IRS Has Good News for Real Estate Brokers

IRS Has Good News for Real Estate Brokers

If you’re a real estate broker then you might be in for some very good news from the IRS. Yes, it’s rare that the IRS has good news for anyone. However, in this case, the news really is good, as long as you meet the requirements. The announcement by the IRS is related to the 20 percent pass-through deduction included in the new Tax Cut and Jobs Act (TCJA). Who Qualifies? Since the law went into affect, there had been much confusion as to weather or not real estate brokers and agents could claim the deduction. Now the IRS has cleared things up. According to the agency’s proposed rules, the services provided by “real estate agents and brokers, or insurance agents and brokers” are not excluded. But there is still a caveat. These rules are still just a proposal. There will be a hearing on October 16 to discuss the proposal.

More Clarification Needed

The confusion started when the law originally went into effect because it barred anyone who provided “brokerage services” from receiving the tax cut. The problem was the definition of “brokerage” was very vague. The proposal from the IRS helps to clear things up, but there are still some stipulations that need more clarification.

For example, will the deduction apply to certain landlords that collect rent under triple net leases? Additionally, how will the deduction work for those that make more than the $157,500 (or $315,000 filing jointly)? These are questions that still need to be addressed. That’s why it’s important to consult with a tax advisor if you fall into this category.

Significant Tax Savings

If you make less than the threshold amounts then you automatically qualify for the 20 percent deduction. So, in other words, if you made $140,000 in self-employment income you would automatically get a $28,000 deduction. Therefore. You would only be taxed on $112,000. That’s a big savings and a big win for real estate brokers and agents.

On the other hand, if you make more than the threshold amounts then you might not receive the full 20 percent deduction. The formula is based on Q-2 wages. Therefore, because many brokers and agents file their taxes through a Form 1099 as independent contractors, instead of a W-2, they would most likely not get the entire deduction. But they would still qualify for a part of it.

What About Real Estate Owners?

As for real estate owners, or landlords, the proposal is still not completely clear. Will they be eligible to claim the 20 percent deduction or not? It all depends on whether or not they meet the definition of an active “trade or business.” And that still needs to be determined.

Wait and See

So for now, if these proposals pass, then real estate agents and brokers are the big winners. On the other hand, real estate owners and landlords will have to wait and see if they too get a piece of the pie.

We hope you found this article about “IRS Has Good News for Real Estate Brokers” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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