All Forum Posts by: Chris Clark

Originally posted by @Maxime Tremblay:

It isnt very clear to me how the changes will affect deduction of rental property property taxes. Since my LLC's are flow through, does it mean each LLC will get to deduct it's property taxes up to 24k and it sends the next profit or loss as a flow-through?

 Everything I've seen is only limiting the deductions for your personal residence. Rental property taxes would still be fully deductible.

I get the thought process of people wanting to be able to deduct their interest and I definitely understand why Realtors don't want this changed but I disagree on how big of an issue it will be. If you are being told to buy a larger home for a tax deduction that's not great advice to begin with. Everything I've seen on this so far will only have it affect people that owe more than $500,000 on a personal home they purchased after the bill was proposed in September. The median home price in the US according to the census is $312,800 as of October. With that in mind it won't affect the majority of homeowners.

I'm currently re-reading Set For Life right now and I couldn't agree more with the thought process of buying a house. You buy what you need not the best of what you can possibly afford. If you buy something over $500,000 because of your market maybe it's something you can house hack. Then it's possible you could get the full interest deduction because part of it is a rental and part of it is personal.

There's also the possibility it dies on the chopping block as it's not in the Senate bill currently to reduce it to $500,000. If the Senate can get a bill passed they still have to reconcile it with the House plan.

Legal zoom and other places can be used if that's the direction you want to go. If your bottom line concern is what you spend on it then that is probably the direction you want to go. If your main concern is having it for asset protection pay an attorney to draw one up for you. Legal zoom and other sites do the basics but they aren't going to be able to get you protection for your specific situation as it's more of a one stop shop. An attorney in your area knows the legal issues that you will be subject to that could need specific language.

Is this strictly an investment property? That will affect the Roth IRA question even if you held it for 5 years. Welcome to the Wichita market by the way.

I understand there are easements that allow the city to do this just curious what rights a land owner has. I'm watching a sidewalk being built in my neighborhood and in order to continue it all the way down the street the city would have to go more than 10 feet into some of these properties because of trees. Thanks in advance.

Originally posted by @Yonah Weiss:

Originally posted by @Jon Holdman:

That section deals with being able to expense big purchases for a business.  Normally big capital items (e.g., some big piece of equipment) have to be depreciated over multiple years.  Section 179 allows up to $500K to be expensed in the year you incur the expense rather then depreciating it over several years.   There's a limit of $2 million, though, and if you go over that, the $500K amount gets reduced.  The tax bill changes those numbers to $5 million and $20 million for tax years 2018 to 2023.  That's a huge benefit for companies that need to acquire a bunch of equipment or software.  Doesn't apply to most real estate, only leasehold improvements, retail improvements, or restaurants.

 Thanks for the clarity Jon. So this actually does have big implications for investors or companies who are accelerating depreciation on personal property ('5-year property' or sec. 179 property) through cost segregation. Would this apply to a purchase of a large commercial property? My impression was it does.

In it's current form it certainly could. From what I've seen so far they are talking about allowing bonus depreciation on assets with a life shorter than 20 years and making it available for used assets as well.

Originally posted by @Lisa Foreman:

Are investment properties owned by an individual considered second homes? Would mortgage interest no longer be deductible? That's what I think the language implies.

No it's all personal residence interest currently. It's not a second home if you never use it as a residence. At this point the interest reduction will only affect your personal residence and not investment property.

Originally posted by @Daniel Smith:

I am not a CPA but have been doing a deep-dive the last couple of days into this new tax plan.

Little known interesting fact -- there is actually a new tax bracket. And it's higher! There is now a 41% tax bracket for the first 200k of income over $1,000,000. This is not being publicized much.

The pass-through rate at 25% is HUGE. Hugely beneficial to high-income earners, most of whom run their own businesses or at least are in partnerships (doctors, lawyers, etc.). Also potentially a massive loss of revenue to the federal government. Kansas tried this kind of thing and it wrecked their economy. Something to look out for.

Reducing/eliminating SALT (state and local tax deductions) and student loan interest I like to call the "screw you Blue state voter" parts of the plan.

If I understand it correctly, the property tax deduction changes are not retroactive. You can be grandfathered in on the house you currently own. But this could send shock waves through the real estate market as inventory could plummet. From now on you will get no property tax deductions on second (vacation) homes. Of course, investment properties are still covered as these are business expenses.

Kansas did not try the 25% tax on pass-through income. Kansas made that income not subject to tax at all which wrecked the economy. There is a very big difference between the two.

Honestly for someone in California I would think it would be highly beneficial to have someone in state. California's state taxes are much different than most of the rest of the country in my experience. That's not to say that you can't find a good CPA that is elsewhere but it would be something that you should verify that they understand CA law if you find someone out of state.

I'll second a lot of what Nicole just stated. Really when it comes down to how many LLC's you want to have it depends on your risk tolerance. Where I live $500,000 could mean 5-10 houses. Single member LLC's are still taxed under your personal tax return as they are disregarded entities. This means that you won't have to file a separate return for those LLC's which should work in most situations for smaller rental properties.

Flips in an S-Corp make sense because of self employment taxes. There is always an argument to be made for what should or shouldn't constitute self employment income in an S-Corp. It's a grey area and there are many different thoughts behind what portion is subject to SE and what portion isn't depending on who you are talking to. There are guidelines but they allow for interpretation and using reasonable judgment.