Starting January 2018, the Tax Cut and Jobs Act (TCJA) has created several changes in tax laws impacting businesses and apartment owners. It is important to consult with your tax professional before implementing any of the changes below.
Below is a brief summary of several changes due to the TCJA:
SALT Deduction – Apartment owners will lose the ability to take an itemized deduction for all of your state and local taxes. The deduction is limited to $10,000. In the case of property taxes, an individual may deduct such items only if these taxes were imposed on business assets, such as a residential rental property.
Home Mortgage Interest – Home mortgage acquisition interest is limited to no more than $750,000 of encumbrances in place after December 15, 2016. It also does not apply to the purchase of a personal residence if the contract was entered into on or before December 15, 2016 and completed by April 18, 2018.
Business Interest Deduction – There is a limit on deductions of business interest expense to the sum of business interest income plus 30% of adjusted taxable income. This only applies to affiliated groups with more than $25 million in average annual gross receipts.
No 1031 exchanges for personal property
Rate Reduction – Every tax bracket got a reduced rate, except for the lowest bracket.
Reduction in C-Corporation Rates – The top rate on corporations has been reduced from 35% to 21%. It also eliminated the Alternative Minimum Tax (“AMT”). If you choose to convert to a C-Corporation, you will get better deductions, but will not be able to take advantage of the pass-thru deductions discussed below.
179 Deduction – The allowable write off the cost of acquiring certain business property (but not RE) has increased from $500,000 to $1 million.
No more carrybacks, but unlimited carryforwards to offset 80% of taxable income in any year for Net Operating Losses (NOL).
Death Tax - The GOP doubled the lifetime exclusion from estate taxes, gift taxes, and generation skipping taxes upon death. This will end at the beginning of 2025, which means if you do not die by then, your heirs will face the 2017 exclusion with slight inflationary increases.
Pass-Thru Business Deduction for Qualified Business Income (QBI) – Pass-Thru businesses include partnerships, LLCs, sole proprietorships and S-Corps. Under the new rule, most pass-thru businesses will be able to give owners a limited Qualified Business Income deduction. Please contact your accountant to figure out the best method of deduction.
Keep in mind that the understanding of the details of this bill will change over time. It would be best to consult with your accountant before acting on any of the above. If you have any questions regarding real estate or if you want to buy or sell your apartment building, please give me a call at 818-915-9118 or send me an email.