In 2018, the TCJA was passed with mixed reviews. It benefited some, while others thought it would cause their refund to shrink. (For the most part, it didn’t) Here we will lay out some of the perks that Landlords received because of the TCJA. 

The biggest news for small business owners was the 20% pass‐through deduction. This applied to a vast majority of individuals who ran their rental business as a sole proprietor, limited liability companies (LLCs), or partnerships. With these entities, any profit earned from rental activity is “passed through”. If your rental activity qualifies as a business for tax purposes (see below), rental owners may be eligible to deduct an amount equal to 20% of their net rental income. This is in addition to other rental‐related deductions. Put another way, they will effectively be taxed on 80% of their net rental income. 

“WHO” QUALIFIES? 

To receive the 20% tax deduction, you must meet both of the following qualifications: 

• You operate your rental business as a sole proprietor, LLC owner, partner in a partnership or S‐corporation shareholder, and 
• your total taxable income from all sources, after deductions, is $163,300 (filing single) or $326,600 (married filing jointly).   
• You do not need to itemize to receive this deduction. If a taxpayer is above the income threshold, the amount of the deduction begins phasing out at these amounts and the deduction will be ZERO once the income reaches $213,300 (single) or $426,600 (married filing jointly). If a taxpayer exceeds the maximum threshold, you may still be able to claim the 20% deduction, However, your deduction cannot exceed: 
• 50% of the W‐2 wages paid by the business 

OR

• 25% of the W‐2 wages paid by the business plus 2.5% of the unadjusted basis of the business’ qualified property. 

“WHAT” QUALIFIES? 

As stated above, to receive this deduction, your rental activity must “qualify as a business for tax purposes”. For any activity to be a business, an individual must “engage in it regularly and continuously, primarily to earn a profit”. However, the IRS has created a “safe harbor” rule for this pass‐through deduction. Under this “safe harbor”, a rental activity is deemed a business if it meets the following standards: 

• Keep separate books for each rental real estate you own, 
• perform 250 hours of real estate rental services each year, and ∙ document what rental real estate activities are performed (a journal). 

ANYTHING ELSE? 

In the past, rental property owners were unable to deduct the cost of personal property used in residential units. Landlords scored a major victory when that was repealed in the TCJA. Landlords can now use bonus depreciation to fully deduct the cost of personal property all in the first year put into service. Personal property items include appliances, laundry equipment, gardening equipment and furniture. 

Listed property must be used over 50% of the time for business to qualify for bonus depreciation. Listed property includes cars, TV’s and other entertainment property. Computers used to be on this list but are no longer. Therefore, you do not need to use a computer 50% of the time for business to qualify it for bonus depreciation. But if used less than 100% for business, the bonus percentage will also decline.