2018 Tax Reform:
New Calculations for Property Managers?

In 2018, real estate investors may be able to take advantage of a 20 percent deduction on taxable income for pass-through companies.

A pass-through can be a sole proprietorship, a partnership LLC, or S-Corp. Profits are simply passed through to owners and are taxed as personal income.

So how does it work?

If your income is below:
   $207,500 Single
   $415,000 Couple

You can deduct 20% from the pass through income



Otherwise, you can deduct the LESSOR of:

  •   20% of qualified income
  • AND
  •   Greater of:
    •     • 50% of W2 Wages
    •     • 25% of W2 Wages + 2.5% of Unadjusted Basis



Use the calculator to understand possible tax savings.

1. Enter your estimated numbers:
  My total income is under $157,500 (single) or $315,000 (married)
  Estimated flow-thru income:                 $
  W2 Wages Paid:                  $

Unadjusted Basis (does not include land cost)
    Purchase price of property: $
    - captial gains:
(from previous 1031 property)
    - land cost: -$

2. Calculated Values:
  Option 1: 20% of Pass-thru Income $
  Option 2: 50% of W2 Wages $
  Option 3: A + B $
         A:   25% of W2 Wages $
         B:   2.5% of Unadjusted Basis $

3. Estimated deduction:


Other Changes

  • Business expense tax deductions are limited to the sum of business interest income in addition to 30% of adjustable tax income.

  • You can use the new depreciation schedules of 30 (27.5) years for residential property (was 27.5 years) or 40 years for non-residential property (was 39 years). In general, this would be a negative effect financially, so few real estate investors will opt-out of these schedules.

  • A bigger money saver will be the new bonus depreciation. This will allow you to immediately deduct 100% of assets with a useful life of less than 20 years. This means, as of September 2017, personal property like appliances, tools and improvements like driveways, landscaping, etc. can be 100% expensed.
                                *However, this is still considered "depreciation," so WILL BE recaptured when you sell the property.

We can answer your questions about 1031 exchanges.

Contact us now!