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trump tax impact on investors? why arent we talking more about it
I am reading that the mortgage deduction is going to be for loans up to 750k on new deals for primary residency....., how about for rental properties? is that any different? is this capped to 750k total or is it per property on rental? also what about the property tax for rental is that per property or accumulative? its been very difficult to find the details on this... i am trying to understand if i should keep my structure as a schedule E or if i should now consider incorporating as S Corp or something similar...thanks in advance to everybody
Can the tax experts here chime in on this? yes yes we get this is not legal advice and we need to talk to cpas and tax consultants : )
heellppp
Words NOT in the bill... "limited liability", "LLC", "pass through", "passthrough", "21%", "23%".
Section 179 definition changed. 1031 rules changed too. Someone smarter than me can tell/explain if business property (not real property, or "qualified" real property) is no longer available for 1031 exchanges after this year. See
I have an LLC for consulting work. Company A pays me $100k to consult. Currently this income would be added to any other income I have and I would be taxed at the rate that it puts me in (say 35%). So I take home 65k. The new tax bill would mean all that income would be taxed at 21%. I take home 79k. No double taxation at all. Make sense?
SALT stands for state and local tax. People can DEDUCT their state and local taxes when they file. So if you live in Jersey for example then you're able to deduct a LOT more than if you live in a state like Florida that has 0% state income tax. So, basically the federal government is encouraging states to raise their taxes and rewarding the people in the states with a handout.
With this tax bill, taking away or capping the SALT deduction will level the playing field for all the lower income tax states. More importantly it will force the high income tax states to lower their taxes.
This country was built on state sovereignty. The best way for it to work is to allow states to compete and if they're going to compete then the feds have to treat them equally. If Jersey wants to have higher taxes than PA or Delaware then fine, that is their right. But the feds shouldn't subsidize that behavior.
Originally posted by @Jack Clough:
I have an LLC for consulting work. Company A pays me $100k to consult. Currently this income would be added to any other income I have and I would be taxed at the rate that it puts me in (say 35%). So I take home 65k. The new tax bill would mean all that income would be taxed at 21%. I take home 79k. No double taxation at all. Make sense?
SALT stands for state and local tax. People can DEDUCT their state and local taxes when they file. So if you live in Jersey for example then you're able to deduct a LOT more than if you live in a state like Florida that has 0% state income tax. So, basically the federal government is encouraging states to raise their taxes and rewarding the people in the states with a handout.
With this tax bill, taking away or capping the SALT deduction will level the playing field for all the lower income tax states. More importantly it will force the high income tax states to lower their taxes.
This country was built on state sovereignty. The best way for it to work is to allow states to compete and if they're going to compete then the feds have to treat them equally. If Jersey wants to have higher taxes than PA or Delaware then fine, that is their right. But the feds shouldn't subsidize that behavior.
Good theory, but California (as a state) subsidizes the rest of the country. Now they will subsidize It more.
Interest on your rental mortgage, if you are a business, IS limited/impacted for some REI. See these parts and sections:
PART IV — Business-related exclusions and deductions
SEC. 13301. Limitation on deduction for interest
HOWEVER... there is an EXEMPTION FOR CERTAIN SMALL BUSINESSES. If your , then the limitation does not apply. That exemption will cover 99.9% of those of us in BP Nation.
SALT deductions allowed people in high income States to KEEP more of their tax dollars, because the money was being taxed at other levels. Thats what the purposes was. Now only being able to keep $10K "high" earners in high income states and Metro Areas end up sending even more money to DC. Then you breakdown by State where this money is going and its quite obvious how was it crafted.
How does it level the playing field? The coffers just got filled with more money from their better off cousins. I've been watching what people's opinions are on FB, Fox News, Breibart, Washington Post, etc. People in these Jurisdictions really have no clue what the cost of living is. People really think people making $155K a year are living high on the hog.
