Trump Tax Plan - Calling All You Tax Gurus

Tax, SDIRAs & Cost Segregation
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Trump Tax Plan - Calling All You Tax Gurus

John McAuley
Investor · Oxford, NC · Member since 2016 · 39 posts · 15 votes

I haven't seen another post about it so I thought I would start one.  I've read the 9 page tax plan summary.  Although very vague, it provides a framework for what they are going after and mentions several things I thought could have significant impact on real estate investors.  I'm primarily a long term buy and hold investor who is not a tax guy by any means, but loves tax strategy.  So I thought I would ask you all to weigh in.  I'll start with a few points.

1) Mortgage interest deduction.  Raising the standard deduction will virtually eliminate the need to claim the mortgage deduction for many homeowners.  This is why the National Realtor Association is mad.  But as a real estate investor, would this really have much impact?  For rental property, is mortgage interest actually deducted as a normal expense like any other loan or is it leveraging the mortgage interest deduction?  The reason I ask is because many speculate that raising the standard deduction is just a baby step towards eliminating the mortgage interest deduction later....if most people aren't benefiting from it they won't notice when it is gone....goes the logic.

2) Corporate tax rate reduction.  Seems like this could be very good for different business types.  Again, I'm not a tax guy, but if the corporate tax rate gets lowered to 20%, would it make sense to move all flipping activity into a corporation?  For people with high W2 income, where flipping (or any active business activity) gets added right on top of their current income, 20% is a whole lot better than 33% or 35%.

3) I saw some wording about not allowing interest expenses for corporations, or restructuring it...or something.  I'm not exactly sure what the impact of that would be.  It sounds like it could impact the ability to write off interest on loans.  Could this impact the interest write off as mentioned earlier?

OK, that's it.  Sorry if this has already been posted so just delete it if there is already another thread going on about this subject.  I just couldn't find it.  Thanks.

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Dan Vleck
Deerwood, MN · Member since 2014 · 184 posts · 122 votes
9y

I think it is time to talk about this and speculate.  If we understood the implications of these tax proposals, we'd be more apt to get involved politically by contacting our legislators and expressing our interests. 

It might be advantageous to pay off houses rather than buying more if the tax structure changes...

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    9y

    Lol. So much would need to be done to so many things. I'd rather wait then speculate.

    [email protected]224-381-2660
    1Reply
  • Dave Beitz
    Iowa City, IA · Member since 2017 · 5 posts · 2 votes
    9y

    The other part that I am interested in is the proposed elimination of property tax deductions.    Any tax accountants have more information on this?

    Combining the loss of property tax deductions along with the loss of interest deductions and you may be at a breakeven with the new 20% rate.  

    Especially true if you reside in a state with high state income taxes that are also loosing their deduction.

    1Reply
  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    9y

    The most I can say about the summary is it rarely looks the same after passing thru both houses.  It appears it may lower taxes for some and it definitely could be simpler than today.  Other than that we will just wait and see.  

    I feel the same way about health care -I am waiting to see how much my insurance premiums go up this year.  I actually have no clue yet but the insurance agent said to get ready --whatever that means.

    [email protected]215-283-2868
    1Reply
  • Account Closed
    Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
    9y

    We are WAAAAAAYYYYYYY to early in the game to tell.  This will get hashed over again, and again, and then again, and even then, it might not pass.

    I also suspect the answer to your questions is going to depend on how you hold your property (whether in a business or as an individual).

    Only time will tell.

    1Reply
  • Dan Vleck
    Deerwood, MN · Member since 2014 · 184 posts · 122 votes
    9y

    I think it is time to talk about this and speculate.  If we understood the implications of these tax proposals, we'd be more apt to get involved politically by contacting our legislators and expressing our interests. 

    It might be advantageous to pay off houses rather than buying more if the tax structure changes...

    4Reply
  • Tim Porsche
    Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
    9y

    It looks like they're keeping the mortgage interest deduction now from what I've heard, but they want to eliminate the state and local property tax deductions.

    Any idea if this would just be for primary residences, or rental properties as well?

    0Reply
  • Phil G.
    Real Estate Broker · MA · Member since 2013 · 361 posts · 297 votes
    9y

    I too think it's too early to waste any time analyzing anything that's put out by congress or the White House at this point.  Tax bills are the most negotiable, because it's easier to split the difference on numbers than with the most other policy issues.  Some of the things that are proposed are going to be wildly unpopular in both red and blue states and reps and senators are going to be loathe to have to defend them in the midterms.  If any bill makes it through the House and Senate, and that's not a given, it's unclear what the details will be.

    0Reply
  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    9y

    I recommend a wait and see approach at this point.

    404-482-3170
    Hampton Tax and Financial Services LLC4.7106 Reviews
    WebsiteView Page
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  • David Hughes
    Bend, OR · Member since 2017 · 7 posts · 2 votes
    9y

    I agree on the wait and see strategy. 

