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This past December, Congress passed a historic tax plan, causing everyone, from the average taxpayer to CPAs and attorneys, to scramble trying to figure out the impact. The new Tax Cuts and Jobs Act (TCJA) is particularly complicated to real estate investors and landlords. The good news is businesses will most likely benefit from the tax reform. Reforms made to Section 179 and Bonus Depreciation, in particular, provide a great opportunity for landlords to upgrade their properties, and therefore raise their rents.
Section 179 of the tax code allows taxpayers to deduct the costs of certain types of property on their income taxes without capitalizing it. Previously, this benefit was limited to $510,000. In the new tax code, the benefit has been increased to one million dollars. Additionally, structural improvements such as roofs, heating, ventilation, fire protection and security systems are all eligible for the write off.
After the Section 179 deduction, a business can claim bonus depreciation, which allows them to deduct a percentage of the purchase price of eligible business assets. Formerly, bonus depreciation was capped at 50%, but from September 28, 2017 to December 31, 2022, businesses can take advantage of a 100% deduction!
In other words, now is the time to upgrade your rental properties. Consider pulling cash-out of one or more of your properties to use for upgrades, so you can raise your rents and reap the tax benefits. To learn more about cash-out refinancing, download our Cash-Out Refi One Pager or visit our Tax Page to learn more about landlord taxes. To contact us about a cash-out refi, visit our "Contact Us" Page.