All Forum Posts by: Michael Plaks

@Andrey Y.

The HELOC interest is not deductible, unless used strictly for business purposes, such as buying a rental property.

Let's separate different issues: financial benefit and tax benefit.

For the first one, we would need to know total remaining payments on the student loan and total remaining payments on the existing mortgage. Then compare it with the total payments on the refi loan. The comparison will tell you whether the refi saves you money in the long run, regardless of taxes. (Of course it's skewed by the time value of money and inflation.)

Now look at taxes. You say that you cannot deduct student interest now, I assume because of your income being too high. So, no change here. Your current mortgage interest was deductible as itemized deductions. It will still be deductible in 2018, however subject to the new doubled-up standard deduction. This may render your mortgage interest deduction useless - both existing and refi interest. 

Only IF you will still be able to itemize in 2018 - only then mortgage interest will matter. If you do a cashout refinance, however, only a portion of that interest will be deductible, as I explained in my earlier post - so you may not win anything. Also, lower interest rate means lower interest deduction, too.

Bottom line: don't do it for taxes, as it may not save you any taxes. Do it if it makes sense in terms of saving you the total amount over the lives of the loans, or if you're strapped for cash and it reduces your total monthly payment.

Also, keep in mind that you will be converting unsecured student debt into a secured mortgage debt.

Student loan interest is still deductible, as long as your income is not too high.

The refi interest will be deductible up to the initial loan amount. Example: when you purchased the house, you had a $200k loan. The house appreciated since that, and the refi loan is for $250k. The interest is deductible on $200k out of $250k - i.e. 80% of the interest is deductible. This is not the new law, by the way. The current law is the same.

What is not deductible under the new law is home equity loan. In my example, it would be leaving the old $200k loan in place and getting another $50k equity loan.

The rules are a little trickier than my simplified example, but I hope it gives you an idea.

@Michael Bertsch

Casualty loss is deductible, but it is not considered passive, so it does NOT count towards the $25k passive loss. Even if your "normal" passive losses are limited, your casualty loss is still deductible against regular income, such as W2.

On a related note - you will need to subtract the casualty loss from the basis of the property. This will increase capital gain when you sell.

Under your scenario - no. You cannot deduct materials on a rental property until it is placed in service - which means until rehab is completed.

I hear you, but you may be taking it too far. @Brandon Hall and I are NOT suggesting to assign arbitrary values to land. There are multiple ways to value land legally, and some methods allow for a much higher allocation to land.

The IRS is also limited to 3 years for an audit. 6 years in some cases ("substantial omission" which would not apply in this case).

Yes to all of that.

My issue is that, per simple math, to justify $10k-$12k, they either need to earn $20+ per hour (and for what kind of work???) or work unrealistically many hours. I see investors all the time trying to pay their 8-10-yo kids the old $6k max, for "picking up debris on the weekends" etc. - and I'd have hard time defending it with a straight face in an audit. Much less $10k-$12k.  

 Yes, it does. No changes to the $25k rule.

I'm not saying that they will lose under the new rules. I'm saying that donating will not make a difference anymore, using my example. When there is no tax benefit - there is less incentive to donate.

You suggest that "...people will be more generous if they are allowed to keep more money." My experience tells me otherwise. The cynical me would say that people will spend more, not donate more. 

I love to challenge the strategies of @Brandon Hall and force him to spill more beans ;)

About paying your children more. The issue is the economic substance of hiring your children.

Children typically do jobs that are worth maybe $10/hr. To hit $10,000 annual compensation, they would need to have documented 1,000 hours of work per year. That's an average of 20 hours each week.  In addition to school and life. I find it a stretch, unless they work for you full-time all summer.

So either they need to do some high-skill work that is worth way more than $10/hr - or they need to have no life and spend their childhood toiling for the parents. See my point?