A lot of tax changes were made from the 2017 “Tax Cuts and Job Act." Here are some of the highlights:
The 2017 “Tax Cuts and Job Act” included a variety of tax changes that could both positively and negatively affect 2018 home sales – the idea is to know how to deal with both scenarios. Some of these changes will benefit investors especially, although others may see some downfalls if they do not carefully plan around to avoid paying extra taxes. Whatever the case may be, there are a few things to keep in mind with these new tax changes in action:
1. Holding periods have increased.
With these new tax laws, property must be held for at least three years before it can be sold for long-term gain status. If the property is not held for this amount of time, then the tax rate will double if the property is sold before the three year limit is met, and the share of the gain will also be taxed as short-term capital gain.
2. Like-kind exchanges have remained the same.
While the increased holding periods can be problematic in certain circumstances, the like-kind exchanges have fortunately remained the same. The holding period for these exchanges remains at one year and a day, meaning that there is a way around these increased holding periods: if a property owner can do a like-kind exchange on their carried interest, then they will be able to achieve the three year limit and eventually receive long-term gain status on their income.
3. $500,000 business loss limitation.
Under these new tax laws, business losses are now only able to counterbalance $500,000 of income. This includes all business income against business losses, and real estate losses are included within this. This business loss limitation can be used can be used to offset income, such as interest, dividends, and overall income from salaries. Any extra loss that is claimed will be considered a net operating loss, which will now offset 80% of taxable income under these new laws.