In this instructional video, Mark Kohler explains how the Section 199A pass‑through deduction works for real‑estate professionals—including brokers, agents, fix‑and‑flippers, and rental owners. He starts with a simple example showing that the deduction equals 20 % of qualified net income, reducing taxable income and saving taxes. Kohler then outlines who qualifies (all real‑estate professionals after the 2018 NAR lobbying effort) and notes the income‑phase‑out thresholds ($200 k single, $400 k married). He describes how the deduction interacts with ordinary business income, S‑corp or LLC structures, and rental‑property passive losses, emphasizing that all 199A‑eligible income and losses are combined (“bucketed”) and netted before the 20 % is applied. The video clarifies that rental passive losses remain on a separate line of the 1040, while the 199A deduction is a distinct calculation, and that any 199A loss is carried forward to future years. Kohler warns that the tax return becomes more complex, but with proper planning (e.g., payrolling family members, using S‑corp elections) investors can capture both passive loss benefits and the 199A deduction. He concludes with a call to study tax strategies, hold advisors accountable, and use his tax‑and‑legal library for deeper guidance.
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Hey, my real estate pros, all of you, real estate brokers, agents, rental property owners, fix and flippers, all of you, you got to hear this because we want this 199A deduction. We want to know how it plays out with me as a real estate investor. Is it going to really impact me? Is it going to help me? Well, the answer is yes, and there's a few tricks and I guess my mind's in the minefield you want to be aware of. So let's hit it. And I'll try and break this down and keep it simple. I've got another video out on YouTube titled what is the 199A Deduction? Watch it. It's a little longer. It's going to help you with the basics of the 199A. But as a quick refresher, let's say you are doing real estate in any way, shape or form and you bring in 100 grand, you spend 20 on expenses and you net $80,000. Well, the 199A deduction in concept is that I get to take 20% of this, so times two, and I'm going to get a $16,000 deduction. And I'm only going to pay taxes on 64,000. Now if I'm in a 25% tax bracket, that means my income went down by 16,000, so I'm going to pay 25% less taxes on $16,000. So. So if I take 0.25 times 16,000, I just save 4,000 in taxes. Okay, now follow me. This is a deduction, not a deduction off your tax bill. That'd be a tax credit. So I get to take my income minus 16,000, then pay taxes on 64. So if you take your bracket, let's say 25% times 16,000, that's my saving is really $4,000 in taxes. So it's still good. We still want it. Okay? That's the basic concept of the 199, a pass through deduction. Now what we want to do is talk about how this affects you, the real estate investor, real estate professional. Okay, now I've got good news and bad news. Let's do the good news first. I'm a glass half full kind of guy. So let's, if you watched any of my other videos, let's go through, right, the short term, long term scenario. I want your ordinary income over here. I want, I want your passive income over here. Many of you that have been following me for years know where I'm going. You're going to have either your sole proprietorship or your S corp and it could be an LLC taxed as an S corp. This is doing your fix and flips, your commissions, your basic ordinary income type stuff, wholesaling. This is anything that happens in less than 12 months. Well over here you've got your rental properties and your rental properties are out there collecting rent and creating depreciation generally as you know. Watch some of my other videos on the power of rental real estate. You're going to have a loss over here. Even though you're cash flowing. You're literally putting money in your pocket every month and your property is going up in value and you're paying down the mortgage. The beauty of rental real estate. But you have a loss over here. Okay, we're going to come back to that. But this 199A deduction, which is, this is the good news, applies to any type of real estate short term income. When it first came out, realtors and brokers got the knife in the back. If you make too much money, you don't get it. But the national association of Realtors did you a solid. They went out there and lobbied the heck out of Congress on this in the summer of 2018 and boom, ba da bang. Realtors, brokers, agents, fix and flippers, realtors, contractors, all of you, you get the 199A. So whatever you make over here you get this 20% deduction. Now once you start making more than 200 grand single and 400 grand married generally you get into this other equation. There's kind of this AB equation of how it's how what the write off really is and how it's impacted by your salary and your S corp. And there's some strategies here. And so I talk about this more in depth in some other videos and this is a good point to say down below I've got a link to my website, markjkohler.com with the tax and legal library I've been doing for eight years now. I have over 60 videos. I update probably half of them every year. And you've got lifetime membership with few hundred bucks. You can watch these videos over and over again and save thousands of dollars on tax planning for putting your kids on payroll to home, office and meals and travel and auto, all that including more in depth conversations on this. But I don't want to bore you here on YouTube with this. This is a huge deal for all my real estate fix and flippers, brokers, agents. This is the Beauty of the 199A this is the good news. Now, partial good news is for those of you that have paid off your real estate, and let's say you have an LLC over here with rental property that's paid off and you've depreciated the crap out of it, and you're literally creating income, cash flow and taxable income on your rentals, you get the 20% deduction here, too. This is cool, right? So you get the 20% on your ordinary 20% on any LLC income. Well, here's the bad news. When you go to do this equation, there's a