @Brandon Hall:

    So my team and I have literally been sitting around all day to dream up new strategies for our clients (who are all real estate investors).

    Here's one that we've come up with.

    For new acquisitions, if the rental will likely generate passive losses, allocate more basis to land and take less depreciation. 

    The new pass-through deduction is a freebie. But the deduction is only available if you have net taxable income after all expenses, including depreciation and amortization. 

    So when you buy the next property, allocate more basis to land. This will reduce your depreciation expense. But if you have a smart tax advisor, you can likely net out the lost depreciation expense with this new freebie deduction. 

    The tax benefit is realized on the sell-side. When you liquidate a rental, you pay depreciation recapture taxes on the depreciation you've taken over the life of the rental. 

    So if you report less depreciation over the hold period, you pay less recapture taxes in the end. But best of all, it didn't hurt you during the hold period because you utilized this new freebie deduction each year to bring your taxable income down to $0.

    Note: this is not a relevant strategy if you purchase property that is likely to produce high amounts of net income after depreciation every year (NNN, Commerical, Large Apartments, Short-Term Rentals).

    Second Note: more planning will be required for folks that want to utilize cost segregation. You don't want to crush it on the cost seg side and not be able to utilize this freebie deduction because you no longer have net income to report. 

    This is an interesting strategy, but I see two issues:

    1.  I understand the IRS gives latitude on how you allocate value between land and structure. For example my county taxes split land and structure. I use the land value and subtract that from the purchase price to get basis. It is logical, defendable and consistent on all my properties. My concern would be if I suddenly started claiming half the purchase price as land value, it would be inconsistent with previous purchases and inconsistent with the county assessment. It seems an investor could be playing a dangerous game here.

    2. Between depreciation, expenses and interest, I have a net loss on my rental properties. I am not sure I could adjust the land value enough to make a significant profit. I ran some numbers and although I could force some profit, 20% credit would not be much money. It is better for me to take higher depreciation. I agree it would help when I go to sell, but assuming I perpetually exchange the properties, it doesn't matter.

    My situation may be different than others. I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income. I could see this strategy being more effective for people who pay cash for their properties. If I subtract my mortgage interest, the properties start getting more profitable.

    Thanks for all your insight, especially the strategies on how to use the new rules to your clients advantage. 

     Hi Joe, you said "I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income". Do you mean you have w-2 income from another job? If so, how do you claim a loss against it with real estate activities? I have high income from my full time w-2 job, and my CPA said there is not much tax planning I can do as long as I am earning w-2 income... 

     Between depreciation, capex and mortgage interest, my properties overall have a small loss. My W2 income is my day job. You can claim rental loss against your W2 income if you are active in your rentals and if you don’t exceed the salary limits. Or if you qualify as a real estate professional. My guess is your W2 salary is too high. 

    We do intentionally make capex investments to keep the quality of our properties high and to enjoy the tax benefit. That way in the future our properties will not have deferred maintenance. 

     I see. Thanks for explaining! 

    0Reply
  • Christine Thilmony
    Flipper/Rehabber · Warsaw, IN · Member since 2015 · 26 posts · 8 votes
    8y

    Can someone tell me which page of the tax bill shows the 529 school information?

    0Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Jared Forman:

    @Brandon Hall, @Taylor Brugna, @Daniel Hyman@Thomas Castelli, @Linda Weygant, @Lance Lvovsky, @Ben Raygor, @John Woodrich, 

    @Account Closed, and all other accounting professionals

    Gentlemen & Linda,

    We have all been gathered here to discuss the GOP TAX REFORM. You are all accounting professionals with great knowledge about  the future of US tax code related to real estate. I need your help.

    There are 195 replies to the original post and a wealth of information. Since taxes is everyone favorite subject, I have made a 1- pager to be added to BP for everyone who doesn't enjoy the fine details. 

    Can you critic and make recommendations for the 1-pager?

    Thank you,

    Merry Christmas, hope you enjoy the formatting!!!

    https://drive.google.com/file/d/1xfCQcP-Vfqk9Qjk4J...

    Send me your email address

    0Reply
  • Ryan Anderson
    Investor · Idaho Falls, ID · Member since 2015 · 14 posts · 6 votes
    8y

    I want to offer up a tax savings strategy for review with regard to the 20% deduction for pass through entities such as S Corps   

    Historically S Corp owners have been expected to pay themselves a reasonable compensation (W-2 Salary) to make sure they are still paying a reasonable amount of employment taxes (social security and Medicare).  However the incentive for S Corp owners has been to keep that reasonable comp as low as defensably possible to save on employment taxes. 

    Now it appears that some S Corp owners may need to consider raising their W-2 compensation to take advantage of the 20% deduction.  As Brandon mentioned the 20% deduction is limited by 50% of wages paid.  

    If a married taxpayer in one of the listed service industries such as an accountant has historically had a taxable income of $200,000 and paid himself a “reasonable salary” of $50,000, then he will not be able to maximize the 20% deduction since he will be capped at 50% of $50,000 or $25,000 rather than receive the full deduction of 20% of $200,000 or $40,000.  So in this example he would be wise to increase his W-2 salary to $80,000 to not limit his potential $40,000 deduction.  

