You have a lot to cheer about if you are a landlord. The recent passage of the Tax Cut and Jobs Act (TCJA) means you will have more money in the bank when you pay your 2018 Landlord taxes.
If you are a landlord, you will be able to take advantage of a 20 percent tax break under the law if you operate as what is known as a pass-through company. As a residential landlord and pass-through company owner, you are the sole proprietor and individually own the property you rent; or operate as a limited liability company or LLC or partnership. Landlords who operate as sole proprietors claim or pass through the profit they make on their rental properties on their individual tax returns.
The 20 percent break is in addition to all of your other allowable rental property tax deductions. If you qualify, this means that you will only be paying taxes on 80 percent of the rental profits you make on your 2018 Landlord taxes. The 20 percent break is set to expire on Jan. 1, 2026.
The deduction is gradually lowered if you are a married couple filing jointly with an annual income greater than $315,000 or if you are single with an annual income in excess of $157,500. The deduction completely vanishes for married couples with an income of $415,000 or more and for individuals who earn more than $207,500.
However, if you are married with an income of $415,000 or more or single with an income of $207,500 or more, you may still be eligible for the 20 percent deduction if half of your wages were paid by your rental business or if 25 percent of your wages were paid by your rental business in addition to your company’s paying at least 2.5 percent of the cost of the rental home.
The TCJA also allows landlords to deduct in a single year the cost of the personal property that is used to operate their rental business. This includes such items as furniture and appliances.
And, landlords may now claim 100 percent of the cost of personal property they purchase for their rental business from Sept. 27, 2017 through Dec. 31, 2022. The deduction also applies to used property that landlords may purchase for rental use.
Under the bill, landlords also remain exempt from having to pay self-employment taxes such as Social Security amd Medicare as long as they are not operating what is in effect a hotel or bread and breakfast type establshment for their renters.
The TCJA is a boon for landlords and should result in real estate investors having more money in their bank accounts, which they can use to purchase other properties and help spur economic growth.