Small-Scale Investors to Be Denied a Break Under New Tax Law

 Posted on December 00, 0000 in Commercial Lease Agreements

The Tax Cut and Jobs Act went into full effect at the start of 2019. Sadly, this new law will fall short on delivering some of its promises. A prime example is the small business tax benefit, which was supposed to allow taxpayers who made less than $157,500 ($315,000 for a married couple) to deduct 20 percent of  a pass-through business’ income from their overall taxable income. Yet, in what many call a “shocking” and “counterintuitive” move, the Treasury announced that taxpayers who use triple net leases will be blocked from claiming the deduction.

What might all this mean for your investment portfolio, and what can our seasoned Naperville real estate lawyers do to help? The following information explains further.

Triple Net Leases - The “Gold Standard” in Commercial Real Estate

For better or worse, triple net leases are considered the “gold standard” in commercial real estate - and for good reason. In addition to requiring the tenant to pay the landlord for their rent and utilities, they must also submit payment for any outstanding costs, such as those related to maintenance, insurance, landscaping, or property taxes. In short, triple net leases leave for the landlord to manage or check up on while renting out their property. They simply use the money to ensure that all costs related to the building are covered; the rest is considered their return.

New Tax Law to Penalize Small-Time Investors 

Initially, it appeared that the Treasury had created a “safe harbor” for small-time investors - those that spend less than 750 hours but at least 250 hours taking care of their business each year, so long as they kept detailed records. However, that very same clause bars investors with triple net leases from the tax break. Being that it is the gold standard in commercial real estate, and small-time investors with just one or two properties are not likely to spend more than 750 hours a year managing them, the new law could result in significant tax penalties for many CRE investors.

Our Naperville Real Estate Lawyers Can Help with Diversifying Your Portfolio 

Although there is little that can be done for small-time investors who simply want to keep their slightly diversified portfolios, as is, investors who want to diversify and expand their portfolios even further could stand to profit greatly if the tax break can be achieved. Lindell & Tessitore, P.C. can help you in taking the next step. Call 630-778-3818 to schedule your consultation with our Oak Brook commercial real estate attorneys today.

Source:

https://www.accountingtoday.com/articles/big-real-estate-moguls-win-as-smaller-investors-denied-pass-through-tax-deduction