More money is sent in from these States even WITH uncapped SALT deductions, look at the Donor/Receiver Analysis by State. This does not encourage these low-earning States to "raise the Tax levels" in their State. It does the exact opposite. Now, does it encourage high income States to lower its tax structures yes. But this is very difficult to do because many of these high income States have legacy costs from Pensions and Healthcare, and probably have lots collective bargaining units within the Govt, so it would be difficult to lower their pay structures just because of that. Also, you have the problem of how would local Govt get a County Administrator of any skill paying $47K a year when a comparable position in the private sector pays $85K.
Plus, my home State has 4% flat tax, you cant go too much lower. My property taxes are a little high, there is room for improvement. Thats due to living next to a City (Detroit) that outnumbers the rest of the county 2:1 person wise, and raising taxes on any County issue is the 1st, 2nd, and 3rd option. However, how many "smaller markets" could I find the job I have in Technology, or my Wife could find multiple places of employment in Healthcare?
First chart was the Atlantic in 2014, it does return on dollars.
This is Wallet Hub's 2017 Analysis (Tax Foundation did one too mirrors it basically), they lower the number the more dollars received.
| 1 | Kentucky |
| 2 | Mississippi |
| 3 | New Mexico |
| 4 | Alabama |
| 5 | West Virginia |
| 6 | South Carolina |
| 7 | Montana |
| 8 | Tennessee |
| 9 | Maine |
| 10 | Indiana |
| 11 | Arizona |
| 12 | Louisiana |
| 13 | South Dakota |
| 14 | Missouri |
| 15 | Oregon |
| 16 | Georgia |
| 17 | Idaho |
| 18 | Vermont |
| 19 | Wyoming |
| 20 | Maryland |
| 21 | Oklahoma |
| 22 | Pennsylvania |
| 23 | Alaska |
| 24 | Rhode Island |
| 25 | Florida |
| 26 | Ohio |
| 27 | Arkansas |
| 28 | North Carolina |
| 29 | Hawaii |
| 30 | Iowa |
| 31 | Wisconsin |
| 32 | North Dakota |
| 33 | Michigan |
| 34 | New York |
| 35 | Texas |
| 36 | Washington |
| 37 | Colorado |
| 38 | Virginia |
| 39 | Nebraska |
| 40 | Utah |
| 41 | New Hampshire |
| 42 | Connecticut |
| 43 | Massachusetts |
| 44 | Nevada |
| 45 | Kansas |
| 46 | California |
| 47 | Illinois |
| 48 | New Jersey |
| 49 | Minnesota |
| 50 | Delaware |
This is naked theft from high income States who DEPEND on private sector dollars to subsidize States who basically are propped up by Federal Monies via grants, payments, defense, national security, and Govt Contracts.
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It's always interesting to see the misinformation that is spread by the media and other people who are not directly involved in making company decisions when government regulation or taxation is changed. I can tell you with firsthand knowledge that people loose jobs when things like the affordable care act and the new overtime law are passed. Businesses are not run like perfectly efficient machines. The humans that run them fight fires and when there is a fire with new regulation that hits the bottom line, they put out that fire and run leaner.
The corporate tax rate dropping 14% is a transformational change. Will some of that cash get used for share buy backs...sure. Are some executives overcompensated and not held accountable for their performance...sure. Will the rest of that money move from the government's hands and get used by companies for paying down debt, investment in the company, and in the pockets of small/medium/large business owners...yes. And are most executives and business owners accountable for their performance and in their pay...yes, there is more accountability for executive performance and business ownership than culpability in any forum.
Commentary not directed at anyone.
I'm sure everyone knows that the big companies don't pay much in taxes now... a lot less than 20%. Small companies pay considerably more taxes as a percentage. Just look at companies like GE. Page 35 of their filed with the SEC (table below) shows they are in the 6% effective tax bracket. Microsoft has an 8.4% effective tax, per their .
The stated goal of the tax cuts are to... create jobs? I'd bet that very few employers will create enough jobs to make a substantial impact at this point in the economic cycle. If you believe the numbers, the country is near full employment. If the tax cuts create more after tax profit for companies, and the country is near full employment... I would expect companies to retain profit.
