Roseville, CA Accountant for Real Estate Developers
Cook CPA Group
Real estate development can involve several complex tax regulations for even what appears to be a simple transaction. With the passing of the Tax Cuts and Jobs Act, real estate developers must pay close attention to how new tax laws may affect their business. If you need accounting services for your real estate development business, contact an experienced Roseville accountant for real estate developers.
At Cook CPA Group, our real estate accountants are here to address all your tax-related concerns regarding your real estate business. Our team understands the complexity that can accompany real estate transactions, and we will work tirelessly to ensure that you receive the accounting services you deserve. To schedule a free consultation to discuss your tax situation, contact Cook CPA Group at (916) 259-5361, or contact us online.
How the Tax Cuts and Jobs Act Affects Real Estate Development
The Tax Cuts and Jobs Act (TCJA) changed the tax law for taxpayers and several industries, including the real estate development business. One major change for businesses is the permanent lowering of the corporate tax rate from 35% to a flat 21% tax rate. However, there are many other changes instituted by the TCJA. The following is a list of new TCJA regulations that affect real estate developers.
Deduction on Taxable Income
The TCJA has provided a 20% deduction on taxable income for taxpayers. To qualify for this deduction, a taxpayer must hold their taxable income no higher than $157,500 if they are unmarried, or $315,000 if the taxpayer is filing a joint return.
There are multiple ways that a real estate developer can lower their income to claim this deduction. For example, a developer could transfer their income to a C corporation, which would also permit them to take advantage of the 21% tax rate. It is also possible to use charitable contributions and transfers to your retirement account to lower your income.
Changes to Bonus Depreciation
Bonus depreciation is a tax tool that is often used by real estate developers. Bonus depreciation permits a real estate developer, and other taxpayers, that invests in a business property that is then capitalized and depreciated across the useful life of the property.
The 100% bonus depreciation allows a taxpayer to write off any property that depreciates in less than 20 years within the first year. The IRS increased the types of property that are eligible for 100% bonus depreciation if they meet the following requirements:
- The taxpayer or the party they purchased the property from did not personally use the property
- The property was not transferred from a party related to the taxpayer
- The taxpayer did not receive the property from a subsidiary of a corporation or multiple corporations
- The taxpayer’s basis in a used property is not considered when looking at the adjusted basis of the seller
Additionally, the property in question must be placed in use after September 28, 2017, to be eligible for 100% bonus depreciation.
Decreased Real Estate Tax Liability
The TCJA also provides a way for real estate developers to decrease or avoid real estate liability. Taxpayers can take advantage of this benefit by the use of the 1031 Exchange and Section 121.
A 1031 Exchange allows a real estate developer to defer their capital gains taxes on an investment property if they sell the property and purchase a similar property with the money from the sale of the first property. This investment strategy is also known as a Starker exchange. As it can be difficult to find a property owner willing to essentially swap properties, you may have to enlist the aid of a third party to purchase a property for you.
Section 121 allows a taxpayer to avoid taxes on the sale or 1031 Exchange of property if the taxpayer used their property as their primary residence for at least two years. It is important to note that the 2-year period can be aggregated to equal two years; the time period does not have to be consecutive.
There are various other tax strategies that a real estate investor could employ to improve their tax liability. The accountants at Cook CPA Group can help you determine how the TCJA affects your business, and we are prepared to help you discover and implement business plans tailored to the needs of your business.
Work with Our Experienced California CPAs for Real Estate Development
If your real estate development business requires tax-related accounting services, consult with an experienced California CPA for real estate development. With a wealth of experience regarding real estate transactions, the accountants at Cook CPA Group would be proud to offer our services for your real estate business. To schedule a free consultation to discuss your tax options, contact Cook CPA Group at (916) 259-5361, or contact us online.