1. Hunterdon/Somerset Association of Realtors - Taxes for Realtors
Gail Rosen, CPA
February 16, 2018

2. Value of a Deduction Sales Less: Deductible expenses
Realtors pay taxes on:
Sales
Less: Deductible expenses
Net taxable income (or loss)

3. Tax Brackets
Taxes on the net income are paid as follows and therefore, keeping track of deductible expenses are very important:
** Social security tax is paid on a maximum self-employment income of $127,200 in 2017 and $128,400 in 2018
2017
2018
Low
High
Federal
10.00%
39.60%
10%
37% NJ
1.4
8.97
Social Security **
12.4
Medicare
2.9
Total Combined Rate
26.70%
63.87%
61.27%

4. Tax Estimate Due Dates April 15th June 15th September 15th
January 15th
Required to pay throughout the year the lower of:
- 90% to federal (80% to NJ) of your actual tax for the year.
- 100% of last year’s tax (or 110% of last year’s tax if last year’s AGI was over $150,000 or $75,000 married filing separate).

5. Deductions to Consider
Accounting Fees – business %
Advertising
Assistant salary (payroll)
Auto – business % of actual expenses or standard 53.5 cents per business mile in 2017 (54.5 cents in 2018) plus business tolls and parking.
Business cards
Computer – business %
Conventions
Dues and subscriptions
Entertainment
Professional insurance
Medical insurance (deduction on page 1)
Gifts <= $25 each
Internet Fees
Licenses

6. Deductions to Consider (continued)
Lock boxes
Multiple Listing Services
Office
Open houses
Postage
Printing
Repairs
Retirement plans (deduction from AGI)
Seminars
Signs
Software
Staging a House
Supplies
Telephone
Travel
Website Fees

7. Change in Overall Rates
Tax Year 2017
Taxable Income
Ordinary Income Tax Rates
Single
Married Filing Jointly
Head of Household $
10%
$ ,325
$ ,650
$ ,350
15%
$ ,950
$ ,900
$ ,800
25%
$ ,900
$ ,100
$ ,200
28%
$ ,650
$ ,350
$ ,500
33%
$ ,700
35%
$ ,400
$ ,700
$ ,500
39.6%
Tax Cuts and Jobs Act (Tax Years )
Taxable Income
Ordinary Income Tax Rates
Single
Married Filing Jointly
Head of Household $
10%
$ ,525
$ ,050
$ ,600
12%
$ ,700
$ ,400
$ ,800
22%
$ ,500
$ ,000
24%
$ ,500
$ ,000
32%
$ ,000
$ ,000
35%
$ ,000
$ ,000
37%

8. Retains Preferential Capital Gains Rates
Long term capital gains
Qualified dividends
If Your Regular Marginal Tax Rate Is…
Your Long Term Capital Gains Tax Rate is…
2017
2018 – 2025
10% 0%
15%
12%
25%
22%
28%
24%
33%
32%
35%
39.6%
37%
20%

9. Changes to AMT
Exemptions increased to $109,400 for married filing joint taxpayers (up from $84,500) and $70,300 for all other taxpayers (up from $54,300)
Exemption phase outs increased to $1,000,000 for married filing joint taxpayers and $500,000 for all other taxpayers
Sunsets after tax year 2025

10. Change in Standard Deduction
Filing Status
2017
2018 – 2025
Single
6,350
12,000
Married Joint/ Surviving Spouse
12,700
24,000
Married Separate
Head of Household
9,350
18,000
Personal Exemption
4,050
Repealed
Additional deduction for elderly/blind remains

11. Change in Tax Deduction: Mortgage Interest
2017:
- Interest allowed on mortgages up to $1,000,000 plus home equity debt up to $100,000
- Primary home and one additional home
2018 – 2025:
- Interest deduction is allowed for “acquisition indebtedness” (debt incurred to acquire, construct or improve a qualified residence) up to $750,000 ($375,000 married filing separately) on your primary home and a second home.
- Home equity debt does not qualify unless it is used to substantially improve a qualified residence.
- For mortgages incurred before December 15, 2017, this limitation is $1,000,000
- After December 31, 2025, cap goes back up to $1,000,000 regardless of when indebtedness was incurred

12. Change in Tax Deduction: State & Local Income Taxes
2017:
State and local income taxes paid are deductible as an itemized deduction
2018 – 2025:
State and local income tax deduction will be capped at $10,000 and can be combination of income or sales tax and property taxes
($5,000 for married taxpayers filing a separate return)

13. Change in Tax Deduction: Real Estate Taxes
2017:
Real estate taxes are deductible as an itemized deduction
2018 – 2025:
Real estate tax deduction will be capped at $10,000 and can be combination of income or sales tax and property taxes
($5,000 for married taxpayers filing a separate return)

