Many landlords celebrated the passing of the Tax Cuts and Jobs Act (TCJA) in 2017, particularly the 199A tax deduction. Also known as the 20% pass-through deduction, this reform allows pass-through businesses, such as LLCs, S-corps, and partnerships, to deduct 20% of their business income, including rental income. A recent article in the Wall Street Journal, however, points out there is a caveat: the paperwork is due by January 31, 2020.
This is the second tax season landlords can take advantage of the pass-through deduction, yet in 2018, there was some leeway in the deadlines since the IRS hadn’t issued final guidelines. For the 2019 tax season, however, the guidelines are in full effect, and landlords need to start preparing their paperwork now.
According to the Wall Street Journal article, the key form for landlords to pay attention to for the 199A Deduction are 1099 tax forms, which are forms that show an entity or person (other than your employer) gave you money. Landlords who want a pass-through deduction, must send in their 1099 tax forms by January 31, 2020. If they miss this deadline, they could be fined a penalty that starts at $50 for each form not submitted and continue to rise the further away from the deadline you get. Bottom-line, now is the time to start working on your 2019 tax forms.
Keep in mind, not all landlords will benefit from this deduction. If landlords are already generating a tax loss due to depreciation, the 20% deduction would become a moot point. Learn more about when landlords will benefit through the pass-through deduction. For more tax resources, check out the “Taxes” category of our blog or our Investor Resources Page.
Related: What Investors Should Pay Attention to this Tax Season, Will Landlords Benefit from the 20% Pass-Through Deduction?