The New Federal Tax Reform and LLCs

The recently adopted federal tax reform legislation should cause owners of investment real estate to reevaluate the use of limited liability companies (LLCs) as they and other "pass through" entities may be able to take advantage of certain new tax provisions under the new legislation.

Owners of certain investment real estate and second homeowners who rent should consider transferring their real properties to an LLC to take advantage of the pass through provisions in the new tax law.  

An LLC which owns investment real estate can deduct 20% of pass through income.  The deduction is limited for peo­ple who make more than $157,500 (or $315,000 for a mar­ried cou­ple).  For those subject to a limit on the 20% de­duction, the de­ductible amount is capped at 50% of the wages paid by the busi­ness or 25% of wages paid plus 2.5% of the value of the busi­ness "qual­i­fied prop­erty," which­ever is greater. Qual­i­fied prop­erty includes real estate and any other tan­gi­ble, de­pre­cia­ble prop­erty that pass-through busi­nesses use to pro­duce in­come.  The "qualified property exemption" was added at the last minute and was controversial because it benefits real estate investors including some elected officials. 

In addition to the possible tax benefits that holding real estate in an LLC may provide in certain circumstances, there is also the added benefit that such ownership provides in terms of personal liability protection.

Please feel free to call and speak with Anthony M. Bongiovanni, Esquire or Eric Goldstein, Esquire if you want to discuss LLC ownership, the formation of an LLC or the transfer of real estate into an LLC.

This is being provided for information purposes only. We are not advising you to take any particular action. Prior to taking any action based upon the new tax reform law you should consult with your legal and accounting professionals.