Are You Missing This Real Estate Tax Deduction?
It took guts when you launched your fitness business.
As an entrepreneur, you are the backbone of the US economy...for that reason Uncle Sam provides many benefits to help you succeed.
However, some of those benefits get underutilized!
To oversimplify...the US economy loves when you do 2 things:
Create jobs
Provide Housing
The US tax code is filled with benefits for business owners & property owners.
In 2018, a new benefit was added that combines the benefits of BOTH!!
THE QUALIFIED BUSINESS INCOME DEDUCTION (“QBI DEDUCTION”)!
QBI essentially gives a 20% deduction on business income.
(this is oversimplified...there are restrictions that I won’t dive into but essentially C-Corps don’t qualify for QBI, but most Sole Props, LLCs, LLPs, and S-Corps do! (please consult a qualified tax professional or your financial planner to see if you qualify).
HOW THIS APPLIES TO YOU?
The IRS extended the definition of “business income” to include rental REAL ESTATE (IF certain conditions are met).
WHY THIS IS IMPORTANT:
In early 2018, guidance was unclear from IRS and some accountants did not know if this applied to you or not. Since the end of 2018, the guidance has been clarified and you should confirm if you are in fact taking this deduction if you are eligible.
The details of this deduction and its application to real estate is complicated but if you are like me and enjoy reading dry IRS documents:
or you can google: "199A Safe Harbor 2019-07"
MORE THAN JUST ENTREPRENEURS:
You can be a W2 employee and still take advantage of this deduction…again, many rules and restrictions apply!
Some of the rules include:
250 hours per year of work on the property…that includes OTHER people’s work. So if you have a property manager, the time they spend fixing things, collecting rents, etc DOES count for you! You must keep diligent records and logs.
Not Included in 250 hours:
Travel time to property, financial and legal analysis. Financial and legal work by others also NOT included in your 250 hours.
A simple rule of thumb to consider if you can or can not count the time is if the work COULD be done by you…
for example: you could go collect rent checks even if you outsourced it to a property manager.
But if you aren’t a lawyer you could NOT have drawn up a legal contract…hence that legal work doesn’t count for your hours.
CONCLUSION
The key takeaway is: if you own an investment property that is exclusively used for investment (can not be used for personal use)…you might qualify for up to 20% deduction on the rental income.
This deduction is often underutilized and you should confirm with your financial and tax professional if you are eligible.
If you are unsure if you are using this deduction, please email me to setup a time to talk. I would be happy to review your situation and help.
Best
Pat
Disclaimer: This is meant to be educational. This is not advice for your specific situation. Always speak to a qualified tax professional and financial professional before making any changes to your tax planning strategies.