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

[Jack Clough]

@Bob Okenwa

You have your mind set on higher taxes and bigger government. Good luck with that. We can peacefully disagree and move on.

[Jon Holdman]

Another zinger from Krugman on this:

Think about it: We’re pitting hastily devised legislation, drafted without hearings over the course of just a few days, against the cleverest lawyers and accountants money can buy. Which side do you think will win?

[Russell Brazil]

The full text of the bill will be released at 5:30pm today, and voted on in the house on Monday, and Senate on Tuesday.  That is at least an improvement on the first go around where the text of the bill was released within an hour of the vote, not giving the Senate even time to read the bill before voting on it, and actually rejecting a motion to give time to read the bill.  Not that it matters since only a very tiny portion of them will actually read it.

[Patrick M.]

I have been following this bill through every twist and turn. I come out ahead, that is for sure... 

I have been in the AMT for the last few years, so as someone from the highest taxed state- I was never able to claim those as deductions as well as mortgage interest. Now everyone can feel my pain... just kidding. 

But huge bonus for someone coming from the AMT. $24k standard deduction, $2k per child and an added $500 bonus for the dependent adult.- loving it

As for the pass through- awesome... 20% off my profits before tax- love it. And then it will be taxed at a lower rate then now... beauty.

And that is before my CPA gets ahold of it. Merry Christmas!

[John Kim]

Are there limits on the 20% pass-through deduction? Specifically, limits pertaining to wages paid out?

Example:
$200,000 in pass thru income
$50,000 in W2 wages paid.
-----
In one version of the bill, you could only take a 20% deduction up to the amount of wages paid, in this case $50k...they were trying to close the loophole of favoring passive owners...


Originally posted by @Patrick M.:

As for the pass through- awesome... 20% off my profits before tax- love it. And then it will be taxed at a lower rate then now... beauty.

[ND Eggen]

The corp ~21% pass through is going to be nice for my rental income, but as a person who also works a regular job and has bought residences that have mortgages beyond 750k this bill still mean a significant difference in net income for many in high cost areas.

Beyond the 750k mortgage limit, the 10k cap on property/state tax credits is a big issue for many states - NY, NJ, CA, MA, and WA - among them. Especially if it is total across 1st and 2nd homes. 

I would estimate in 2-4 years the majority of SFH owners in Seattle will exceed 10k cap between property tax and state sales tax credits at the current rate of tax growth here.

I'm already well over it - as are all of my neighbors - due to property taxes in our area. My current primary residence loan will at least be grandfathered in, but no more refis to get cash for rental investing and moving to something new/better will cost more. 

The corp pass through will at least offset the impact for me personally, but most higher income wage earners won't have that and will be making less net income in these states after this change.

[Patrick M.]

@ND Eggen, I am not following you? You have your rental properties set up in a Corporation? If so you would be double taxed on any income you derive from it- 21% and then your personal rate- No?

Otherwise the pass-through would apply.

[Patrick M.]

@John Kim 

The House and Senate blended their provisions on a crucial piece of the new tax break for pass-through businesses that aren't in professional service industries.

The House version was based on a company’s capital investments, giving firms the ability to get more of their income at a 25% rate if they had more capital invested.

The Senate’s version limited the tax break to 50% of wages paid.

The final version combines the two approaches. Now, the 20% deduction is capped at either 50% of wages or 25% of wages plus 2.5% of capital assets, whichever is greater.

Compared to the Senate bill, that’s a benefit for capital-intensive companies that don’t pay a lot of wages or any wages at all.

These limits only apply for businesses whose owners have individual income exceeding $157,500 or joint filer income of $315,000.

[John Kim]

>Now, the 20% deduction is capped at either 50% of wages or 25% of wages plus 2.5% of capital assets, whichever is greater.

So lets say the pass thru income is $100K and the wages are $5K

What would be the max deduction allowed?

[Patrick M.]

Originally posted by @John Kim:

That would be a crazy loophole for passive income!  No need to pay wages and FICA...............

just edited

[Russell Brazil]

Originally posted by @ND Eggen:

The corp ~21% pass through is going to be nice for my rental income, but as a person who also works a regular job and has bought residences that have mortgages beyond 750k this bill still mean a significant difference in net income for many in high cost areas.

Beyond the 750k mortgage limit, the 10k cap on property/state tax credits is a big issue for many states - NY, NJ, CA, MA, and WA - among them. Especially if it is total across 1st and 2nd homes. 

