It’s December 8, and the House and Senate have each passed their version of the tax reform bill. If you’re like most real estate investors, or Americans for that matter, you’ve probably been wondering how the passing of either bill would impact you, your earnings, your finances, and your investments.
We’ve poured through article after article, and most left us wondering how we could possibly share the link with our clients. We’re trying to educate, not confuse, after all.
Now, thanks to New York Times best-selling author Dean Graziosi, we have a simplified explanation that cuts through all the standard complexities.
In his Huff Post article, Graziosi breaks down the provisions from each bill.
In summary, both reduce the tax on pass-through business income — which is good news for most of us.
The majority of real estate investors conduct their business through sole proprietorships, partnerships, LLCs or S corporations, which are considered “pass-through” entities by the IRS. This means that the investor does not pay business income tax, but rather passes the income through to his/her personal tax return, and is taxed on this income based on the rate determined by the individual’s tax bracket and personal tax returns.
In other good news:
- Neither bill proposes any changes to the normal deductions for mortgage interest, property taxes, repairs, management, insurance, etc.
- There’s no mention in either bill of the 1031 Tax Deferred Exchange, which enables investors to defer capital gains taxes.