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The Republican “tax cut” bill would have INCREASED landlord taxes and destroyed many landlord businesses but the new law DECREASED our taxes

Another serious threat to our business is the new “tax cut” proposed by the Republicans and which no Democrat supports. In it they force landlords to start paying Self-employment tax/Social Security Tax. That’s about another 15% in taxes! A good article can be read here.

Also they “lower” taxation of pass thru entities (think LLCs…) to 25% a)most landlords already pay that and b) there is language to the effect is that if you work over 750 hours a year and materially participate in your rentals and qualify as a tax professional your taxes increase substantially compared to people who work less hours than you. A very well written article on the topic can be read here.


There is no point preaching to the choir and calling your Democratic representatives but if you know somebody outside of MA who has a Republican representative in the House or Senate, now is the time to call. Republicans plan to make it law next week. 

 

12-30-17 UPDATE

The two points above that I was worried about were removed from the bill, thankfully, and the end result is that landlords will pay MUCH LOWER taxes until 2025. Here is the New tax law starting 1-1-18

Here are several excellent articles about it. Pay special attention to sec. 199A

2017-12-26 Toni Nitti CPA

How the Tax Cuts and Jobs Act Affects Landlords

Watson CPA – Section199A

 

 

MY SUMMARY for landlords

All pass-thu income for landlords who file Sch E or C and make less than $157,500 if you are single or $315,500 if you are married (I think 99% of landlords fall into that category) gets a 20% deduction (most likely on page 2). You don’t need to be an LLC or an S-corp to get it. If you make more than that then you need to compare that 20% with 2.5% of your purchase price minus cost of land and 25% of wages you pay to people but I won’t go into that here.

Here is my quick example for a married landlord with one child who makes $100,000 in net income (revenue – expenses)

BEFORE NEW LAW                                                              NEW LAW

Net income 100,000                                                                    100,000

Personal exemption -4,050                                                               0

Pass-thru deduction 0                                                                   -20,000

Standard deduction -12700                                                          -24000

taxable income 83,250                                                                   56,000

tax at marginal rate 25% 12,162*                marginal 22%         6,340*

*first filling the 10%, 12% 0r 15% buckets

child credit -1000                                                                            -2,000

TAX      11,162                                                                                  4,340

NEW TAX LAW SAVINGS ABOUT $7,000 per year.

 

A married landlord with one child who makes $50,000 in net income (revenue – expenses)

BEFORE NEW LAW                                                              NEW LAW

Net income 50,000                                                                        50,000

Personal exemption -4,050                                                               0

Pass-thru deduction 0                                                                   -10,000

Standard deduction -12700                                                          -24000

taxable income 33,250                                                                   16,000

tax at marginal rate 15% 4,038*                marginal 12%         1,600*

*first filling the 10%, 12% 0r 15% buckets

child credit -1000                                                                            -2,000

TAX      3,038                                                                                  -400

NEW TAX LAW SAVINGS ABOUT $3,500 per year.