#2 Out of State Investing Contributor
- Investor
- Jackson, MS
Originally posted by @Jack Clough:
I have an LLC for consulting work. Company A pays me $100k to consult. Currently this income would be added to any other income I have and I would be taxed at the rate that it puts me in (say 35%). So I take home 65k. The new tax bill would mean all that income would be taxed at 21%. I take home 79k. No double taxation at all. Make sense?
SALT stands for state and local tax. People can DEDUCT their state and local taxes when they file. So if you live in Jersey for example then you're able to deduct a LOT more than if you live in a state like Florida that has 0% state income tax. So, basically the federal government is encouraging states to raise their taxes and rewarding the people in the states with a handout.
With this tax bill, taking away or capping the SALT deduction will level the playing field for all the lower income tax states. More importantly it will force the high income tax states to lower their taxes.
This country was built on state sovereignty. The best way for it to work is to allow states to compete and if they're going to compete then the feds have to treat them equally. If Jersey wants to have higher taxes than PA or Delaware then fine, that is their right. But the feds shouldn't subsidize that behavior.
Actually this bill will weaken state rights because it discourages states from raising revenue for their own programs. It is already the case that states with the highest taxes contribute more to the poorer read states.
@Jack Clough how does your LLC get taxed at 21%?
There is an interesting article in the NYTimes on how we have (accidentally) subsidized the American dream of home ownership and how some economists have called for it to end- I am very interested to see what the effects will be.
Again- as someone who has been subjected to the AMT in the highest taxed state- welcome to my world, you'll get over it.
As far as this red state blue state media garbage people are spewing out... give me a break. We are American's, there are winners and there are losers in all legislation. I love where I live, I pay out the nose so my kids can get a great education, that I can have what I have and live in the area we live. I am certainly not jealous of Alabama or Mississippi- I wish the best for all of my fellow Americans and I hope they will see some benefit from this plan.
Get over it- contact your CPA and plan accordingly. I wish you all the best! Remember we are all in this together regardless of political affiliation or lack there of.
Originally posted by @Jon Holdman:
I did read an interesting opinion piece (which I cannot locate at the moment) saying that because this has been drafted and revised so hastily there will be all sorts of loopholes in this law ripe for exploitation. 2018 taxes will be even more challenging than normal.
I read a post by a tax consultant that said the same thing. We're gonna need very smart CPA's.
Bob Mazza According to a piece on Forbes I just read, it was proposed. However, in the conference bill (the reconciled version of the tax reform between both version, or in other words, the final bill) — both Senate and House agreed to make NO changes to the exclusion of gain from the sale of your home provision.
In other words, they aren’t changing the provision. So you should still be good in February when you sell.
Source: Forbes (website), Article: It's Beginning To Look A Lot Like Tax Reform: Here's What's In The Final Version
Originally posted by @Anna M.:
@Brian Schmelzlen, do you know how it will impact owner occupied multi families? I am house hacking in one of my rental properties. heeelp :(.
Hi Anna,
Essentially you are going to break up the multi-family property (for tax purposes) as if it is two properties. You will end up with the rental property and the personal residence. The tax changes are great for the rental side: lower tax rates and a new deduction worth up to 20% of your rental income. On the personal side, the changes may help or hurt you depending upon your situation. If you already were taking the standard deduction, the changes help you because the standard deduction almost doubled. If you were itemizing, it may have helped or hurt depending on the nature and amount of your deductions.
Feel free to send me a private message if you want to talk more specifics about your situation.
Oh wow, thank you @Brian Schmelzlen, I was taking itemized deductions, but as you point out, I need to take a closer look at the nature and amount of my deductions. I really do appreciate your response Brian. It gives me some thing to discuss with my tax accountant about. Thank you.
I agree with Mike M. I have several properties in Illinois on the Iowa border. Property tax is more in Illinois but I can buy property every day of the week that cash flows. Why? Because many investors are scared off by the rate. Illinois just increased taxes in other areas so unlikely property tax will get worse. Also if I comprehend the rollback, high property tax states like Illinois, NY, NJ and others will think twice before raising property taxes further which would only put them at a greater disadvantage vis a vis lower tax states. Is anyone theorizing the same?
