Donald Trump, the 45TH president of the United States, is not all about the politics. He’s an entrepreneur and real estate investor turned politician as his aspirations grew. Consequently, he has made changes to the current tax law to ensure every American, real estate investor or not, is getting the best tax break. In any case, owning real estate investments can make you vulnerable to taxes, often having to pay thousands of dollars and losing a big chunk of your hard-earned cash.
Meanwhile, President Trump is not wasting any time and is attempting to protect the personal wealth of Americans. He focuses on making tax filings less of a maze for the average Jo- whether a real estate investor or not.
Well, get excited about President Trump’s Tax Reform. Here are the main goals of the Tax Cuts & Jobs Act:
Tax Reductions for Middle-class Americans
Donald Trump is insisting on putting more money in people’s pockets and this is how he is getting it done.
Growing the economy
As we all know, growing the economy does not happen in a day or two. You need to create jobs, manage the real estate market fluctuations and discourage Corporate inversions.
Maintaining debt and deficit
A very important key to strategic thinking. President Trump is determined to not grow the deficit of the economy. Additionally, the tax reform will not affect the economy by growing deficit.
How the Tax Reform Affects Real Estate Investors
If you own real estate investments, here are a few substantial changes you’ll experience along with the tax reform:
Greater depreciation
One of the biggest advantages to real estate investments in the US real estate market is real estate depreciation. Ironically, your properties will be appreciating while you’re claiming depreciation. As for the case of any reform, some parts remain consistent. This includes deducting mortgage interest and local real estate taxes on any rental property you own. Moreover, you can still write off operating expenses, such as utilities, insurance, and maintenance for your real estate investments.
The Tax Cuts & Jobs Act (TCJB) increases the first-year bonus depreciation percentage to 100%, which was 50% before the tax reform. This deduction is open for use for both new and used property.
Furthermore, the new tax reform affects real estate investors by giving them bonus depreciation on HVAC, roofs, alarm systems, and leasehold improvements. This was not possible before Trump’s reform.
Another major depreciation addition is vehicles used for real estate investments. Of course, the depreciation deduction of automobiles used for maintenance has increased for any business owners and real estate investors alike.
Income tax brackets
The new Trump tax reform maintains seven different income tax brackets. However, the top rate has changed from 39.5% to 37%. For the taxable income of real estate investors, the tax reform will definitely have an impact on your return on investment and income altogether. Let’s take an example of a single filer with $90,000 of taxable income. Before the new law, he/she would be in the 25% in 2017. Under the new tax reform, the same person would fall within the 24% bracket.
This table will clarify the brackets and the rates that apply:
Taxable income after the tax reform |
||
|
Single filers |
Married filers |
Tax rate |
|
$0-$9,525 |
$0-$19,050 |
10% |
|
$9,526-$38,700 |
$19,051-$77,400 |
12% |
|
$38,701-$82,500 |
$77,401-$165,000 |
22% |
|
$82,501-$157,500 |
$165,001-$315,000 |
24% |
|
$157,501-$200,000 |
$315,001-$400,000 |
32% |
|
$200,001-$500,000 |
$400,001-$600,000 |
35% |
|
+$500,001 |
+$600,001 |
37% |
If you find yourself needing an education about income tax deductions, read this full guide: All You Need to Know About Rental Income Tax.
Deductible interest
The mortgage interest tax deduction remains constant as before. However, if you have a home equity line of credit, the interest rates on home equity lines are no longer deductible. The tax reform affects real estate investors majorly as they resort to this real estate financing method to finance investment property.
Before the TJCA, any real estate investor could deduct interest rates for a mortgage used to purchase residential properties (the limit is two real estate investments). However, the new tax reform limits the deductible interest of a mortgage up to $750,000 when filing jointly if married, and for separate filing $375,000.
Before the Tax Reform, the limit was $1 million when filed jointly and $500,000 when separate. If you’re a real estate investor looking to grow your real estate investment portfolio by buying investment property through mortgages, read this blog post: Investing in Real Estate: What Rental Property Mortgage Rates Can You Expect in 2018?
How to Ensure a Good Return on Investment with Your Real Estate Investments
To make sure that you’re getting your money’s worth after the tax reform, you can use an investment property calculator. You can use it to conduct a full-on real estate market analysis that factors all costs on your behalf, including taxes, maintenance, utilities, you name it. The investment property calculator is designed so you’d know the real market value of any potential investment property you plan on purchasing. With Mashvisor’s investment property calculator, the cap rate, cash on cash return, and even Airbnb occupancy rates are calculated for you. Give it a try by clicking here and enjoy the 14-day free trial with Mashvisor. It’s a great way to start making money in real estate and investing in income-producing assets, much like the president and real estate investor, Donald Trump.
For more information on the use of an investment property calculator, read this blog post: Should You Invest In an Investment Property Calculator?
To Conclude
Real estate investments will remain lucrative before and after the tax reform. Tax deductions for real estate investments are changing, some for the best, some for the worst. President Trump has tweaked the tax policies to keep more of your hard-earned cash in your pockets. Start investing today for tomorrow’s real estate investments.
If you have any more insights about investment property tax deductions, feel free to share them with us in the comments section below.