2025 Tax Changes and Corporate Transparency Act Update

As 2024 wraps up, real estate investors face significant tax updates and opportunities for strategic planning.

This week on the Tax Smart REI Podcast, Thomas Castelli, CPA, and Ryan Carriere, CPA, discuss the Corporate Transparency Act (CTA), the upcoming 2025 tax changes, and essential year-end tax tips to help you stay ahead.

Corporate Transparency Act (CTA) Updates

The Corporate Transparency Act, originally set to take effect in 2024, has been temporarily paused by a preliminary injunction issued by a Texas court. While this offers temporary relief, there are important considerations:

The Pause is Temporary:

• The Department of Justice filed an appeal just two days after the ruling. This means the CTA could still come back into play.
• If you have one or two simple LLCs, it might be wise to file voluntarily to get ahead of any last-minute deadlines.

Stay Prepared:

For investors with complex structures (e.g., 50+ partners or multiple LLCs), gather the required information now.
Being proactive avoids scrambling if compliance is suddenly enforced during the holidays or into 2024.

Takeaway: If you’ve already filed, there’s nothing to do. If not, use discretion, stay conservative, and prepare as though compliance may be required in the near future.

2025 Tax Changes: What Real Estate Investors Need to Know

Significant tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire in 2025. Without legislative action, investors could face the following changes:

• Qualified Business Income (QBI) Deduction: The 20% deduction will be eliminated.
• Tax Rates: Individual rates will revert to pre-2018 levels. The highest rate will rise from 37% to 39.6%.
• Standard Deduction: The current deduction will be cut in half, bringing back personal exemptions.
• Child Tax Credit: Reduced by 50%.
• State and Local Tax (SALT) Cap: The $10K limit will expire.
• Estate Tax Exemption: The exemption amount will be cut in half.
• Bonus Depreciation: 100% bonus depreciation phased down in recent years could be reinstated.

Potential Outcomes:

• There is bipartisan support for 100% bonus depreciation and lifting the SALT cap.
• The administration plans to use budget reconciliation, requiring only a simple majority in the Senate, to extend or modify these provisions.
• Uncertainty remains, so investors should continue planning with current tax laws in mind and avoid speculative delays.

Year-End Tax Planning Tips

With 2024 closing fast, here are actionable steps to optimize your taxes:

• Update Your Bookkeeping: Ensure your records are accurate and up-to-date for effective planning.
• Tax Loss Harvesting: Offset gains by selling assets at a loss by December 31st.
• Track Material Participation Hours: For those pursuing Real Estate Professional Status (REPS) or short-term rental strategies, ensure you meet participation thresholds.
• Consider Cost Segregation Studies: Accelerate depreciation on newly acquired properties.
• Pay Your Kids: If hiring children in your business, make required payments before year-end.
• Retirement Contributions: Maximize contributions to retirement accounts or HSAs where applicable.

Final Thoughts

While 2025 tax changes bring uncertainty, the key takeaway is to plan strategically with current laws in place. Don’t let tax speculation delay good investments. For real estate investors, the coming year presents opportunities and challenges, but preparation is key.

Stay tuned to the TaxSmart REI Podcast for updates on tax legislation, the Corporate Transparency Act, and more strategies to help you maximize savings.

Need Expert Help?

If you’re looking for a CPA to help with tax strategy or planning, now is the time to act before the new year kicks off. Visit The Real Estate CPA to schedule a consultation.

Interested in joining our team? We’re hiring! Email onboarding@holliscpa.com to learn more.

If you’re looking for assistance with the 2025 tax changes, schedule a free consultation with our team.

Transcript

Introduction: 00:00 – 00:59

Thomas Castelli, CPA (00:00):
Thanks for tuning into this week’s episode of the TaxSmart REI Podcast. This is going to be one of the final episodes of the year, and we’re going to be talking about 2025 tax changes, what to expect with the new administration, and the Corporate Transparency Act. Believe it or not, there are new updates there that you’re not going to want to miss. We’ll be diving into all that in just one minute.

