The New Tax Law's Effect on Real Estate InvestmentsThe Tax and Jobs Act, also known as Public Law No: 115-97, became law in December of 2017. Thus, 2018 is the first tax year where we will see the legislation in action. The intent of this new law is to reform both the corporate and individual system. It is expected to lower tax rates, broaden the tax base, and simplify the taxation code. As such, it will affect the taxation of real estate in numerous ways.
Bonus Depreciation For Businesses
Bonus depreciation will be more advantageous for business owners. The new law does away with the requirement that the property be new. It also provides 100 percent bonus depreciation for properties purchased after September of 2017. The 100 percent bonus continues into the year 2022. As of 2023, the rate will be 80 percent. It will then change to 60 percent for the 2024 tax year and 40 percent during 2025. Finally, in 2026 the percentage will be reduced to 20 percent.
Under Section 179 of the tax code businesses can deduct the price of certain pieces of equipment. These items must be purchased or leased during the applicable tax year. The new law expands the types of equipment that qualify for this deduction. Business owners may now use HVAC systems, security systems, and fire prevention devices amongst others. Tangible personal property used in rental is also covered. Furthermore, the allowable deduction amount has been raised to $1,000,000.
The Cap on State and Local Taxes
Starting in 2018 there will be a $10,000 cap on state/local property tax deductions. Per the Tax Cuts and Job Act, the capped amount will apply regardless of marital status or the number of properties you own. This is a stark change to the previous rule allowing all property taxes to be deductible.
Increased Standard Deductions
One of the most significant changes to the tax code is the increased standard deduction amount. The new deduction for individuals is $12,000. Married couples will be able to use a $24,000 deduction. This change will make it unnecessary for homeowners to itemize deductions unless they can eclipse the $24,000 figure. Overall, the change in the deduction amount may erase a lot of the benefits of being a homeowner.
Limits for Mortgage Interest Deductions
The amount of deductible interest paid on a mortgage will be reduced. The previous amount of the deduction was $1 million. The new law sets the amount at $750,000. This applies to all loans issued after December 15th of last year.
Seeking Legal Assistance for Real Estate Tax Matters
Understanding real estate taxes has always been difficult. Dealing with a new tax law is even more daunting. For professional legal help with a real estate tax issue contact Spencer and Collier, PLLC. They can help you comprehend the new tax laws and to seek out as many benefits as possible.