RISMedia's Real Estate Magazine

NOV 2018

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

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RISMedia's REAL ESTATE November 2018 15 {Policy Matters} N ine months after the whirlwind enactment of the Tax Cuts and Jobs Act of 2017, most Americans remain unimpressed. In recent polling, only 39 percent ap- prove of the new law, while 43 per- cent don't like it. 1 Yet, according to the White House, 82 percent of all middle-income households will re- ceive a tax cut. Obviously, there's a disconnect. For millions of self-employed real es- tate professionals, including agents and brokers, one of the missing pieces of the puzzle is a brand-new deduction that few taxpayers know about, and fewer still understand. Meet the 20-percent deduction for qualified business income. The centerpiece of the new tax law is a reduction in the corporate tax rate from 35 to 21 percent. Pro - ponents of the plan knew, however, that nine out of 10 businesses in America aren't organized as corpo - rations. Rather, they're pass-through businesses such as partnerships, limited liability companies, S corpo - rations, or most common of all, indi- vidual entrepreneurs who own their own businesses. Self-employed in - dependent contractors such as real estate agents are perfect examples. Knowing that these Main Street businesses wouldn't appreciate a Wall Street-only business tax cut, Congress included a similarly ro - bust tax cut in the form of a spe- cial 20-percent deduction. But the problem is that many of the self- employed and other pass-through business owners aren't yet aware of the deduction and how it applies to them. The great news for most agents and brokers is that the 20-percent deduction is available and is fairly simple and straightforward if their taxable income for the year is be - low a certain threshold. For married taxpayers filing a joint return, this income limit is $315,000. For ev - eryone else, it's half this amount, or $157,500. Even better, a par - tial deduction may be claimed for incomes of up to $415,000 (joint returns) or up to $207,500 (every - one else). For business owners with in - comes above the thresholds, the deduction is more complex. The law offers a 20-percent deduction on certain income from a "qualified trade or business." This is defined as every enterprise except for a dozen or so prohibited businesses including health, law, accounting, brokerage services and consulting. Providing services to an employer as an employee doesn't count. Initially, it was unclear how these restrictions were going to be ap - plied to those engaged in real es- tate brokerage with incomes above the thresholds. However, in a big win for those who help people buy and sell real property, the Inter - nal Revenue Service (IRS) ruled in August that "brokerage services" doesn't include real estate broker activities. The bottom line is that a very high percentage of real estate pro - fessionals, with income both below and above the limits, will find a new, hefty deduction awaiting them come tax time next year. Even better, this year's estimated tax payments can be reduced to take it into ac - count. For frequently asked ques- tions about Section 199A, go to the IRS website at https://www.irs. gov/newsroom/tax-cuts-and-jobs- act-provision-11011-section-199a- deduction-for-qualified-business- income-faqs. RE 1 https://www.realclearpolitics.com/epolls/other/ trump_republicans_tax_reform_law-6446.html Evan Liddiard is a senior policy representative, Federal Taxation, for the National Association of REALTORS®. New Tax Law Offers Big Surprise Deduction for Most Real Estate Professionals This column is brought to you by the NAR Real Estate Services group. by Evan Liddiard

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