The Tax Cuts and Jobs Act includes a 20 percent deduction from the net business income of sole proprietors and owners of S corporations, partnerships, and limited liability companies. The new deduction is intended to provide roughly the same tax rate cut the Act provided to regular corporations. However, it is unclear whether owners of rental real estate will be able to claim the deduction.
NAR has asked the Treasury Department and Internal Revenue Service, in a letter, to treat all real property rental activity as eligible for the 20 percent deduction. The letter asserts that without this change, the 10 million American owners of rental real estate will be forced to wade through voluminous and confusing tax cases and conflicting IRS positions in order to determine for themselves whether their rental activity constitutes a “trade or business,” which is a requirement for the deduction. The letter also lists factors that indicate Congress intended the deduction to be available to the great majority of owners of rental property without the burden of excess complexity.
The IRS will hold a public hearing on the proposed regulations on October 16. NAR has requested that a representative of the association be allowed to testify on this issue.
NAR sent an earlier comment letter to Treasury and IRS on another issue related to the 20 percent deduction, on the question of whether real estate brokerage activities qualify for it. In a huge win for REALTORS, the proposed regulations reflected the position suggested by the letter.