I would estimate in 2-4 years the majority of SFH owners in Seattle will exceed 10k cap between property tax and state sales tax credits at the current rate of tax growth here.

I'm already well over it - as are all of my neighbors - due to property taxes in our area. My current primary residence loan will at least be grandfathered in, but no more refis to get cash for rental investing and moving to something new/better will cost more. 

The corp pass through will at least offset the impact for me personally, but most higher income wage earners won't have that and will be making less net income in these states after this change.

Expect court challenges to the deductibility of property and state income tax as there is already recent case law on the subject. Comptroller of Maryland v. Wynne the Supreme Court found double taxation to be unconstitutional as it inhibited interstate commerce.  It is quite interesting that Congress completely ignored this as it just happened in 2015, and actually affected many members of Congress who live in the Maryland DC suburbs.

[Patrick M.]

@Russell Brazil My brief analysis of the case leads me to believe it would not impact the new tax law at all. This case seems to have to do with a state's (and county's) "out of state" credit system. Apples and oranges.

[John Kim]

These limits only apply for businesses whose owners have individual income exceeding $157,500 or joint filer income of $315,000.

Does this mean that the wage limitations do not apply to people making under $315K?

So if someone is making $200k in passive income with $0 wages....he qualifies for a 20% x $200,000 = $40K deduction?

[Christian Hutchinson]

The SALT tax is a big middle-finger to people on the Coast, and Upper MW who live in Urban Areas (Chicago, MSP, Detroit, CLE, PITT, INDY).  Your average family of 4-5 has two income earners with a college education or a nice Union Job. They live in suburbs with nice school districts and homes cost $250-$600K their property tax bills are $4k-$15K a year. These people are not rich, they make $125K-$225K a year. They have state taxes of $3k-$10K a year, and some cases have local taxes thats $1K-$4K.

If your property values keep going up its like a double whammy, because every dollar over $10k is federally taxed, while more of your income is being taxed because of assessments.

[Robert M.]

Originally posted by @Christian Hutchinson:

The SALT tax is a big middle-finger to people on the Coast, and Upper MW who live in Urban Areas (Chicago, MSP, Detroit, CLE, PITT, INDY).  Your average family of 4-5 has two income earners with a college education or a nice Union Job. They live in suburbs with nice school districts and homes cost $250-$600K their property tax bills are $4k-$15K a year. These people are not rich, they make $125K-$225K a year. They have state taxes of $3k-$10K a year, and some cases have local taxes thats $1K-$4K.

If your property values keep going up its like a double whammy, because every dollar over $10k is federally taxed, while more of your income is being taxed because of assessments.

The voting record in my state(Oregon) would suggest we/they are rich. Property taxes in my area have significantly gone up mostly due to ALL the bonds the taxpayers keep voting in. The county can only increase the property tax by 3% a year. My state and county currently have millions and millions of dollars in ten and twenty year voted in bonds.  It's my opinion that we should think about how we vote and what the outcome might be.  Is that 30 million dollar swim center really needed? We could be voting our selves out of a market. I also want to mention that most homeowners have NO idea what they pay in the way of property taxes, escrow accounts write the check.  People that rent also tend to check yes box as they think they don't have to pay the bill. Sorry for the rant, but I feel we did it to our selves.

[Kenneth LaVoie]

The 20% tax deduction for pass through entities sounds fantastic. Correct me if I'm wrong but it sounds like a "standard deduction" for our business. 

[Brie Schmidt]

I have not been following this very closely, I saw they were going to change the capital gain exemption on your personal residence if you lived there 2 of the last 5 years.  Was that taken out of the new bill? 

[Robert Stark]

Casual observation of how politics work.

When Democrats are in power, Republicans complain about any increase to the national debt.

When Republicans are in power, Democrats complain about any increase to the national debt.

Democrats accuse Republicans of “ramming” tax reform through without reading the bill.

Republicans accuse Democrats of “ramming” through Obamacare without reading it. Nancy Pelosi told us we could read it after it was passed. Lol.

They’ve done their job folks. They’ve got us split right down the middle.

Happy Holidays to all the Bigger Pockets members out there and thank you sharing your knowledge over the past year! Here’s hoping tax reform benefits you. :)

Enjoying this conversation, sorry to stray off topic.

