The Qualified Business Income Deduction for Realtors

 

qtq80-vbtD4D-1024x683 The Qualified Business Income Deduction for Realtors

The IRS has released proposed regulations for the new Qualified Business Income Deduction that was part the tax law change passed in 2017. Realtors have been exempted from the Specified Service Trade or business limitations on the business income deduction. This means that realtors can deduct up to 20% of their qualified business income in computing their net income for tax purposes.

For incomes up to $ 315,000, the calculation is simple. Take 20% of the net income from Schedule C or net k-1 income if practicing as a partnership of subchapter S corporation. The limitation is 20% of taxable income ( minus net capital gains and qualified dividend income). And that’s it.

For incomes over $315,000 but not over $ 415,000 there is a phase in of the W-2 wages paid limitation ( explained next)

For incomes over $ 415,000 the deduction is 20% of qualified business income and the same 20% taxable income limit, but now there is an additional limit of 50% of wages paid within the business.

 

Example 1

Net income from real estate brokerage on Schedule C           $ 250,000

Taxable income                                                                          265,000

Qualified business income deduction                                       $ 125,000

Since taxable income is greater than the business income, the deduction

 

Example 2

Net income from real estate brokerage on Schedule C      $ 600,000

W-2 wages paid to employees (could include wages paid to spouse)          $ 200,000

Taxable income                                                                                          $ 604,000

20% of $ 600,000                                                                                       $ 120,000

50% of wages                                                                                              $ 100,000

Qualified business income deduction is limited

To 50% of wages and therefore is                                                              $ 100, 000

 

Do you have questions?

Please contact me for more details and planning opportunities.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.