Corporate Transparency Act Update: 01:00 – 04:00

Thomas Castelli, CPA (01:00):
All right, and we’re back. Before diving into the 2025 tax changes, let’s touch on the Corporate Transparency Act (CTA). There is some exciting news. A Texas court issued a preliminary injunction putting compliance with the CTA on hold—for now.

It’s important to note:

• This is not permanent. Further court rulings will determine the fate of the CTA.
• FinCEN is still accepting voluntary submissions, and the AICPA recommends being ready to comply just in case.
• If you’re conservative, it’s wise to gather all the information needed and prepare to file. There’s no penalty right now for not filing, but this could change if the injunction is overturned.

Ryan Carriere, CPA (02:10):
Yeah, just to clarify, if you’ve already filed, there’s nothing for you to do. For those of you waiting, this is a heads-up. The Department of Justice filed an appeal just two days after the injunction, so this is still evolving.

Practically speaking:

• If you have a simple LLC, it might make sense to file voluntarily now.
• For complex setups (50+ investors, multiple LLCs), gather your information ahead of time. You don’t want to scramble if compliance is suddenly required.
• Be conservative, stay ready, and use your discretion.

2025 Tax Changes and Expiring Provisions: 04:01 – 12:00

Thomas Castelli, CPA (04:01):
Moving on to 2025 tax changes—a big year for taxes as many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire. If no action is taken, here’s what will change:

• The 20% QBI deduction (Qualified Business Income) will disappear.
• Individual tax rates will revert to pre-2018 levels (highest rate jumps from 37% to 39.6%).
• The standard deduction will be cut in half.
• Personal exemptions return, but the child tax credit is reduced by 50%.
• The $10K SALT limitation on state and property taxes will expire.
• The estate tax exemption will be cut in half.
• The opportunity to invest in Qualified Opportunity Zones ends.

Ryan Carriere, CPA (06:36):
These provisions could be extended or modified. For example, there’s bipartisan support for the return of 100% bonus depreciation. That almost passed in 2024 but stalled in the Senate. There’s also strong pushback against the SALT cap, particularly from states like New York and California.

Thomas Castelli, CPA (08:00):
The administration wants to use the budget reconciliation process to pass tax changes. This process only requires a simple majority (not 60 Senate votes), which makes it easier to push through legislation. However, there are restrictions like the Byrd Rule, which limits deficit increases beyond a 10-year window.

We’ve heard talk about taxes being addressed in the first 100 days of 2025, but now there’s buzz about delays as Congress prioritizes border security, energy, and military spending.

Key Advice: Bonus Depreciation and Tax Planning: 12:01 – 16:45

Ryan Carriere, CPA (12:01):
Let’s talk about bonus depreciation. While we’re optimistic about its return, don’t let tax speculation dictate your investment strategy. If you have a deal that makes sense now, don’t hold off just hoping for 100% bonus depreciation in 2025.

Place properties in service when it makes sense for your business.
Remember: We don’t know if or when bonus depreciation will come back.

Thomas Castelli, CPA (14:09):
Exactly. The Build Back Better Act and CARES Act showed us that nothing is final until it’s final. Don’t let the tax tail wag the dog.

Year-End Tax Tips: 16:46 – 22:00

Thomas Castelli, CPA (16:46):
With the year winding down, here are key reminders for wrapping up 2024:

• Bookkeeping: Get your records updated now to avoid scrambling later.
• Tax Loss Harvesting: Offset gains by selling assets in a loss position. This must be done by December 31st.
• Time Logs: For Real Estate Professional Status (REPS) or short-term rental strategies, confirm your hours.
• Cost Segregation Studies: Initiate these if you plan to accelerate depreciation.
• Paying Your Kids: If you’re paying your children, ensure payments are made by year-end.

Ryan Carriere, CPA (20:00):
Also, retirement contributions and HSA contributions are important considerations. Double-check your year-end plan and execute it now—time is running out!

Closing Remarks: 22:01 – 26:22

Thomas Castelli, CPA (26:22):
There’ll be one more episode before the end of the year, so we’ll catch you then. That’s it for today’s episode—signing out!

If you need help with tax planning, book a free consultation. If you’re a CPA or EA looking for a career change, reach out to us at onboarding@wholecpallc.com.

See you next week on the TaxSmart REI Podcast!

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.