Tax Reform – How Will It Affect Your Schedule E?
After the most sweeping overhaul of the US tax system was rushed into law before the end of 2017, real estate investors are scrambling to learn how it may affect tax deductions they have benefitted from in the past.
The good news according to co-managing partners at BA Harris LLP, Arla Kester & Tyler Nyman is that, in their opinion, post tax reform still supports a healthy environment for investing in residential income real estate. In fact they believe rental property as an investment strategy is better than ever!
So let’s get to the nitty gritty. Kester and Nyman report that experts have conflicting opinions on the Bill, which the Treasury has yet to interpret and develop guidance for. This could take years, so in the mean time, you will need to rely on your accountant’s expertise to interpret some of the new rulings.
Some key benefits that haven’t changed:
- 1031 Exchange
- Primary residence tax-free capital gain allowances – 250K-single/500K-married. (Must reside in PR 2 out of 5 most recent years to qualify.)
- Ability to offset rental loss of up to 25K against ordinary income of up to 150K.
- Step Up in Basis at death
New and/or improved benefits:
- Qualified Business Deduction of 20% (up for interpretation: are residential rentals a qualified business?)
- First year bonus depreciation percentage is 100% for property (items) placed in service through 2022 that formerly had depreciation schedules of < 20yrs. (to include: computers, office equipment, appliances, carpets, furniture, office furniture, fixtures, land improvements, fences, sidewalks, parking lots) Buildings and roofs are still depreciated over 27.5 years.
- Bonus depreciation has been expanded to include used property (items).
- Increased repairs and maintenance deductions
- Favorable capital gains rates
Aside from the tax benefits listed above, there is the potential that the increase in personal standard deductions may eliminate the attraction of home ownership for the entry-level home buyer, thereby increasing the need for rentals.
The information provided in this article is by no means a complete explanation of the tax reform bill, but a brief overview, as it applies to residential rental investment, as interpreted by me from a presentation given by BA Harris LLP.
Please consult with your accountant or contact BA Harris LLP directly for further details.
Optional Services Survey– Every Owner’s Response Requested!
Please click on the link below to access the list of services. We request your response to each of the offered services.
You will be required to fill out your email address, name, and property address. After completion of the form, you will be invited to re-access the form to submit for another property. You may do this as many times as necessary in order to complete a form for each property (or unit), you have under our management.
After submitting the form you will receive an email with a copy of the form indicating your selections. This will be your confirmation of ordering, or declining, services.
Keep a look out in this section of our newsletter each month to learn when the service(s) you have requested will be performed.
Some of our spring services require response by mid February, so please complete at your earliest opportunity.
(You will also receive an email with a direct link to the Optional Services Survey. This is to enable us to track responses. You may respond from either link – newsletter or email location.)
Year End Accounting
- Your Year End Statement details 2017 profit and loss (owner’s income and expenses), for each property. This statement is available to view on your online portal, and was mailed the week of January 15.
- Your 1099 was mailed the week of January 15. For security reasons, it is not available to view online.
If you ever have questions about your statement, please contact Karen@rentalsinboise.com.
Our February Tenant Newsletter reviews our Move-In and Move-Out forms and procedures. Our local business feature is on a gourmet artisnal ice cream shop – The STIL. The STIL has a unique approach, offering beer and wine for sale along with house made ice cream made with alcohol infused flavors, garden inspired concoctions, varieties blending baked goods and wild and wacky experimental potions. You can learn more in the newsletter on our website.
What Are You Interested In?
This newsletter is intended as a resource and communication platform for you. If there is a topic, relevant to the management of your investment property, that you would like me to write on, please let me know!