GREAT NEWS FOR REAL ESTATE AGENTS AND BROKERS THIS YEAR!

Many of you may have heard of the new 20% deduction that applies to businesses that are structured as pass-through entities such as partnerships, s corporations, limited liability companies, sole proprietorship, etc.

This is a great deduction that will benefit many businesses but it comes along with numerous limitations and exceptions. (What tax law is ever simple!) One of the key questions that real estate agents and brokers had when the law first came out was whether or not they qualified for this deduction.

The way the law is written seems to indicate that they would not qualify for this deduction and would fall under the exclusion which would classify this type of business as a specified service trade or business not eligible for the deduction.

Once the proposed regulations were released real estate agents and brokers caught a break as there business was specifically mentioned as a business that would qualify for this new deduction.

So what does this mean?

In a very simple example lets say that Bill a real estate broker makes $200,000 in 2018. For this example we will assume none of the other limitations apply as they are complicated and not within the scope of this article. As Bill qualifies for the 20% deduction (Qualified Business Income Deduction) he would receive a deduction equal to $40,000 (20% * $200,000 of qualified business income) on his individual tax return! This deduction would reduce his 2018 tax liability significantly!

Now you may be thinking that this deduction is simple but it is not. The example above uses the least complicated scenario to illustrate the possible impact that this deduction could have. In reality computing the deduction for most taxpayers will most likely be more complicated due to various limitations and other rules related to this deduction. I am not going to go into all of the limitations and other rules as the purpose of this article is to make real estate agents and brokers aware that they could potentially benefit greatly from this new deduction now that the proposed regulations indicated that they would be eligible.

If you would like to know more about the deduction and how it may impact you or your business you should consult your tax adviser as these rules are very complicated and difficult to apply.

Disclaimer:
Nothing in this article should be considered legal, tax , accounting or investment advice. The article is for informational purposes only. Please consult your tax adviser before making any decisions.