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December 20, 2023 | read

Taming the New Tax Law: What Real Estate Investors Need to Know about the GOP Tax Reform

Brandon Hall

This new GOP tax reform plan is big—really big—and it can be overwhelming to understand all the changes that have been made. Fortunately, you don’t have to! We’ve wrangled up several of the most pertinent points for you to review (you’re welcome!) Of course, when it comes to taxes, nothing is ever certain, but we here at The Real Estate CPA believe this real estate investor information is enough to get you started.

If you’d like to see a full breakdown of the new GOP tax reform law, please click here.

The Tax Brackets Have Changed and Standard Deductions Have Increased

The easiest and most obvious change to the tax code is that the tax brackets have been changed: they are now 10%, 12%, 22%, 24%, 32%, 35% and 37%. Previously, they were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Overall, this means a pretty large majority of taxpayers will see a reduction in their tax burden (although it’s a bit more complicated than that.)

Prior to the tax overhaul, the standard deduction was $6,350 for singles, and $12,700 for those who are married, filing jointly. Now, the deductions have essentially doubled, with the single deduction now at $12,000, and the married, filing jointly deduction at $24,000. While these deductions have increased, the personal exemptions have been done away with entirely.

Child Tax Credit Has Increased and 529 Plans Have Expanded

In 2017, taxpayers could receive a tax credit of $1,000 per qualifying child—now, that tax credit has doubled to $2,000. A refundable tax credit of $1,400 per qualifying child is also available.

529 Plans have been expanded under the new tax law. They can now be used for private, public and religious elementary and secondary education, plus qualifying educational expenses—but not for homeschool.

Thresholds for Alternative Minimum Tax Have Increased

Alternative minimum tax is paid by those who earn above a certain threshold. That threshold has now been increased to $70,300 for single filers and heads of household, and $109,400 for those who are married, filing jointly. Phaseout thresholds have been increased to $500,000 and $1,000,000, respectively.

There are New C-Corporation Rates and a Pass-Through Deduction

The corporation tax rate has been 35% for years, but has now been reduced to 21%, a rate that is more in line with other Western countries. While this won’t impact a lot of our clients directly, some companies have announced lower prices and a larger investment in innovation due to these tax cuts.

What will affect many of our clients is the new pass-through deduction, available for sole proprietors, partnerships, LLCs and S-corporations generating qualified business income. Partners in a business receive a deduction in proportion with their ownership. The overall deduction is 20% of qualified business income, although qualified business income will vary business by business, and some businesses will have to calculate their deduction in a more complicated manner (see this article I wrote for BiggerPockets for more information.) A qualified real estate CPA is going to be vital in this regard, because you do not want to miss out on what could be a lucrative deduction!

Bonus Depreciation Has Increased

Bonus depreciation has increased from 50% to 100% for personal property or land improvements with a useful life of less than 20 years. So, qualifying things can be written off fully in the year they were purchased. Personal property that qualifies includes items such as appliances, tools, equipment and carpeting. Land improvements that qualify include things such as driveways, parking lots and landscaping. Note that selling these assets will cause you to incur a depreciation recapture tax, and this change to bonus depreciation is retroactive to September 2017—so anything that qualifies purchased from September 2017 onwards counts.

Call Your Real Estate CPA Stat!

We think this overview helps to tame the monster of tax overhaul for you—but, we know it won’t be enough. That’s why you need to seek the assistance of a qualified CPA as soon as possible. Because the new GOP tax reform was passed so quickly, we know there are plenty of loopholes and opportunities to be taken that ensures your tax burden is reduced. Who wouldn’t want that? At The Real Estate CPA, we work hard to help real estate professionals keep as much of their hard earned money as possible—give us a call today for more information about how we can help.