A Huge New Tax Deduction for Agents. Most Aren't Aware of Yet

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

 

The new 20% passthrough business income deduction is a new deduction most real estate agents qualify for

Key Points

  • Example:  if net profit on Schedule C is $100,000, you get a new $20,000 deduction
  • NAR did a great video with experts who go over it all.  Really worth watching

 

Before Christmas, I tried to figure out how the new tax reform bill would affect my personal income tax that I would be paying.  I was having a difficult time trying to make sense whether or not the 20% business income passthrough deduction would apply to me as a real estate agent.  I had read the following and at first glance, it sounded like service providers like Realtors would not be able to take this deduction. Here is the section that details the businesses that don't qualify for this deduction.

"any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees"

I tabled it and figured that it wouldn't pertain to me.  But then I just found out that there is an exception to the rule, based on income.  For couples who are married filing joint with total income below $315,000, the 20% deduction comes into play even if you are one of those businesses that normally would not be able to take it.  For single filers the income limit is $157,500.  It is then phased out above that until it's eliminated.

I came across this video that the NAR put out that explains the details.  I think it's worth watching so you know the overall concepts. Then you can discuss it with your tax professional in a more intelligent fashion.

 

 

 

I took some time to try to figure out what my taxes would be under the old system vs. the new system to see if it's going to change my life much.

Everyone's situation is different.  My situation that I based my calculations on are:

Married filing joint

Four exemptions: me, the wife and two college kids

Itemized deductions of $22,000

The new system has a standard deduction of $24,000 so I'll be using that since it's more than my itemized deductions.

The new system takes away the deduction of $4,050 for each exemption so that's losing me $16,200 in deductions.

But then the tax brackets have changed along with the tax rates for each bracket.  With a spreadsheet and tax tables, one can figure out tax scenarios at various income levels.

I found that the tax difference increases as my business income increases.  Here's a chart I made for myself showing what the tax scenario would be at various income levels.  

Income 2017 taxes 2018 taxes Difference
$50,000 $1,180 $1,600 +$420
$100,000 $8,338 $6,339 -$1,999
$150,000 $19,428 $12,999 -$6,429
$200,000 $24,965 $21,799 -$10,390
$250,000 $46,189 $30,819 -$15,370
$300,000 $61,611 $40,419 -21,192



By my calculations, the new tax laws give a bigger benefit as your income goes up.  If I were to make $300,000 in 2018,  I would save $21,192 in federal income taxes vs. what I would have paid in 2017.  This is a great incentive.  I do need a new car soon so those savings will really help. 

If I only make $50,000, I'll be paying $420 more in federal income taxes.  Not so good.

That's good motivation to get out there and make some money.

Remember, these comparisons are for my specific situation.  Your mileage may vary by quite a bit, especially if you live in a high tax state.

 

 

 

 

 

 

 

 

 

 

 

 

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About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.

 

Along with blogging on ActiveRain, he provides one of the best real estate websites in Atlanta at www.HomeAtlanta.com .

 

His proprietary  "Maitski Line Reports" chart out the absorption rates over the past 14 years in 37 different market areas.  Know when it's a good time to buy or a good time to sell.    

 

His online Property Tax Calculator allows you to compare property taxes in many counties and cities around the Atlanta area.  He provides the Atlanta MLS Power Search Tool that allows searches of homes using over 35 specific criteria.

 

Over the years, Tim has optimized his business so that he now can offer a huge 50% commission rebate to his buyers.  The more experience one gets, the easier the job becomes.

 

Tim also has a "Five Days to Sold" System that uses an intensive marketing blitz to create a showing frenzy that creates urgency and offers.

 

Tim is always looking to LinkIn with anyone who is interested in building their social network.

 

View Tim Maitski ●Atlanta Realtor●'s profile on LinkedIn

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Claude Labbe 01/11/2018 08:25 PM
Topic:
Just for Fun
Tags:
tax reform
pass through deduction

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Rainmaker
3,551,476
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Interesting if it is true, but in my very small market of rural homes $100,000  gross is a good year.

Jan 11, 2018 03:00 PM #1
Rainmaker
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Sonja Patterson
Keller Williams - BV - College Station, TX
Texas Monthly 5-Star Realtor Recipient for the Hou

Great blog Tim (and video--I will have to finish it later...).  Thanks for sharing!

Jan 11, 2018 03:33 PM #2
Rainmaker
2,349,468
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Since my husband and I file Schedule C's, we were quite aware of this and are very pleased.

Jan 11, 2018 03:48 PM #3
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Rainmaker
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Tim Maitski

Truth, Excellence and a Good Deal
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