Great news for Realtors— the Internal Revenue Service (IRS) has clarified that among other professionals, real estate professionals are eligible for the new 20% pass-through deduction introduced by 2017’s Tax Cuts and Jobs Act!
Beginning with tax returns for the year 2018, a deduction will be allowed for the lesser the following (“qualified business income” includes domestic income from a trade or business):
- 20% of net qualified business income plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income
- 20% of taxable income minus net capital gains
The initial law includes a stipulation that businesses providing “personal services” would not be eligible for the deduction. However, on August 8, the IRS issued proposed regulations making it clear that real estate professionals do not fall under that category and are therefore eligible.
There are income limits to this provision. If your income is or above $157,500/year (single filer) or $315,000 (married filing jointly), the deduction is limited by 50% of qualified wages or 25% of qualified wages and 2.5% of qualified property.
In effect, the 20% pass-through deduction equates to not having to pay tax on 20% of your qualified taxable income.
To know for certain whether you qualify the pass-through deduction, contact your CPA firm. Not only can they answer this question, they can also help you prepare any documentation necessary to take advantage of this new provision. You can also catch our upcoming webinar, “The Latest Development on Tax Reform,” which will include a detailed analysis of the 20% rule for the pass-through deduction.
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