With rising home values and recent changes to the tax law that went into effect this year, 2018 is shaping up to be a great year for landlords.
The new l would allow real estate investors to take advantage of a 20 percent deduction in taxes from earned rental income.
This could potentially save landlords thousands of dollars.
To qualify, your total taxable income (from all sources) must be less than $315,000 if you are married and $157,000 if you are single. Your rental business must also be operated through a “pass-through” entity this means a sole proprietor, limited liability company (LLC), partnership, or S-Corp.
To clarify, Let’s assume that you own a Single Family Home through a Sole Proprietorship, your property earns $10,000 each year in rental income. After claiming that on your taxes, If your income from all sources in 2017 was higher than $91,900 ($37,950 if you’re single), you would pay at least 25% on that $10,000 in taxes. This means you’re paying $2,500, which leaves you making $7,500 that year.
But this year you will be able to deduct 20 percent from that $10,000 in rental income. So you’re paying on $8,000 rather than the full $10,000. This benefit obviously increases as you collect more money from rental income.
Additionally, there are also new depreciation rules which allow a taxpayer to immediately deduct 100 percent of certain capital expenditures and property improvements, so things such as new carpeting, replacement windows, etc.
Bottom Line: Generating passive income through rental properties you own can be a great way to make money, and even more so in 2018 with all of the tax breaks available. If you’re worried about the 20% down to invest in rental properties, take a gander at an easy workaround. In short, this year is the year to buy a rental. If you don’t own a rental property, you’re really missing out.
