In a Facebook Live broadcast on Jan. 4, 2018, Evan Liddiard of NAR Government Affairs and Peter Baker, a CPA with Business Planning Group walk through provisions in the tax bill passed by Congress that affect you as a real estate practitioner.
The House and Senate started out with significantly different approaches to lowering the tax rate on qualified business income from sole proprietors and pass-through entities. The House bill featured a top rate approach while the Senate offered a deduction, which was set at 23% in the Senate bill. The House approach offered flexibility in allowing businesses with significant capital invested or wages paid. The final provision reflects a compromise between the different approaches. The provision generally follows the Senate proposal, but, at the request of the House, includes an additional factor related to the level of capital investment in the business.
The following examples (detailed in the article The Tax Cuts and Jobs Act - What it Means for Homeowners and Real Estate Professionals) illustrate how these new changes would affect different real estate professionals based on how their income is earned, income they may claim from a spouse, and how their business is structured. NAR members should consult a tax professional about their own personal circumstances.
Example 1: Amy Agent, a single filer with sole income from real estate commissions
Example 2: Andy Agent, a married filer with children with income from his real estate business and W-2 income from his spouse
Example 3: Barry Broker, a single filer with income passed through his real estate LLC
Example 4: Bobbie Broker, a married filer with income passed through her real estate LLC and salary income from her spouse
Example 5: David Developer, a married filer with income from his development S corp, which also has wage employees and capital at risk