bucket. There's a bucket of all your 199A income and losses. So what you have to do is if your business made money, it goes in the bucket. If your business lost money, maybe you had another business over here that lost money, it goes in the bucket. If you have rental income, it goes in the bucket. If you have rental losses, it goes into the bucket. This is all shaken together and netted together and whatever spits out the bottom, plus or minus. That's where the 20% deduction is. Let me say this another way you may have hoped. Oh, I get my 20% deduction here. Oh, but this business is losing money. Oh, that's cool. It doesn't affect my 199A. Well, it does. This is the bad news. All of your income is netted. Now, some you're going to say, well, Mark, what about the power of rental real estate and all those losses you've been teaching me for years, they save taxes. They still do, but it's different for the 199A. Let me show you one more piece of paper here that might make sense of it. Okay, take a breath. Fresh. Look, you've got your operations over here, your S Corp. Let's say you know what you're doing. If you're making more than 50 grand a year, you're an S corp. Anyway. Watch my other videos on YouTube. Mark Kohler, s Corp. Over here you've got your rental property and you've got your rentals that are actually producing a loss on paper. Now, what I've been teaching for years is if you've got gains here, maybe a W2 from your S corp and a K1. And let's say you made 100 grand here and you had 30,000 in losses from all these rental properties, which is awesome. You've got losses on paper. Even though you have cash flow and debt, pay down all that good stuff that comes with rentals. If you're a real estate Professional, you're going to net the two, right? This loss comes over and it saves you on your 1040. So your 1040 goes down by $30,000. You only pay income tax on 70. Woohoo. This is called the rental real estate passive loss. That's carry forward or it's a write off and it's kind of a pal is what accountants call it. Well this passive loss is still there. You still get to take this. So you see, the 199A is kind of a separate equation. On top of this, in fact, I'm going to get a different colored pen. Bing, there's my red pen. Isn't that magical? It's like cinnamon tography magic. Like in Bewitched, you know, I'm just like, okay, sorry, that was old school. All right, now this pass through rental deduction we've been teaching for years, it still works. It's in black. The 199A lays on top of it. There are two different buckets. See, this bucket is for your rental losses, kind of this passive loss carry forward you have this other bucket that's called the 199A. So what we do is if you have losses here, you have pluses here. Let's say you have another loss over here like I was saying before, and you might have rental property. That's creating a plus over here. All of this is for the 199A which helps reduce your income as well. So let's say your 199A generates $20,000 deduction. Boom, I get to take that off over here. It's a separate calculation. That's why I wanted to use black and red. The black is a passive loss flow through deduction. The red is a 199A deduction. In accountants minds, these are two different forms that go in the back of your 1040. And if you're lucky enough, you get both of them to some degree. This is why tax return prep has gotten a little more complex. Our clients are going to have to pay a little bit more for us to do this extra work, but it's going to save you 10, 20, 30 times more in taxes. Because we're going to try to bring this together with some magic. It's like baking a cake. We get the right ingredients. This could be really magical. It could taste great. So anyway, the point is for some of you, when you go, oh my losses, I don't get my losses anymore. No, you get them. They're in the black section. They're on a different form. There for your carry forward losses in rental real estate, while the 199A is a different bucket. Now, last point for you techies out there. What happens if my 199A is a loss? I got no deduction. All of my losses wiped out my income and I have a loss. Well, the IRS says you carry that forward to next year and then you put your gains in there. And once you're back to a gain, you get the 20% deduction and the buckets cleared out and you start fresh again. So the losses carry forward here, even though you might be able to take them on your other side, on your other form, on the other piece of your 1040. Well, hopefully that was clearer than mud. I love this. I'm a geek, but the point here is real estate professionals have to do more tax planning than anyone else. But you get the benefit of tax planning. I don't even get this. I don't get this benefit. Literally. I'm giving a video here where I phase out of the 199A. And I'm not a real estate professional, nor is my wife. I don't get any of these write offs. But you do, the real estate professional, because your income never phases out. And if you or your spouse is a real estate professional, you always get the loss. So this is huge. And I love you. I love real estate. I still buy my rentals. I still buy my rentals. I'm working on a little fix and flip tonight, in fact, with my son. So I'm out there doing real estate and love it. But you really get the tax benefits. So continue to study this. Continue to know enough that you can hold your tax advisor accountable and have intelligent conversations with them. I know you're better with real estate than the numbers and the bookkeeping and you hate that. That's cool. That's what real estate investors are good at. They're out analyzing real estate and they're good with people. But you still got to have a healthy respect for the numbers. So keep up the study, get down below, sign up for my tax and legal library. You can make your spouse your partner, your kids watch those videos, especially your kids when they're grounded. It's great therapy. They'll never sneak out of the house at night again if they know they have to come back and watch my QuickBooks videos. Anyway, keep living the dream, don't give up and keep investing in real estate.
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