Did you see the notice posted by NAR Legal Affairs? Those guys are doing a heck of a job representing the interests of Realtors(R) on Capitol Hill!
You may recall that the headline for the “Tax Cut and Jobs Act” that passed in December of 2017 was that the corporate tax rate was lowered from 35% to 21%. This rate applies only to “regular” or “C” Corporations that pay tax at the corporate level. This rate does not apply to small businesses organized in “pass-thru” entities, which includes partnerships, small or S-Corporations, and Limited Liability Companies (LLC). To compensate, Congress came up with this novel idea to reduce taxable income from these pass-thru entities by 20%. Simply, this means if you report $100,000 in taxable income, you only pay tax on $80,000. This “pass-thru” deduction (in this example, the pass-thru deduction is $20,000) applies to rental real estate income. It applies to other income, but the law specifically excludes income from “professional” and “brokerage” activities. Well, NAR got Congress and the IRS to specifically identify income generated from Real Estate Professionals to NOT be counted as “brokerage” activities. So, yacht brokers and stock brokers can’t take this deduction, but real estate agents and and real estate brokers can. Thank you, thank you, NAR!
Rental Income received through a pass-thru entity is eligible to take the 20% deduction. Again, if my taxable income from rentals is $100,000, I pay tax only on $80,000.