One of the biggest wins for REALTORS® in last year’s tax reform bill is the new 20% business income deduction, also known as Section 199A.
What should you be doing to ensure you’re positioned to get the most out of the business income deduction in your 2018 taxes, due next year in April?
CPA Peter Baker, a principal of Business Planning Group in Washington, D.C., a firm that specializes in real estate agents and brokers, told REALTOR® magazine that he’s already begun having conversations with his clients about what to do.
Almost any self-employed person or owner of a pass-through business (such as an S corporation, limited liability company, or partnership) with eligible income, which the National Association of REALTORS® made sure includes commissions from real estate sales, can take 20 percent off the top after business expenses are taken out.
Of course, there are limits. If you file as an individual, you’re eligible up until your taxable income reaches $157,500. After that, your deduction phases out over the next $50,000, until you reach $207,000.
For couples filing jointly, the taxable income limit is $315,000, with a $100,000 phase-out until you reach $415,000. That applies to your combined income. So, your spouse’s income can impact your eligibility.
Learn more about what the Tax Cuts and Jobs Act of 2017 means for homeowners and real estate professionals.
Real estate professionals with incomes above those amounts also may be eligible for the deduction but, in this case, it’s based on a formula that looks at wages paid and depreciable business property.
The final rules aren’t out yet, when can we expect them?
Hopefully, before the end of the year. The IRS will also be revising forms to reflect the new qualified business income deduction. That should also be coming out before the end of the year.
For more tax tips, keep watch in CVAR At A Glance at cvarconnect.com.