President Trump signed the Tax Cuts and Jobs Act in 2017. These lower tax rates allow taxpayers to invest in high yield NNN rental properties. Some of these cuts expire in 2025, so it is critical that real estate NNN triple net property investors (Advantage for NNN investors)and NNN landlords consult their tax advisors and actively consider the following:
1. Use charitable donations
2. Use self-directed retirement accounts
3. Use C Corporations
4. Use Sole Proprietor or LLC or an S Corporation
5. Tax plan around Schedule A deductions
Think about using these exciting deductions and strategies:
Bonus Depreciation: This new 100% bonus depreciation rule, allows an entire depreciation schedule overtime to be written off entirely within the first year(real estate investor). For example, an investor could write off the entire cost of replacing drywall inside of a tenanted NNN investment property within the first year alone!
Shelter Passive NNN triple net income: For passive income, if an investor has several triple net NNN leased properties that are debt-financed, then have them taxed as a partnership so that none of these properties appear on Schedule E.
S.121 and S.1031 arbitrage: Investors could use the 1031 exchange when selling a residence to defer some of the taxes that an investor would have otherwise paid(Advantage for NNN investors). E.g., if an investor lived in the home for 2 out of the 5 years, and used S. 121 to only pay a portion of the taxes on the sale. After that, the investor used 1031 Exchange to purchase an NNN triple net lease investment property with the earnings and thus avoided tax on the sale of the residence.
Business Income Deduction: The business income deduction for real estate, is at 20%. Thus, passive income earned from triple net NNN investment properties should result in deductions, which can increase wealth.
Choose C Corp (over a Sole Proprietorship or S Corp): C Corporations help landlords avoid self-employment taxes. In an S Corporation, it is still better to take a dividend instead of a wage because investors in NNN lease property investments save on the self-employment tax.
Self-Directed IRAs: Using a self-directed IRA remains a massive tax shelter! The best part about the new tax write-offs is that if an investor takes a minimum distribution amount each year, then the investor can instead give that money to a charity and thus get a 100 % deduction.
S. 199A Deduction: The new 20% deduction on pass-through income for S-corporations, LLCs and sole proprietors, allows the entity to avoid paying taxes. Instead, the taxes are passed through to the owner – at a lower tax rate. For any real estate investor, who has investments via LLCs, this new pass-through provision has the opportunity to create significant savings.
Avoid state taxes for LLCs: Investors could take all of the subject LLCs and make them owned by an outside entity. Investors would have an active management entity, and a franchise entity, but the properties would be owned as trusts, and the beneficiary LLC would be owned out-of-state.
Take advantage now. Under President Trump’s ongoing quest to reduce taxes, the new income tax brackets will decrease taxes per income bracket. For example, the highest taxable bracket drops from 39.6 % to 37 %. For the top 20 % of individuals, the after-tax income will increase by 2.9%(real estate investor, NNN rental properties). For businesses, the corporate tax rate has been cut from 35% to 21% – this % applies to all tax brackets and these corporate cuts are permanent!
Call your trusted advisors at the Triple Net Investment Group, today. With decades of expertise and hundreds of transactions beneath their belts, avail of our tax-advantaged, insights for the best NNN property investments you have ever made!
