Possible Changes to RE Tax Code

[Clayton Swansen]

https://www.nytimes.com/2017/04/22/business/trump-...

Hi, Everyone! I came across this article in the New York Times today about possible changes in the tax code as it pertains to real estate. 

I am a new investor, having just closed on my first house hack (triplex) back in December 2016. I have fallen head over heels in love with the REI world, and to paraphrase Mr. Steve Jobs, I am hellbent on making a ding in it.

One of my many REI "knowledge goals" is cultivating a solid understanding of the tax code. However, I will be the first to admit that this article was a bit meaty, and I only just grasp what it addresses. All I really know is that this is something that has the ability to affect us all, and I'd like some thoughts, comments or quips from anyone and everyone who can clarify, or spice up the conversation. Thanks!

-Clay

[Linda Weygant]

This is yet another poorly thought out "plan" coming out of the administration that can't fly for several reasons:

If all interest, including mortgage interest, is no longer deductible, it will grind our banking system to an almost immediate, grinding halt.  The dramatic and immediate halt in borrowing at the business sector and gradual decline in the consumer sector will hit the banks right in their bottom line.  They will be unable to give away money and, therefore, unable to transact business in one of their most profitable sectors.  You think the real estate lobby is "tough to take on"?  Try the banking lobby.

There are also a copy of key quotes in the article:

While the Trump administration has yet to put forward a plan(1), Mr. Trump has embraced several key proposals, including some at odds with the House Republican blueprint(2). His ideas, in many cases, would enhance benefits to developers like himself.

“Trump said he knows where the loopholes are (3), but so far he hasn’t proposed closing any of them,” Mr. Rosenthal said. “Maybe he will (4). But so far he hasn’t made any of the hard decisions that would show he’s willing to close the loopholes that benefit him in order to make the tax code more fair and efficient.”

(1) So yeah - there is no plan to even look at yet, much less get hysterical over and start asking Bigger Pockets to get involved with.  (Really?  Was that a real solution or a joke?)  

(2) Trump and Ryan couldn't even push through a health care bill that mostly satisfied "the Republican Blueprint".  Do you really think that something that doesn't satisfy the Republican Blueprint has a prayer?

(3) No, he doesn't, actually.  Read any interview with Trump about taxes and there is nothing of substance there.  Only the most vague and high level concepts are introduced, but for the most part, there is nothing but word salad coming out of his mouth on this (and any other topic where he has no clue what he's talking about).  Only phrases such as "tremendous" and "believe me" are comprehensible.  Now, Trump does have an absolutely AMAZING team of accountants and lawyers that absolutely understand all of the subtle nuances of this.  But those people are not in his cabinet and aren't on his staff of personal advisers.  At best, they work for The Trump Organization.  But since the business and the administration seem to be virtually indistinguishable from one another, perhaps that is a group of people he could tap to help set olicy.

(4)  There is a long list of things that Trump said he might do.  I'm no longer holding my breath on any of them.

Then there's this quote from the article:

Certain tax breaks, in fact, seem to exist solely or primarily to benefit the real estate industry, with dubious benefits or even harmful effects for the broader economy.

Start, for example, with the ability of businesses to deduct interest payments. More than in just about any industry, real estate investors use leverage — borrowed money — to enhance returns. They lower their taxes by deducting interest payments.

What?  No...  EVERY SINGLE INDUSTRY uses interest as a tax deduction.  The number of industries that use leverage to finance development, finance lulls in cash flow, finance new equipment, finance every single aspect of their business is right at 100%.  Even service businesses will use financing to factor their slow paying receivables.  This is probably the most ignorant quote I've ever seen in a legit newspaper.  

But here is the most important quote in this article, and the complete, total and #1 reason why you should not panic:

“It’s hard to imagine President Trump doing that,” he said. “Because at the end of the day, the existing tax code is great for people like him.”

And Trump will never do anything that is not in his own best interest.  Believe me.