Attn: All Brokers
You may be getting a tax cut in 2018 after all! Amidst all of the hype in the tax bill regarding corporate tax cuts that leave small business owners behind, there may be something in the new tax legislation that will help the typical real estate agent/broker.
It was widely reported that people who operate "pass-through" business income (sole proprietorships, LLCs, S corporations that pass their income through to the owners to report income on their individual tax returns) will be eligible for a 20% qualified usiness income deduction with the exception of specified service businesses (which included real estate brokers). This turns out to be only partially true. While professional service business owners were singled out for exclusion from this tax cut, this exclusion is subject to taxable income limits. Under certain thresholds, the 20% business deduction is available to all individuals with pass-through income.
Taxable Income
Single <=$157,500 $157,501 - $207,499 >=$207,500
Married <=$315,000 $315,501 - $414,999 >=$415,000
Deduction Eligibility & Restrictions
Specified Svcs Businesses Eligible for deduction Deduction phase-out No deduction eligiblity
W-2 wage limit No W-2 wage limit W-2 wage limit phase-in W-2 wage limit
All other businesses Eligible for deduction Eligible for deduction Eligible for deduction
This may mean that married couples with taxable incomes below $315,000 will be eligible for this 20% business income deduction. This is very significant for the vast majority of real estate professionals, who generally operate as independent contractors to their brokerage (most often as sole-proprietors).
Of course, it is advisable that you discuss the impacts of the new tax code changes with your tax professional. This might turn into one of the happier conversations you have had with them in awhile.
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