Important 2023 Tax Updates for Landlords

Important 2023 Tax Updates for Landlords

As 2022 came to a close, President Biden signed an omnibus spending package to fund the federal government through September 2023. This bill included numerous tax changes, while other updates were already in motion from existing legislation. Below are some of the most important changes in 2023 impacting mom-and-pop landlords:

Accelerated Depreciation[i]

Back in 2017, the Tax Cuts and Jobs Act (TCJA) temporarily moved the U.S. tax code closer to full expensing. The law re-introduced full “bonus” depreciation for short-lived assets, allowing companies to immediately deduct 100 percent of the cost of assets with “useful lives” less than 20 years. However, this advantage will begin to phase out in 2023, now allowing companies to deduct only 80 percent of new investment costs. The bonus depreciation decreases again to 60 percent in 2024, then 40 percent in 2025, 20 percent in 2026, after which it completely phases out unless Congress passes extending legislation.

Retirement Accounts[ii]

The recent omnibus budget bill included several tweaks to retirement savings rules beginning in 2023:

  • Increases the required minimum distribution (RMD) age from 72 to 73 starting on January 1, 2023, and then to 75 beginning on January 1, 2033.
  • Expands catch-up contributions for people aged 50 and over to 401(k) retirement accounts, raising the catch-up amount to $7,500
  • Allows for employer emergency savings accounts alongside retirement accounts, which lets employees save up to $2,500 in Roth-style accounts for emergency savings.
  • Allows for tax- and penalty-free rollovers worth up to $35,000 from 529 education savings plans into IRAs
  • Standardizes rollover forms to enhance the portability of existing retirement accounts

Other provisions don’t take effect until later:

  • 2024: Eliminates required distributions for Roth 401(k)s
  • 2025: Requires many new 401(k)-style retirement plans to automatically enroll workers (automatic opt-in) with automatic contributions ranging from 3 to 10 percent
  • 2025: Raises the maximum IRA contribution catch-up amount to $11,250 for those aged 60 to 63
  • 2027: Expands the saver’s credit by providing a 50 percent credit on savings up to $2,000 (for a maximum value of $1,000), regardless of income tax liability

Conservation Easements[iii]

A conservation easement is an agreement between a landowner and a land trust or government agency, whereby the landowner retains some private property rights but otherwise use of the land is restricted or “conserved”. When donated, conservation easements may provide valuable tax benefits to landowners while also preserving the environment. Conservation easements keep land in private ownership, and continuing to provide economic benefits to the area. In some instances, taxpayers can invest in syndicated programs to purchase large tracts of land and ultimately donate such easements, thereby passing the tax benefits to investors.

After more than six years of attempting to curb syndicated conservation easements in court, the IRS changed tack and sought support in Congress. The result—buried in the omnibus spending bill—is a provision that would deny deductions in cases where the claimed tax break exceeds 2.5 times the investment. And non-compliance with new regulations will trigger serious penalties. There are exceptions for property held for more than three years before the donation and for certain ownership structures, but this new law likely will have a chilling effect on future investment programs touting significant tax benefits.

As with all investment programs that include tax benefits, be sure to consult with your tax professional. For more information on these and other tax-efficient solutions, please call 1031 Capital Solutions at 1-800-445-5908 or visit our website, 1031capitalsolutions.com.

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Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor.

This is for informational purposes only, does not constitute as investment advice, and is not legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

There are material risks associated with investing in real estate securities including illiquidity, general market conditions, interest rate risks, financing risks, potentially adverse tax consequences, general economic risks, development risks, and potential loss of the entire investment principal.

There are retirement account risks that could diminish investor returns, such as, but not limited to: low interest rates, market volatility, withdrawal timing and sequence of returns risk, government policy uncertainty and increased longevity. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment.

The data contained in this material was obtained from third-party sources believed to be reliable; however, 1031 Capital Solutions, CIS, and CAM do not guarantee the accuracy of the information.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.

[i] https://taxfoundation.org/bonus-depreciation-new-corporate-investment/

[ii] https://taxfoundation.org/omnibus-federal-spending-bill-retirement-savings-tax/

[iii] https://www.wsj.com/articles/congress-clamps-down-on-land-conservation-tax-deals-11671548329

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