New limits impact tax planning:
- Deductions for interest limited to 30% of income before interest, taxes and depreciation
- Real Estate companies can elect out by lengthening depreciation for assets
Another thing they did was they limited the ability to deduct interest. For any kind of business, deduction for interest is limited to 30% of income before interest taxes and depreciation.
Real estate companies have the benefit they can elect out of that provision, but in order to do so, they have to lengthen the terms of depreciation for the real estate assets. That would be 40 years instead of 39 for commercial properties, 30 years instead of 27.5 for residential properties.
What's on the Real Estate horizon due to the Tax Act? Transactions with REITs will be much more popular, as well as CAP A deductions, investment expense deductions and depreciation as a result of the tax act.
Real Estate professionals can still deduct losses against income and losses now being limited to $500,000 per year are downsides to the Tax Act. If you're a real estate professional you get to deduct your losses against any other types of income.
The section 199A deduction - whay it's important: 20% deduction on flow-through income including rental income and reduces tax rate on income from top bracket from 37% to 29.6%.