If you are a landlord, chances are you have heard a lot about the new tax bill that was passed in 2017 under the name “Tax Cuts & Jobs Act”. There have been many opinions, conspiracies, fictions and confusion by landlords across the country as they grapple with how the tax bill will affect them in 2018 and beyond.
So what exactly do you need to know about these changes and how they will affect you and your investment?
Good News for Landlords
The good news is that this Bill will help most landlords for the foreseeable future, at least through 2022 and beyond (2).
The usual deductibles that we are used to claiming—like mortgage interest, property taxes, management fees, realtors’ fees, costs associated with repairs and maintenance—will still be deductible.
On top of that, the changes would allow real estate investors to take advantage of a new break that provides a 20% deduction on taxable income for pass-through companies. A pass-through company is a special type of corporate structure, and it is popular among small business owners because it helps them avoid double taxation of paying both corporate and individual taxes.
With a pass-through company, small business owners can apply taxes at just the individual level. Other examples of businesses that fall into this category are sole proprietors and LLCs(1)(2).
Reduction in Homeowner Tax Perks
Along with this, a reduction in benefits for homeowners will cause more demand for rentals in the coming years. Couple this with the current shortage in housing, especially in the Raleigh area due to growth, this should yield increased rental rates for the foreseeable future. In short, people will find it more appealing to rent than buy.
Higher rental rates coupled with increased tax benefits are, at least in the early phases, proving to be a win-win for property investors. Fears that this bill would be detrimental are proving to be untrue.
Consider All Rental Property Options & Benefits
Your tax attorney and CPA should still be consulted for a more thorough review of the Tax Cuts & Job Act’s benefits, but we hope that this summary will help ease concerns about the short-term viability of investing in the real estate market as a landlord. In a market with as much potential as Raleigh and the Triangle, rental property management has never been a better idea.
If you are a landlord and are looking for help managing your properties or are considering getting into the rental property business, give Oak City Properties a call at (919) 232-9222 to see how our experienced team of experts can help you meet your goals.
For more information see: (1) https://www.forbes.com/sites/redfin/2017/12/20/landlords-just- got-a- big-tax-break/#53f9bde1290c; (2) https://www.nolo.com/legal-encyclopedia/how- the-republican- tax-plan- affects-landlords.html