What Is a Cross-Cutting Business and Why Is It Preferred in the Tax Bill?

A last-minute provision in the Republican tax plan would give people tax cuts through shell real estate companies, which would benefit 14 Republican senators, according to a report by the International Business Times .

Utah Senator Orrin Hatch, who added provisions this week, is one of them. This is because Hatch’s wife owns a stake in a real estate LLC that generated income in 2016 that could qualify as a “pass-through” entity for IBT, and the new added tax clause allows owners of certain pass-through real estate firms) deduction of 20% of taxable income.

So what is end-to-end entity?

Essentially, a pass-through is a business that pays no corporate income tax and includes legal entities such as sole proprietorships, partnerships, and S corporations. According to the Brookings Institution , about 95% of businesses in the United States are in the transit category, and they traditionally pay a lower tax rate than large corporations.

As Joe Rosenberg, senior fellow at the Urban Brookings Center for Tax Policy, explained to NPR , the end-to-end “profits are passed on to business owners.” And then the owners report that income on their individual tax returns and pay tax on it along with the rest of their regular income. ”

While many are small businesses, not all are. For example, law firms usually have this structure. And the new regulation will “specifically allow owners of large real estate holdings through LLCs to deduct a percentage of their pass-through income from their taxes,” according to IBT .

This particular cross-cutting provision has been controversial because it was not included in previous House or Senate bills, and IBT reports that 14 Republican senators have financial interests in eligible real estate partnerships up to $ 105 million. President Trump also “owns or operates more than 560 companies , most of which are LLCs or LPs” (although we’d better know how the tax plan will affect him personally if he just issues his tax returns).

The House of Representatives approved the Tax Cuts and Employment Act this afternoon , and the Senate is expected to vote tonight.

Republican Senators Save Millions With Special Real Estate Tax Credit


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