I posted a blog on this topic last week. Feel free to share opinions!
4 GOP Tax Proposals that Could Impact Commercial Real Estate Investors
@Ron Fletcher I doubt it very much for N.J. We may find other areas to draw from and there may be more municipalities sharing resources- but I would be surprised if people were able to affect any change on our ever increasing taxes. The pace will be slowed-
I do foresee a drop in home prices and I believe the home builders and flippers are going to take a beating.
Originally posted by @Jack Clough:
I have an LLC for consulting work. Company A pays me $100k to consult. Currently this income would be added to any other income I have and I would be taxed at the rate that it puts me in (say 35%). So I take home 65k. The new tax bill would mean all that income would be taxed at 21%. I take home 79k. No double taxation at all. Make sense?
SALT stands for state and local tax. People can DEDUCT their state and local taxes when they file. So if you live in Jersey for example then you're able to deduct a LOT more than if you live in a state like Florida that has 0% state income tax. So, basically the federal government is encouraging states to raise their taxes and rewarding the people in the states with a handout.
With this tax bill, taking away or capping the SALT deduction will level the playing field for all the lower income tax states. More importantly it will force the high income tax states to lower their taxes.
This country was built on state sovereignty. The best way for it to work is to allow states to compete and if they're going to compete then the feds have to treat them equally. If Jersey wants to have higher taxes than PA or Delaware then fine, that is their right. But the feds shouldn't subsidize that behavior.
Your are correct my friend. You are talking about your LLC which is a pass through entity. I saw a couple of mentions about the corporate tax rate not the pass through which you refer to here. I wanted to make it clear that corporate tax rate cuts still doesn't make sense for small businesses to convert to using C Corporations in most situations because it will still be subject to double taxation since C Corporations are taxable entities.
Decent article out yesterday on this.
"Because their tax bill would slash the tax rate for “C corporations” -- a business type that includes major, publicly traded companies like Exxon Mobil and General Electric Co. -- to 21 percent from 35 percent, the Republican tax writers have been under pressure to deliver comparable tax relief to pass-through businesses.
The bill seeks to do that by setting up a 20 percent deduction on pass-through business income -- and making it available to both local pizza shop owners and major, nationwide businesses, all while setting up guardrails to prevent owners from mischaracterizing high-taxed wage income as lower-taxed business income.
The deduction is broadly available to owners of pass-through entities up to an income threshold of $207,500 for singles and $415,000 for couples. After that, limits begin to kick in that would prevent various kinds of “service” providers -- including doctors, lawyers, investment advisers and brokers, and professional athletes -- from receiving its benefit at higher income amounts."
Has anyone seen this new change in the new tax bill: sellers would have to live in their homes for five of the preceding eight years, and they could use the tax-free provision only once every five years.
This is instead of the 2 yrs you needed to live there. This will hurt me as an investor, since I was planning on purchasing my first investment home as a first time homeowner and selling in 2 yrs., and now would need to wait 5 yrs.
Jack Clough What you are saying is complete speculation and it isn’t based on anything that history has shown repeatedly.
Lowering taxes on businesses does primarily one thing: it puts more money in business owner’s pockets. They are consumers just like everyone else and some of that money MAY go back into the business or it may go to other areas such as savings, investing, or buying other things not related to business.
The facts are that “the swamp” (as you refer to it) and the wealth of the wealthiest in the US has been fueled dramatically by the tax cuts of the first attempts at trickle down economics because those would be tax dollars were retained, not invested. Wealth is more and more concentrated, to a point now greater than much of the history of the US. The higher GDP rates of the last 20 years of the 1900s was due to huge productivity gains due to computers, and very little of it was due to tax policy.
I hope you are right and these tax changes help the economy. However, with businesses already holding above $4 TRILLION at this time that they are not investing in more jobs, I have no idea why another $1T or $2T would suddenly result in job creation or investment in businesses.
