New Tax law - LLC Rental Income

Real Estate Investor · Grapevine, TX · Member since 2015 · 11 posts · 0 votes

With the new tax law, net income that is received via a pass through entity is allowed to have a 20% tax deduction. Essentially 20% of the rental’s net income is tax free.

Most owners have mortgages on their property and most banks do not allow mortgages to be associated with an LLC.

Does anyone have an idea on how to structure it so that the property’s title can stay in the owner’s name (Bank demands this) while still collecting the rental's net income via an LLC? Thanks.

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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
8y
@Anthony Conte ,
Luckily, If your rental activity is qualified for 20% deduction, it does not have to be an LLC.
Rental income without LLC qualifies for 20% deduction ( if your rental qualifies- not all rental might qualify).We are still waiting for Clear guidance on if this 199A ( 20% deduction will behave differently look at a trade or business definition). Generally, rental activity is not trade or business. But the court has gone both directions. Treating just one rental as a trade or business and treating multiple rentals as not a trade or business.
Bottom, the line you dont need LLC. 20% deduction is also for a sole prop.
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Anthony Conte
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Real Estate Investor · Grapevine, TX · Member since 2015 · 11 posts · 0 votes
8y
when will the courts decide on this? I presume it will be decided in 2018?
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John Acheson
Renter · Las Vegas, NV · Member since 2018 · 278 posts · 71 votes
8y
Is the property 4 units or less or commercial?
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
Originally posted by @Anthony Conte:

when will the courts decide on this? I presume it will be decided in 2018?
You're a hardcore optimist, sir! :)
The uncertainty will reign supreme for a long time, definitely well past 2018. The earliest time these issues will be addressed in courts will be years from now. We first have to:
1. file a tax return (mid-2019 at the earliest)
2. get audited by the IRS and have this deduction disallowed (late 2020 at the earliest)
3. exhaust all IRS appeals options and be forced to sue the IRS in the Tax Court (2021)
4. get the case actually considered by the Tax Court (not before 2022)
We're not waiting for court cases. We're waiting for the Federal Regulations (law) and IRS announcements (guidance, not actual law), and those aren't likely to come this year, either. Welcome to the grey area.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
Originally posted by @Anthony Conte:

With the new tax law, net income that is received via a pass through entity is allowed to have a 20% tax deduction. Essentially 20% of the rental’s net income is tax free.
I hope you understand the "net" part. You can deduct 20% of what is left from your rental income (if anything) after taking all deductions, including depreciation.
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Anthony Conte
OP
Real Estate Investor · Grapevine, TX · Member since 2015 · 11 posts · 0 votes
8y
@John Acheson
4-unit houses and a condo.
@Michael Plaks
I understand, this net income (all revenue - all expenses, including depreciation). Thank you for the info.
@Ashish Acharya
I realize now what you were trying to point out. Correct, it doesn't need to be an LLC. But it needs to be income from a pass through entity, right? Sole Proprietor is also a pass through entity. Thanks again for the info.
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