tel: 888.868.8467
The Qualified Business Income (QBI) deduction, introduced under the 2017 Tax Cuts and Jobs Act, has been a valuable tax-saving tool for many businesses, including those in real estate investments. As the 2025 expiration of this deduction approaches, it is critical for investors to understand the current status of the QBI deduction and its impact on mortgage funds, particularly those benefiting from REIT dividends.
The QBI deduction allows pass-through business entities—such as sole proprietorships, S corporations, partnerships, and trusts—to deduct up to 20% of their qualified business income from their taxable income. Importantly, REIT dividends also qualify for this deduction, enabling businesses and investors to benefit without being limited by wage thresholds or capital requirements.
QBI applies not only to operating income but also to qualified REIT income, meaning investors in mortgage funds that allocate part of their portfolio to REITs can use the deduction to reduce taxable income and increase after-tax returns. However, this benefit is scheduled to expire at the end of 2025, unless new legislation extends or modifies it.
For mortgage funds, including those that integrate REIT investments, the QBI deduction offers an effective way to boost investor returns. REIT dividends are treated favorably under the QBI rules, as they are exempt from the wage and capital restrictions that apply to other types of business income. This makes REIT dividends a valuable tool for mortgage funds seeking to enhance investor yields while maintaining tax efficiency.
Mortgage funds structured as pass-through entities—such as partnerships or trusts—can pass QBI deductions directly to investors. For those in higher tax brackets, this can significantly reduce their personal tax liability, further improving their net income from the fund.
With the QBI deduction set to expire, mortgage funds may want to increase allocations to REITs in 2024 and 2025. This ensures that investors maximize the benefit from REIT dividends while the QBI deduction is still available.
Mortgage fund managers can explore aggregating multiple businesses or income streams within the fund to further optimize QBI benefits. This approach can help funds meet wage or capital thresholds that may apply to other parts of the QBI deduction, ensuring no potential savings are lost.
3. Monitor Legislative Developments
There is always the possibility that Congress could extend or modify the QBI deduction before the 2025 sunset. Staying informed and working closely with tax advisors will ensure that mortgage funds and their investors can adjust strategies as new information becomes available.
The Private Placement Memorandum (PPM) is a critical document that offers insight into the terms, risks, and potential returns of a private investment. For investors, a detailed review of the PPM is essential to make informed decisions and avoid unnecessary risks.
By focusing on key sections—such as the executive summary, terms of the offering, management track record, and risk disclosures—investors can evaluate whether the opportunity aligns with their financial goals and risk appetite. As private placements involve less liquidity and higher risk, careful due diligence is essential to ensure a successful investment experience.
Always seek professional advice if needed, and remember that a well-prepared PPM is a tool for transparency—any hesitation to provide clear information should be viewed as a signal to proceed with caution.
TaliMar Income Fund I offers investors the ability to participate in the rapidly growing demand for private real estate debt. The fund is comprised of a diversified portfolio of short-term loans secured primarily on residential single family and multi-family properties throughout California. The fund manager, TaliMar Financial, was established in 2008 and has successfully funded over $500 million in loans. Investors in the mortgage fund include high net worth investors, family offices, and private equity funds who are seeking consistent monthly income, the security of real estate, and the tax benefits of a mortgage fund structured as a real estate investor trust.
Disclosure: This advertisement is for informational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can only be made by the Private Placement Memorandum (“PPM”) and related subscription documents. Any investment in TaliMar Income Fund I involves significant risk. You should not enter into any transactions unless you fully understand all such risks and have independently determined that such transactions are appropriate for you. Business Purpose Loans arranged through TaliMar Income Fund I, LLC (DFPI CFL License No. 60DBO-137778).
Call Us Tap to Call 