14. Change in Tax Deduction: Cash Charitable Contributions
2017:
Cash contributions are deductible as an itemized deduction up to 50% of AGI
2018 – 2025:
Cash contributions are deductible as an itemized deduction up to 60% of AGI, carryforward remains at 5 years
Planning Point:
Use a “bunching” strategy with respect to charitable giving

15. Change in Tax Deduction: Medical Expenses
2016:
Medical expenses in excess of 10% of AGI are deductible (7.5% for taxpayers age 65 and older)
2017 – 2018:
Medical expenses in excess of 7.5% of AGI are deductible regardless of age
Effective for taxable years after December 31, 2016 through December 31, 2018

16. Change in Tax Deduction: Miscellaneous Itemized Deductions
2017:
Includes unreimbursed employee business expenses, investment expenses, tax preparation fees, etc., however subject to a 2% floor
2018 – 2025:
Miscellaneous itemized deductions are suspended.

17. Overall Limitation on Itemized Deductions
2017:
Total of otherwise allowable itemized deductions is limited for high income taxpayers (3% PEASE limitation)
2018 – 2025:
PEASE limitation repealed

18. Alimony Deduction
2017 – 2018:
Alimony paid is deductible in arriving at adjusted gross income and alimony received is includable by the recipient in taxable income.
2019 on:
Alimony payments are not deductible by the payor spouse and alimony received is not included in taxable income.
Effective for agreements executed after December 31, (Prior agreements grandfathered unless modified after December 31, 2018 and modification expressly references this provision.)

19. Enhanced Child Tax Credit
Filing Status
2017 Credit
2017 Phase Out
2018 Credit
2018 Phase Out
Single and other unmarried individuals
$1,000 qualifying child/ $0 other dependent
75,000
$2,000 qualifying child/ $500 other dependent
Up to $1,400 per qualifying child refundable
200,000
Married Joint
110,000
400,000

20. “Kiddie Tax” Changes
“Kiddie tax” applies to the net unearned income of any child who is:
Under age 19 by the close of the tax year, or a full-time student under age 24
Has at least one living parent at the close of the tax year
Has unearned income of more than $2,100 (for 2017)
Doesn’t file a joint return
For children over age 17, the kiddie tax applies only to children whose earned income doesn’t exceed one-half of the amount of their support

21. “Kiddie Tax” Changes
Tax Cuts and Jobs Act modifies the kiddie tax to apply the estate and trust ordinary and capital gains rates to the net unearned income of a child
The child’s earned income is taxed according to an unmarried taxpayer’s brackets and rates
No longer tied to parents and siblings tax situation
Higher overall tax on unearned income of children – 37% bracket applies to an estate or trust at $12,500 (compared to $600,000 for a married taxpayer)

22. Qualified Income Business Deduction
Available to noncorporate taxpayers
Deduction of up to 20% of qualified business income.
Income must come from a qualified trade or business

23. Qualified Trade or Business
Any trade or business other than specified service trades or businesses and performing services as an employee
Specified service trades or businesses are:
Health, Law, Accounting, Actuarial Science, Consulting,
Performing Arts, Financial Services, Brokerage Services,
and any trade or business where the principal asset is the reputation or skill of 1 or more of its employees/owners, or
any trade or business which involves performance of services that consist or investing and investment management
Real estate?

24. Exception for Small Service Businesses
Taxpayers income does not exceed threshold amount plus $50,000 ($100,000 MFJ)
Threshold amount - $157,500 ($315,000 MFJ)
For any year this applies specified service businesses will be entitled to the deduction subject to phase-in
Amount is indexed for inflation after 2018

25. Qualified Business Income Amount
Deduction is limited to the lesser of:
20% of the taxpayer’s qualified business income or
The greater of
50% of the W-2 wages of the qualified trade or business or
The sum of 25% of W-2 Wages plus 2.5% of unadjusted basis of qualified property
Plus 20% of qualified REIT dividend and PTP income
Deduction is calculated for each trade/business of the taxpayer

26. Exception to the Wage Limitation
Taxpayers whose taxable income does not exceed the threshold amount
Threshold amount - $157,500 ($315,000 MFJ)
Amount is indexed for inflation after 2018
Phase-in of limit for taxpayers whose taxable income does not exceed threshold amount by more the $50,000 ($100,000 MFJ)

27. Taxable Income Limitation
Deduction is limited to the sum of:
The lesser of
The combined qualified business income amount or
20 percent of the excess of taxable income over net capital gain
20 percent of qualified cooperative dividends or
Taxable income

28. Entertainment Expenses
Expenses are no longer deducible effective January 1, 2018
Expenses include:
An activity generally considered to be entertainment, amusement or recreation
Membership dues for any club organized for business, pleasure, recreation or social purposes
A facility used in connection with either of the above

29. Questions?

30. Thank You! Gail Rosen, CPA Principal 732.469.4202 grosen@wgcpas.com