Designed as a tax break for small business owners, the Tax Cuts and Jobs Act includes a 20% deduction for “pass-through” income. This includes income you receive from a sole proprietorship or other pass-through entities such as partnerships, LLCs, and S-Corps. Real estate income counts, as do dividends you receive from REIT (Real Estate Investment Trust) stocks.
There’s one notable restriction. The new law sets a maximum amount of income people in “professional services” businesses, such as lawyers, doctors, and consultants, can earn while still taking advantage of the deduction. For the 2018 tax year, the pass-through deduction for these types of business starts to phase out at an AGI greater than $157,500 (single filers) or $315,000 (married filing jointly).