New tax reforms changed real estate investors’ tax strategies in 2019. As a real estate attorney with extensive tax training, a broker, and an investor, I want to share some of the tax strategies you should know for 2019 tax.
- Deducting Interest Expenses
- Investment-Specific Interest and Taxes
- Bonus Depreciation
Deductions are not only rental related expenses like interest, taxes, management fees, but also include many overlooked legitimate deductions that are not property specific. Examples of commonly missed deductions are business related car expenses, business travel costs, business meals, education expenses, membership costs, real estate books, and home office. These expenses can add up during year and can help you save big tax dollars.
Under the new tax reform, interest related to home equity line of credit (HELOC) on the primary homes are no longer deductible. However, if you took out a primary home HELOC and used that money for real estate investments, you can still deduct the interest against the rental income or flip income. Make sure you inform your tax preparer/accountant about it.
Tax reform also places a new limitation on how much can be deducted for property taxes and mortgage interest on our primary homes. But these limitations do not apply to real estate investments. Therefore, be sure to talk to your tax preparer about it. Whether you are a landlord or flipper, you can generally fully deduct the interest and taxes for your investment properties.
On the up side, tax reform provided us with 100 percent bonus depreciation in 2019. So, if you are a real estate investor who is buying appliances, furniture, equipment, laptops, and other assets for your real estate business, you may be able to write off up to 100 percent of those costs immediately rather than depreciate them over many years. Moreover, bonus depreciation strategy can be used with or without a legal entity, and it can be used with new or used assets.
—To be continued.
Attorney Lei Jiang holds a US JD degree and studied LLM in US Taxation. She has been practicing real estate law since 2009 and helped real estate investors in all aspects of their ventures. Call (440) 835-2271 for consultation.
Lei Jiang LLC, 2019. All rights reserved.