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.