In 2017, the US Congress passed a bill known as the Tax Cuts and Jobs Act, which was signed by the President and has since become law. The Act modifies the tax code in various ways, generally reducing the amount of taxes that American business owners are required to pay annually. Part of the Act includes a 20% pass-through tax deduction on rental property business income. This deduction could make a significant difference in the tax burden for landlords who operate their rental properties as a business.
According to an article recently published by a financial advising trade publication, taking advantage of the deduction may not be simple for all Colorado landlords. The deduction requires landlords to own the property personally or through a business entity such as an LLC. Additionally, the properties must be managed as a “business” and not as an investment. Although the exact requirements for a property to be managed as a business are not clearly laid out, landlords who meet certain requirements laid out by the IRS can ensure that they are able to use the pass-through deduction.
The IRS has established a “safe harbor” rule that allows Colorado residents and other Americans to utilize the pass-through deduction if they keep separate books for their rental properties and can show that at least 250 hours of real estate rental services are performed on the properties each year. The 250 hours do not need to be performed personally by the taxpayer and can include services such as maintenance, cleaning, lease preparation and negotiation, advertisement, collecting and processing rent, as well as other work performed on the business.
Landlords who spend less than 250 hours per year performing work on their real estate rental business may still be entitled to claim the 20% pass-through deduction. However, such eligibility is not automatic. If a taxpayer claims the deduction without meeting the “safe harbor” requirements, they may be subject to a costly audit and possibly be required to pay back taxes if the deduction was claimed improperly. The risk of an audit causes fear and confusion among Colorado investors and business owners. Any Colorado landlord with questions about their eligibility for the 20% pass-through deduction should reach out to a qualified Colorado tax and estate attorney to choose the best course of action to reduce their tax liability.
Finding the Right Boulder Estate Planning Attorney for Help Reducing Your Tax Liabilities
If you or a loved one is looking for advice and counsel on how to best manage your estate and assets, including rental properties, the estate planning attorneys at Braverman Law Are here to help. Our qualified asset protection attorneys and certified financial planners can help you to reduce your and your heirs’ future tax burdens. Whether you have questions about recent tax law changes, or other estate planning needs, the Braverman Law Group will find the answers with you. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588