Provision for Losses Limit
A downside to the Act:
- Real Estate professionals can still deduct losses against income
- Losses now limited to $500,000 per year
As a downside for real estate owners, if you're a real estate professional, which many of my clients are, you get to deduct your losses against any other types of income that is treated like an active trade of business.
They put in a provision here that losses from active trades of businesses, including real estate professionals, are limited to $500,000 a year. So, if you have a million dollars of loss and a million dollars of interest dividends and wages, you're going to pay tax on $500,000 and the extra $500,000 of losses carries forward with the net operating loss.
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.
New limits impacting tax planning include deductions for interest limited to 30% of income before interest, taxes and depreciation and real Estate companies can elect out by lengthening depreciation for assets.
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%.