trump tax impact on investors? why arent we talking more about it

[Alex J.]

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

[Chris Martin]

@Joe Splitrock In the context of GE, regarding "They are not paying taxes because they are not profitable" is not accurate. I posted a link to their 10-K filed with the SEC and also put in an table showing their income statement. They made $17,598,000,000 in profit and paid $967,000,000 in taxes. Taxes paid are 5.5% of their profit. They, like most people, use tax laws and incentives to minimize their tax liability. When I worked at GE, they would layoff whole segments and buy/hire somewhere else. They have done the same continuously thing since Neutron Jack retired. wonder where he gets that nickname? Last year they disposed of GE Capital for $197,000,000,000. Page 27 of the annual report that I posted a link to. They have been about 300,000 employees for the last 5 years. Page 116 of the annual report.

My Commentary was not directed at anyone specifically. The point of the post was to show a real example of a highly profitable ($17.6 BILLION in profit) company that from my perspective legally pays substantially less than the current corporate tax rate. Tax law provides investment incentives that companies, like GE, use to reduce tax expenses. Real estate investors already know about these legal ways to minimize current taxes (e.g. depreciation expenses, etc.) and even how to use tax law (e.g. section 1031) to pay no current taxes on sale of appreciated property that other industries would have to pay considerable amounts of tax. I don't see the tax law changes impacting this part of the real estate business much for the 'blue collar', US investor. I'm not sure about REITs and international investors, but that's not my space. 

[Jon Begley]

Does anyone know if the 25 year depreciation schedule from the Senate made it to the conference bill? I saw one summary were it was unchanged (27.5, 39) but I could only find the one source. 

[Jack B.]

Originally posted by @Brian Schmelzlen:

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.

Where can I learn more about the 20% deduction of any rental income? How exactly does that work? I itemize my rental expenses, depreciation, etc. then I can reduce another 20% of the income from rentals on top of that?

Have the 1031 exchange rules changed? I read that has stayed the same.

I also read that the 2/5 year rule for primary residency has stayed the same as well.

I was just getting ready to sell 1.3 mil of real estate (two houses) to buy 5 more houses. I'm hesitant to do so now until I see what the final tax bill that is signed into law looks like and understand how it affects me.

That said this makes me glad I sold my paid off rental and bought two more houses with the money this year via 1031..

[Austin M.]

It sounds like 20% of net rental profit after deprecation, expenses etc  is tax free. Is this correct? This will be the biggest event in a lifetime for rental cash flow owners.



Originally posted by @Jack B.:

Originally posted by @Brian Schmelzlen:

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.

Where can I learn more about the 20% deduction of any rental income? How exactly does that work? I itemize my rental expenses, depreciation, etc. then I can reduce another 20% of the income from rentals on top of that?

Have the 1031 exchange rules changed? I read that has stayed the same.

I also read that the 2/5 year rule for primary residency has stayed the same as well.

I was just getting ready to sell 1.3 mil of real estate (two houses) to buy 5 more houses. I'm hesitant to do so now until I see what the final tax bill that is signed into law looks like and understand how it affects me.

That said this makes me glad I sold my paid off rental and bought two more houses with the money this year via 1031..

[Soh Tanaka]

@Jon Begley It looks like the depreciation years has been reduced to 25 years. It's in page 204 of the bill. 

The Full Bill

[Jon Begley]

Originally posted by @Soh Tanaka:

@Jon Begley It looks like the depreciation years has been reduced to 25 years. It's in page 204 of the bill. 

The Full Bill

 Thank you Soh, but on page 205 it appears that the conference decided not to change it if I'm interpreting things correctly. 

Conference Agreement

"The conference agreement follows the Senate amendment except that it maintains the present law general MACRS recovery periods of 39 and 27.5 years for nonresidential real and residential rental property, respectively. In addition, the conference agreement provides a general 15-year MACRS recovery period for qualified improvement property"

[Soh Tanaka]

@Jon Begley Unfortunately, it looks like you are right. One reason why you shouldn't take accounting advice from a non-accountant :-)

[Christian Hutchinson]

@Joe Splitrock

You understand they got rid of the personal exemption and dependent exemptions, so the child tax credit was just a swap threw a in a couple hundred dollars on top.  Based on the advice on my accountant at best we will receive an extra $1700 a year.

Thats nothing, thats not even an extra paycheck for myself or wife. Thats $50/mo increase in rent on three units. which again is nothing. If your employer offered you a 2% raise would you think you broke the bank, would you say your situation just improved?
Basically we can "book" more profit from our rentals. We writeoff a few less meals, we deduct a few less trips to our properties.

I don't believe for a second my employer will up profit-sharing, 401K matches, or give us a pay bump (like 10%) of any significance that I couldn't double switching employers outright. Hopefully I'm wrong, maybe companies will pump up their dividends so cash will come all sorts of ways via a little pay, asset values, stock values, and decreased tax burden.  Maybe this is 3-4 revenue increases and expense optimizations  thats gets me $10K more a year just doing what I'm doing, we shall know in about 18 months though.

[Gabriel Thomas]

Read Brandon Hall's blog, here on BP, about the issue. It was pretty informative. Search his name in the blogs section. 

[Joe Splitrock]

Originally posted by @Christian Hutchinson:

@Joe Splitrock

You understand they got rid of the personal exemption and dependent exemptions, so the child tax credit was just a swap threw a in a couple hundred dollars on top.  Based on the advice on my accountant at best we will receive an extra $1700 a year.

Thats nothing, thats not even an extra paycheck for myself or wife. Thats $50/mo increase in rent on three units. which again is nothing. If your employer offered you a 2% raise would you think you broke the bank, would you say your situation just improved?
Basically we can "book" more profit from our rentals. We writeoff a few less meals, we deduct a few less trips to our properties.

I don't believe for a second my employer will up profit-sharing, 401K matches, or give us a pay bump (like 10%) of any significance that I couldn't double switching employers outright. Hopefully I'm wrong, maybe companies will pump up their dividends so cash will come all sorts of ways via a little pay, asset values, stock values, and decreased tax burden.  Maybe this is 3-4 revenue increases and expense optimizations  thats gets me $10K more a year just doing what I'm doing, we shall know in about 18 months though.

 That is great you and your wife are doing well enough to consider $1700 nothing. 

I don’t think anyone said the tax cut would be a life changing sum of money. It is an economic stimulus. Even if you spend your $1700 on Starbucks, that is money going to businesses, who have employees. Businesses create jobs when demand increases. Wages go up when unemployment decreases.