    Yes he will now have to pay more in employment taxes but the 20% deduction will more than offset the increase in employment taxes.  Paying more social security taxes could also benefit him if he ever needs or is able to draw social security benefits.  Also, if he has a solo 401(k) setup he can now fund more into the 401(k) since discretionary contributions from the employer are limited to 25% of wages up to the limits.  

    Thoughts or corrections?

    1Reply
  • Yong ParkPro Member
    Investor · Seal Beach, CA · Member since 2017 · 47 posts · 25 votes
    8y
    Originally posted by @Vince DeCrow:

    I am not a tax professional, but I have a good grasp on the basics. For anyone reading this thread that wants to know how to capitalize on some of these tax bill implications instead of hearing what the tax changes are, here is my 2 cents.

    If you are in the position to make new investments, one way to do this would be to consider the following strategy. Invest in multi-family real estate (with enough units for it to be considered commercial property) that needs some capital injection in order to become stabilized. Sell your property after you make the capital improvements for a healthy profit. You can make this investment through a partnership or LLC. Whether you have experience adding value to multi-family real estate assets or not, this does not matter. You can invest as a GP of a limited partnership or if you are a passive investor and want to be the LP and have someone you trust do it for you, that is fine too. Single member LLCs can also do the trick if you are an experienced value-add investor.

    Investing this way:

    • Avoids the single family residence mortgage interest cap to take advantage of significant tax interest deductions.
    • Lets you be on the winning side of the age-old argument that "everyone needs somewhere to live".
    • Lets you take advantage of expensing all of your capital expenditures immediately when they are incurred to offset your normal income taxes from your day job and potentially pay no taxes at all in a given year.
      • This was not entirely possible in 2017 because any capital expenditures had to be depreciated over a 27.5 year period for multi-family properties vs expensing immediately.
    • Gives you an effective maximum tax rate on your investment income of 29.6% if you do end up having any income that isn't offset by the capital you put up to do renovations on the multi-family units. This used to be a maximum effective tax rate of 39.6%.
    • Improves your property value through the capital improvement plan you conducted.
    • Puts you in a superior position to take advantage of the positive economic trickle down from the $1 trillion economic stimulus that will be caused by the nationwide reduction in federal corporate tax rates from 35% to 21%.

    -Vince

     Vince,

    That is brilliant!  I have been reading through this excellent thread and others like it in order to determine what will be the best way to invest moving forward in the context of this new law.

    I am a high W2 earner as a doctor.  I also have high K1 pass through income from my physician practice which exceeds the 315K such that the 20% pass through deduction does not apply.

    So in order to reduce my tax burden, I need to reduce my pass through income.  

    "Lets you take advantage of expensing all of your capital expenditures immediately when they are incurred to offset your normal income taxes from your day job and potentially pay no taxes at all in a given year," looks to be the answer I was looking for.  

    Buy a value add commercial property, improve it, expense it for an immediate deduction.  

    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    Confirmed this morning after a re-read that interest and short/long term gains are specifically excluded from Qualified Business Income.

    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Ryan Anderson good thoughts, but QBI does not include wages paid.

    So if you have $200k in net income and then pay yourself $80k, you’ll have QBI of $120k and wages of $80k.

    This will result a deduction equal to the lesser of $24k (20% of QBI) or $40k (50% of wages).

    @Yong Park you may want to look at utilizing a C-Corp.

    0Reply
  • Larisa G.
    San Diego, CA · Member since 2014 · 20 posts · 2 votes
    8y
    Originally posted by @Brandon Hall:

    @Todd Willhoite Sec 179 will be expanded to include roofs, heating, HVAC, and fire for non-residential property. This means commercial property. But this could also mean short-term rentals if you structure them correctly. 

    @Natalie Hideg you do not need to put anything into LLCs or Corps. Sole props (Sch C or E) are included in the bill for the pass-through deduction. 

    @Account Closed if you actively participate in your rental activities, you will qualify for the deduction. If you are a partner in a business that is an active trade or business, even if you are passive, you will also qualify. Per my understanding of the new rules. 

      Brandon,

    What did you mean by saying that Sec 179 expansion will include short-term rental if you structure them correctly? How do you need to structure them to qualify for sec 179?

    0Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Larisa G. some short-terms rentals are classified as non-residential property depreciated over 39 years. If that's you, then you can Sec 179 major improvements to your property with the new law.

    0Reply
  • Bob GruenigPro Member
    Rio Rancho, NM · Member since 2016 · 11 posts · 3 votes
    8y

    Brandon,

    I am still a little unsure about HELOC interest deduction on primary residences. I took out a HELOC on my primary residence in 2016 and used a portion of it to purchase a rental property. I understand that interest on this portion will be deductible. However, if I make some improvements on my primary residence in 2018 using this same HELOC, will the interest be deductible? If not, would the interest on this HELOC be deductible if I used the HELOC to purchase materials in 2017 for the 2018 improvements?

    Bob

    0Reply
  • Larisa G.
    San Diego, CA · Member since 2014 · 20 posts · 2 votes
    8y
    Originally posted by @Brandon Hall:

    @Larisa G. some short-terms rentals are classified as non-residential property depreciated over 39 years. If that's you, then you can Sec 179 major improvements to your property 

    Brandon, I am sorry, but it is still unclear for me. Which short-term rentals are classified as non- residential property depreciated over 39 years? Will single family houses and condo qualify? Could you please provide more info?
    1Reply
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