The new tax law provides for a more accelerated bonus depreciation to those qualifying improvements, equipment, furniture etc. You can now depreciate 100% of the value of these items in the year they were placed in service until the year 2022. In addition, if you have a smaller vehicle (not truck or SUV) that you use to maintain your properties, you can now take a higher amount of depreciation in the first 3 years of the vehicle being placed in service. The depreciation for larger vehicles remains unchanged and doesn’t have the same restrictions as smaller vehicles.
An item that could potentially negatively affect your real estate investment is if the property is heavily financed and pays a large amount of interest. The new tax law limits the allowable interest deduction to 30% of earnings before interest, taxes, depreciation and amortization (EBITA).
Another change that will affect everyone is the lower tax rates for both those who have their real estate investments in a pass-through entity or those that may have it in a Corporation. The Corporation rate changed to a flat 21% tax but isn’t eligible for the 20% pass through deduction. The personal rates decreased across the board.
Many of the items mentioned above are general rules and may have additional restrictions or requirements. They all require careful tax planning to maximize the benefit. If you would like a closer look at your specific tax situation please contact Josh McLain, CPA at Corporate Capital 884-249-5501 or at josh.mclain@corpcapinc.com.