Originally posted by @Mary Strater:
Has anyone seen this new change in the new tax bill: sellers would have to live in their homes for five of the preceding eight years, and they could use the tax-free provision only once every five years.
This is instead of the 2 yrs you needed to live there. This will hurt me as an investor, since I was planning on purchasing my first investment home as a first time homeowner and selling in 2 yrs., and now would need to wait 5 yrs.
No change to this law in the final version. It remains 2 out of 5.
@Christian Hutchinson your statement that people making $125-$225K per year are upper middle class is incorrect. Technically there is no single definition of middle class, but clearly the term upper middle class means people in the upper middle. Most definitions use median income as the basis or split income into sections, using the middle sections to define the middle class. I can tell you that $125K is outside the middle and is in fact the start of the upper class (even in California). I know many people making over $125K don't feel like they are in the upper class, but their life style clearly shows they are. For example, owning homes worth $250K-$600K when the median US home price is under $250K. These families drive nice cars, take vacations, go out to dinner multiple times a week, have name brand clothing and the list goes on. Their high consumption habits leave little spare money, but spending more than you make isn't the classification of middle class. It just means people are overspending for their income, which is true for most Americans.
As far as it being a middle finger to people making $125-$225K, that is hardly the case. They will see a 3-4% reduction in their tax rate. A family of 4-5 will see an increased child tax credit to $2000 per child. It also changes the limits on who can claim these deductions, so now income earners up to $400K can claim this deduction, versus the previous $110K cap. That means using your example with 2-3 children, this family can now claim an additional $4000-6000 CREDIT. They will still be able to itemize and deduct up to $10K in SALT or property taxes. Maybe less than they could this year, but the child credit alone makes up for that and then some.
On top of this there are massive tax cuts on businesses, which will disproportionately help the larger metro areas you mention. If your company is doing better financially, it frees up money for expansion, hiring and wage increases. Or if they keep the money, it benefits share holders, of which the majority of companies are held in retirement accounts. It is way more likely for someone making $125K-$225K to have substantial retirement savings in the stock market, versus someone making under $125K.
Any way you slice this, it is a net gain for the upper class wage earners you refer to and helps the high wage states more than low wage states.
https://twocents.lifehacker.com/the-salary-require...
@Chris Martin you are claiming California subsidizes the rest of the country. This is an interesting statement because the media is saying people in California and New York will be hurt the most. At the same time the media is saying the wealthy will benefit most. The way I see this, high wage earners in California and large corporations in California and New York stand to benefit the most. Look at income distribution and despite the noise around SALT, this is a huge win for those states. In fact, I am in awe that these states can come out so good, yet somehow be portrayed as the victim.
As far as tax breaks to corporations, if your point is that they are not paying taxes, then they would not get a tax break. Companies like GE are a bad example. That company is in serious trouble, as is evident by their layoffs and restructuring. They are not paying taxes because they are not profitable. Tax rates only apply to profitable companies, of which there are many. If no company made profits, then nobody would care about reducing the tax rate.
As far as what effect lower taxes has on corporations, it will probably be used by companies to expand, because that is what companies do. There is only three things to do with the money:
1. Expand the business organically, which means expanding products or markets, requiring new jobs. It doesn't matter if unemployment is low. All that does is put pressure on wages to increase and puts pressure on the government to allow immigration or work visas. Competitive employment market is good for all of us.
2. Expand through acquisition. This will be a windfall for small business owners or start ups. Very often when investors cash out, they reinvest in new companies spurring innovation. Look at Elon Musk after he sold PayPal and started Tesla. Or just look at venture capital investors, who are always looking to reinvest. It spurs innovation.
3. Share holder benefit, either through dividends or stock buy back. Those who argue that companies will just keep the extra money, this is what keeping the money looks like. Most Americans have their retirement savings in the stock market, so most of us have a vested interest in company stock prices going up. This is the hard part for people to understand. Those "evil corporations" are owned by all of us and employ many of us.