Real estate investors in single-family rentals should update their tax strategies annually. Most investors in single-family rentals include their rental income (loss) on their personal tax return (IRS 1040). The IRS recently released its personal income tax changes for 2017. Changes to personal income tax rules are important to investors in single-family rentals as they need to look at the whole individual tax return as they develop their single-family rental tax plan for 2017. I timed this article for the first part of March, as many single-family real estate investors put off assessing their tax strategy for the current year until they are preparing their taxes for the year just passed Remember these changes will not affect your 2016 taxes, which are usually filed in the next 30 days.
These changes pertain to your 2017 taxes which most of you will file in the first three months of 2018. I have chosen only a few of the updates for 2017 that I believe may be most helpful for single-family real estate investors. Be sure to check with your tax adviser if these or any other changes effective in 2017 need to be considered in conjunction with your tax strategy for your single-family real estate investment portfolio. There are other changes to personal income tax as well you may need to know. For a more detailed look at these changes and other changes check out this tax change portion of the IRS website.
The standard deduction for married filing jointly rises to $12,700
For tax year 2017, the standard deduction is up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.Tax brackets adjusted for inflation.
The individual income tax brackets have been adjusted for inflation
The good news is that inflation has been nominal, meaning there wasn’t a large shift upwards in the tax schedule. For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively.
Limit on itemized deduction rises
The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
Exclusion for Estate Taxes rises
Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.
Changes to the AMT
The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
Tradition and Roth IRA phase-out adjusted higher
Among the various retirement tools at your disposal, the traditional IRA is among the most popular. Traditional IRAs are tax-deferred accounts, meaning you’ll pay tax once you begin making withdrawals during retirement. But, they can also provide an ancillary benefit of lowering your current-year tax liability. In 2017, the phase-out range for taking this deduction increases $1,000 to $62,000 to $72,000 for single taxpayers, and $99,000 to $119,000 for married couples filing jointly.For those of you investing with a Roth IRA — a retirement account with no upfront tax deduction, but which has the ability to grow tax-free for life — the individual phase-out to be able to contribute rose $1,000 for single filers to a range of $118,000 to $133,000, while it jumped $2,000 for married couples filing jointly to a range of $186,000 to $196,000. In other words, a few extra people should be able to contribute to a traditional or Roth IRA in 2017 because of these modest increases.