[Vince DeCrow]

Alex J. I wrote a blog on this topic last weekend so its a few days out of day but should still be beneficial to those making sure they are prepared!

https://www.biggerpockets.com/blogs/10360/68571-4-gop-tax-proposals-that-could-impact-commercial-real-estate

-Vince

[Christian Hutchinson]

Originally posted by @Robert M.:

Originally posted by @Christian Hutchinson:

The SALT tax is a big middle-finger to people on the Coast, and Upper MW who live in Urban Areas (Chicago, MSP, Detroit, CLE, PITT, INDY).  Your average family of 4-5 has two income earners with a college education or a nice Union Job. They live in suburbs with nice school districts and homes cost $250-$600K their property tax bills are $4k-$15K a year. These people are not rich, they make $125K-$225K a year. They have state taxes of $3k-$10K a year, and some cases have local taxes thats $1K-$4K.

If your property values keep going up its like a double whammy, because every dollar over $10k is federally taxed, while more of your income is being taxed because of assessments.

The voting record in my state(Oregon) would suggest we/they are rich. Property taxes in my area have significantly gone up mostly due to ALL the bonds the taxpayers keep voting in. The county can only increase the property tax by 3% a year. My state and county currently have millions and millions of dollars in ten and twenty year voted in bonds.  It's my opinion that we should think about how we vote and what the outcome might be.  Is that 30 million dollar swim center really needed? We could be voting our selves out of a market. I also want to mention that most homeowners have NO idea what they pay in the way of property taxes, escrow accounts write the check.  People that rent also tend to check yes box as they think they don't have to pay the bill. Sorry for the rant, but I feel we did it to our selves.

 Do people just spend reckless on bond votes, yes they do, because $50 to $100 seems small until its like 6 or 7 things. We have nice schools, private parks, our youth sports leagues are ran via the City or Spun-off non-profit the City sends a check to. WHY do communities like this do it. Because people are invested in the community and think long term about stuff. During a the last recession places where I have rentals go rid of stuff like libraries, community education/enrichment. So to save a buck people cut stuff that is a long-term investment. We had a team in the LLWS 2 of the last 4 years. It cost $120 to play baseball in my town for 4 months, soccer is  $150, or $250 if you play both seasons. Swim lessons for my kids is $60 for 8 weeks. People with college educations and six figure incomes understand the importance of hard-copy text.

Or hey we dont like what we get charged for the Regional Water System, instead of complaining saying we are being robbed, we passed a bond to build our own system to run as we wish. Court system is too complex and cumbersome, fine, we standup our own system with fee structure. A traffic ticket is handled through the mail versus traffic court which nothing but a money grab.

Communities that are affluent and been that way for 100 years approach problems way different than just places that are nice now because a developer built some new houses.

What this SALT tax is doing is basically making high-income States in the MW, Northeast, and West support lower income States even more in the Southeast and Southwest. All while these States biggest industries outside of GA and FL being Defense and National Security related industries.

Go look at who Donor and Receiver States are in terms of Federal Monies.

[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 :(.

[Account Closed]

To me it is simple.  The government has decided to borrow more money to pay its bills.  Long term that will have to same effects as a household doing it.

I do not have children or grandkids so I guess it should not bother me how much debt is put on other people's.

[Spencer Karr]

@Patrick M touched on this.

Let me make it clear. The corporate tax rate dropping to 21% likely won’t help any of us because if you want to take any money out of that corporation, it will be taxed again at your individual rate of probably at least 20%. This is double taxation and the reason none of us should ever have a corporation unless you plan to take it public or create a REIT which can always be done later.

An S Corporation is a pass through entity and would be treated basically the same as a partnership. That can be confusing sometimes because it has corporation in the name.

P.S. I haven’t been able to figure out how to tag people in the app.

[Ihe O.]

Originally posted by @Jack Clough:

@Bob Okenwa

First of all, how many companies do you think are publicly traded? The vast majority are not.

Secondly, if a company buys back stock then who benefits? Stockholders. 

And a significant proportion of those stockholders are foreign pension funds, index trackers and investment vehicles.

[Chris Martin]

In a 3 minute glance... there are 143 instances of "effective date" (case insensitive) of the bill. Importantly here are some flavors:

Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2018.

Some sections will effect 2017, some 2018, some later. Regarding "SEC. 11001. Modification of rates." the effective date will "... apply to taxable years beginning after December 31, 2017." So no santa clause for the 2017 tax year. In April 2018, for those who think they have some kind of windfall, you are still going to pay prior rate categories for your 2017 filed taxes. Did the authors really intend this? ... or maybe they didn't have time to proof read it, because It was rushed through.