2024 May Be The Last Year To Take Advantage Of This Huge Tax Break On Pass-Through Income From Real Estate LLCs

No matter who you are or what tax bracket you're in, one thing is true: You want to take advantage of as many legally authorized tax breaks as you can. If you don't act fast, you may lose the opportunity to get a 20% cut on your investment income. Keep reading to find out how you can still take advantage of this tax break and possibly help get it extended in Congress.

A Senator, The Tax Cuts And Jobs Act And Real Estate Investments

One of the more controversial provisions of the Tax Cuts and Jobs Act of 2016 was known as the Corker Amendment. It got the name because then-Tennessee Sen. Bob Corker was vacillating about voting for the bill. The bill's authors sweetened the deal by creating a provision that allowed partners or members of limited liability corporations (LLCs) to take a 20% tax break on pass-through income.

That provision was particularly appealing to Corker. He had significant investments in rental income properties, and many of the assets in his portfolio were set up as individual LLCs. The same thing is true of many real estate portfolios, and shareholders loved the Corker Amendment as much as the senator did.

The tax break is set to expire at the end of 2024. That means you have just a few weeks left this year to become a shareholder in a real estate LLC and take advantage of these tax savings for all next year. Founding an LLC is a legal process that can take months, but you still have other ways to become an LLC shareholder before the end of the year.

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Real Estate Investment Trusts And Crowdfunding Platforms

Corker's strategy of holding real estate assets as individual LLCs or being a partner in various LLCs is common. Many real estate investment trusts (REITs) hold their portfolio assets in the same manner to prevent any legal liability relating to an issue at one asset from spreading to the entire portfolio. The same thing is true for many of the investment offerings on real estate crowdfunding platforms.

For offerings such as this, your investment will make you a member or shareholder in the LLC that owns the asset. That means you will be entitled to a proportionate share of the monthly rental income and the profits from asset appreciation when it is sold. It also means you qualify for the 20% tax break on your pass-through income from the LLC.

Best of all, the income is passive. Although you'll be a shareholder/partner entitled to a proportionate share of the profits, you won't be required to contribute to the day-to-day management of the asset. In most cases, you will be a general partner, and the LLC's managing partner(s) will handle management duties like collecting rent, accounting or paying shareholders.

Where To Find REITs And Real Estate LLC Investment Offerings 

Publicly traded REITs can be found on the New York Stock Exchange, while real estate crowdfunding opportunities are available on platforms such as CrowdStreet, Streitwise, Arrived and Here. You will find various offerings in a wide range of sectors, including:

• Residential rental (both traditional long-term and vacation/short-stay rentals)
• Commercial (offices, shopping centers)
• Medical (hospitals, outpatient facilities, medical office parks)
• Industrial
• Data centers
• Storage

What If The Investments Lose Money?

Loss of investment principle is a possibility with any offering, and real estate is no different. Even though real estate has a strong performance history in the long term, it’s still possible that your chosen investment may miss projections or not make a profit at all next year. Your sensitivity to this risk may play a role in which investment offering you decide to take part in.

Public REIT shares can be liquidated whenever you like, but some crowdfunded investments or private REITs may have lock-in periods during which you can't liquidate your shares. That's why it's important to understand the ins and outs of your chosen investment before pledging capital.

Can The 20% Tax Break Be Renewed?

If your investment makes money next year, you will get a 20% tax break on it. If you'd like to continue enjoying this tax break past 2024, contact your congressional representative and let them know how you feel. The real estate lobby will also make its voice heard. Remember, the squeaky wheel gets the grease.

Next year is an election year, and many lawmakers would be happy to demonstrate their commitment to low taxes by extending this provision. In the meantime, look at the available offerings to see whether one of them suits your investment needs. Give yourself the best possible shot at making profits and saving big on taxes. 

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