Tax Reform Effects Real Estate Professionals in Pekin, Illinois

With the tax cuts and jobs act bringing new changes to homeownership and the real estate business as a whole, professionals will need to approach the subject matter carefully and reduce any chances of miscommunication with their clients. And while agents and brokers need to be knowledgeable of the new tax law and how it could impact homeowners or prospective clients’, realtors are faced with the challenge of offering professional advice to homeowners’.

While educating clients on the matters outside of what the service agents are licensed to perform can become a liability; they must resist the temptation of offering advice outside their level of expertise. Use caution even if you are prepared to answer any questions, and direct clients to speak to a tax professional of any concerns.

This will help you minimize any risks of inaccurate or incomplete information –or burning bridges with any of your clients. The Local Records Office advises real estate professionals on confirming details with the tax law in Pekin Illinois, you have no idea how it affects a clients' situation says Forrest Baumhover, a tax expert and a certified planner with Tampa, Fla. –based Westchase Financial Planning.

“As long as you understand the difference between being helpful and giving tax advice, you’ll be alright,” Baumhover explains. “Discussing tax concepts you’ve learned through professional training is perfectly acceptable. But refrain from giving specific advice or trying to help a customer make calculations. That would start to fall under tax advice.”

Tax Reforms and Deductions for Businesses in Pekin, Illinois

Agents and brokers also need to become more knowledgeable of how the new tax law changes when it comes time to file their own taxes. And according to the National Association of REALTORS® (NAR), these tax policies could have one of the biggest impacts on real estate professionals.

Essentially, a personal service business is one involving the performance of services in the following fields:

Health, Law, Consulting, Athletics, Financial Services, Brokerage Services (not real estate), and “Any business where the main asset of the business is the reputation or skill of one or more of its employees or owners.”

However, NAR was able to help secure a major exception (the personal service income exception) in the final bill that will make it possible for many real estate professionals to be able to take advantage of the deduction.

• The new tax policy reduces the corporate tax rate from 35% to 21%
• The bill also includes a deduction of up to 20% for business income earned (as long as it meets certain conditions for either pass-through businesses and /or sole proprietors). The deduction is also limited to a non-personal service business.
• The real estate services that qualify, (according to the personal service income exception):

-business owners that have a taxable income of less than $157,500 for single taxpayers or $315,000 for married couples that file jointly says, Local Records Office.

-business owners who make over these income levels, with a 20% deduction phased out over the range of $50,000 for single income filers and $100,000 for joint filers

· The wage and capital limit exception places a limit on the deduction for the greater of:

· 50% of the W-2 wages paid by the business, or

· Total of 25% of the W-2 wages paid by the business, plus 2.5% of the cost basis for the tangible depreciable property of the business by the end of the year

“Many agents and brokers who earn income as independent contractors or from pass-through businesses will see a significant deduction on that business income,” said the NAR President Elizabeth Mendenhall in a statement when the bill passed.

And since this policy is not entirely clear and heavily depends on how a business is classified: sole proprietorship, partnership, Limited Liability Company (LLC), Single Member Limited Liability Company, C Corporation, Professional or Personal Service Corporation, or S Corporation, according to number of sources, many businesses may be out seeking reclassification as long as it helps lower their tax bill. Brokerages should also consult with their tax advisors on the best way to proceed with future filing and classification.

Section 179 Expensing

· The amount of a property qualified for immediate expensing was increased from $500,000 to $1 million. Additionally, the phase-out limitations increased from $2 million to $2.5 million.

· Real property definitions have expanded to include improvements for nonresidential properties, such as roofs; heating, ventilations, air conditioning, property fire protection, alarm systems and security systems. According to Forbes, businesses with less than $25 million in annual sales will be able to use a simpler cash method for accounting instead of using a more complex accrual method.

· The bill also significantly increased the amount of the first-year depreciation that may be claimed on passenger automobiles used towards their business to $10,000 for the year, where the vehicle is placed in service. $16,000 for the second year, $9,600 the third year, and $5,760 the fourth and later years in the recovery period.

NAR Members Should Consult a Tax Professional About Their Own Personal Circumstances

No deductibility for entertainment expenses

The new tax law also states taxpayers cannot take a deduction when an activity falls under any of these three categories: entertainment, amusement or recreation. This includes any membership dues for any business-related clubs and /or organizations. The deduction’s repeal comprises charges for facilities used in any connection with the above items.

The removal of a tax deduction may have a significant impact on vendor-agent relationships, as sometimes they are formed and continued over a business lunch or a dinner meeting. Additionally, real estate professionals also rely on client appreciation events to keep in touch with buyers and sellers to obtain referrals or continued business. However, taxpayers can continue to deduct 50% of food and beverage costs as long as they are tied to operational expenses, such as employees’ meals or business travels.

Thus, the tax provision repeals the present-law exceptions towards deductions disallowance for entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business.

Taxpayers still generally may deduct 50% of the food and beverage expenses that are associated with operating their trade or business (e.g., meals consumed by employees on work travel).

Save your receipts and take advantage of every tax deduction that you can as a Realtor

Even minor costs can be deducted, and they do not need to be a critical part of your business to count. Some of the most common real estate agent and broker deductions include:

-Marketing: sales and open house signs or flyers; website development and maintenance; business cards and mailers

-Real estate coaching, training, and any other education costs

-Real estate licensing and renewal fees

-Real estate association dues, multiple listing service (MLS) dues and brokerage desk fees

-Transportation: such as automobile maintenance and repairs, gas, mileage, auto insurance, parking and new car purchase or lease costs

-Travel: including airfare, lodging, and meals for a real estate education or business purpose

-Home office expenses, (whether you rent or own your home)

-Gifts (have a $25 deduction limit), entertainment, and other costs you incur to please clients and keep them coming back to you for any of their real estate needs

Keep in mind, in order to qualify as a deductible, your real estate business expenses must be: ordinary and necessary, directly related to your business and for a reasonable amount. IRS Publications 463 and 535 can also help you determine whether or not a specific expense is tax deductible says, Local Records Office.