RISMedia's Real Estate Magazine

FEB 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.

Issue link: http://remag.rismedia.com/i/930707

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Page 43 of 110

RISMedia's REAL ESTATE February 2018 39 While agents and brokers need to be knowledgeable about how the new tax law could impact homeown- ers and prospective clients, they should also be aware of the impli- cations these changes could have when it comes time to file their own taxes. According to the National Association of REALTORS® (NAR), these are the tax policies that could have the biggest impact on real es- tate professionals. Deduction for Qualified Business Income The new tax policy reduces the corpo- rate tax rate from 35 percent to 21 percent. In addition, the bill includes a deduction of up to 20 percent for business income earned as long as it meets certain conditions for pass- through businesses and sole pro- prietors. The deduction is limited to non-personal service businesses, of which real estate services only qual- ify according to the personal service income exception: • Business owners must have tax- able income less than $157,500 for single taxpayers or $315,000 for married couples filing jointly. • If business owners make over these income levels, the 20 per- cent deduction is phased out over a range of $50,000 for single fil- ers and $100,000 for joint filers. "Many agents and brokers who earn income as independent con- tractors or from pass-through busi- nesses will see a significant deduc- tion on that business income," said NAR President Elizabeth Menden- hall in a statement when the bill passed. According to various sources, this policy is not clear and heavily depends on how a business is clas- sified; therefore, many businesses may seek reclassification if it helps them lower their tax bill. Section 179 Expensing The amount of property qualified for immediate expensing has been increased from $500,000 to $1 million. In addition, the phase-out limitations were increased to $2.5 million from $2 million. Real property definitions have also been expanded to include improvements to nonresi- dential properties, such as roofs; heating, ventilations, and air con- ditioning; fire protection and alarm systems; and security systems. Ac- cording to Forbes, these changes will allow businesses with less than $25 million in annual sales to use the simpler cash method of accounting, instead of the more complex accrual method. No Deductibility of Entertainment Expenses The new law states that taxpayers cannot take a deduction if the activi- ty falls under any of three categories: entertainment, amusement or recre- ation. This also includes any mem- bership dues for business-related clubs or organizations. The deduc- tion's repeal also comprises charges for facilities used in connection with the above items. The removal of this tax deduction may have a significant impact on the real estate industry, especially since vendor-agent relationships are some- times formed and continued over a business lunch or dinner meeting. In addition, real estate professionals rely on client appreciation events to keep in touch with their buyers and sellers as a way to obtain referrals or continued business. Taxpayers can, however, continue to deduct 50 per- cent of food and beverage costs as long as they are tied to operational expenses, such as employee meals or business travel. RE Liz Dominguez is RISMedia's as- sociate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. Tax Reform: How It May Impact Real Estate Professionals by Liz Dominguez T he Tax Cuts and Jobs Act could bring changes to homeownership, as well as the real estate business as a whole. With many of the modifications potentially affecting buyers and sellers, real estate professionals need to approach the subject carefully to reduce the chance of miscommunication. Educating clients on matters outside of the services agents are licensed to perform can be a liability; therefore, agents should direct their clients to a tax professional, instead of providing advice themselves.

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