    I haven't read the bill or synopsis, but from what I have read I thought the change for deduction on the interest would only effect Schedule-A itemized deductions and not Schedule-E.  I could be completely wrong, but just my understanding and with congress, the final result is rarely what is first introduced. 

    0Reply
  • Derrick Dill
    Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
    9y

    The elimination of state and property tax deductions is apart of the tax proposal. My primary residence is in California, with property taxes ~5k annually. 2 rental properties in Ohio, one at 3.5k, one 4k, and one in Missouri 1k.

    I'm a pretty modest buy and hold middle class investor, the elimination of property taxes will result in about 15k loss of itemized deductions for me, which is considerable.

    It will make me reconsider areas to invest, and target states/areas with lower state/property taxes, and will hurt me in the short-term considerably around tax time.

    Texas, NY, Cali will be some of the most adversely effected due to their high property taxes no longer being deductible.

    0Reply
  • David Hughes
    Bend, OR · Member since 2017 · 7 posts · 2 votes
    9y

    Whoops, already I've proven myself wrong...

    "In order to simplify the tax code, the framework eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions." 

    quoted from treasury.gov

    0Reply
  • Thomas Hickey
    Real Estate Investor · Peabody, MA · Member since 2013 · 304 posts · 91 votes
    9y
    Will you still be able to deduct your renovation expenses? Also any mention of 1031 exchanges? Overall even if it hurts real estate investing could shake up the tight market and reward those willing to jump in
    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    The proposal on the partial limitation of the interest deduction is for C corporations.

    The 20% corporate tax rate proposal does not eliminate double taxation (although they plan to consider methods to reduce it).

    A potential large impact to certain real estate investors is the proposal to lower the pass-thru entity tax rate to 25%.  This has been an anticipated part of the proposal since the election.  For investors in the 28.0% - 39.6% tax brackets, who have positive taxable income from real estate, this could be a big tax savings.  Some CPAs have been recommending to their clients to move personally owned properties into LLCs in anticipation of this proposal.

    1Reply
  • Nicholas Middleton
    Rental Property Investor · Livonia, MI · Member since 2017 · 17 posts · 2 votes
    8y

    are there any new thoughts on this topic from the recent news about the tax plan?

    0Reply
  • Jason L.
    Real Estate Investor · Chino Hills, CA · Member since 2014 · 47 posts · 19 votes
    8y

    @Nicholas Middleton, I started a new thread pointing out something in the current House version of the tax plan that I hadn't seen mentioned yet here on BP. Since that thread didn't gain traction, I'll just copy my post here:


    Saw this over at MMM and thought this would be of interest to any live-in flippers expecting to have their capital gains shielded from taxation when they sell...

    It seems the House tax plan would redefine "principal residence" as a place one has lived in for 5 of the past 8 years rather than 2 of the past 5:

    Obviously, the proposed tax plan is changing moment to moment and the final version -- if it passes -- is what matters. Still, something to keep an eye on.

    2Reply
  • Nicholas Middleton
    Rental Property Investor · Livonia, MI · Member since 2017 · 17 posts · 2 votes
    8y
    @Jason L. thanks for sending this over. I did see that part and was wondering what type of impact that would have on investors and owner occupants alike.

    if that were to pass through, what types of opportunity do you see coming from it?
    0Reply
  • Jason L.
    Real Estate Investor · Chino Hills, CA · Member since 2014 · 47 posts · 19 votes
    8y

    @Nicholas Middleton, unless I'm missing something, I don't see any opportunities per se from this potential update... Just lengthens the occupancy period required to call a home your "principal residence" for capital gains exclusion purposes... 

    0Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Mike Dymski:

      Some CPAs have been recommending to their clients to move personally owned properties into LLCs in anticipation of this proposal.

    It is my understanding that my personally owned buildings are treated as sole proprietorships for pass through purposes. Thus under the new plan treating them at the lower tax rate. Am I incorrect and if so I would appreciate being directed to the authority. Thank you.

    Also- a single member LLC is treated as a sole proprietor by the IRS, no?

    Personally I have been following every aspect of this tax rewrite and even when the dust settles I don't know where I will sit. I am in the AMT, so many of the deductions that people will be losing, I lost a while ago. As such, I will be scheduling an appointment with my CPA the day it passes both houses.

    (BTW, My CPA would never recommend that I make a business move based on a proposed piece of legislation, that's why I like him.)

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y
    Originally posted by @Patrick M.:
    Originally posted by @Mike Dymski:

      Some CPAs have been recommending to their clients to move personally owned properties into LLCs in anticipation of this proposal.

    It is my understanding that my personally owned buildings are treated as sole proprietorships for pass through purposes. Thus under the new plan treating them at the lower tax rate. Am I incorrect and if so I would appreciate being directed to the authority. Thank you.

    Also- a single member LLC is treated as a sole proprietor by the IRS, no?

    Personally I have been following every aspect of this tax rewrite and even when the dust settles I don't know where I will sit. I am in the AMT, so many of the deductions that people will be losing, I lost a while ago. As such, I will be scheduling an appointment with my CPA the day it passes both houses.

    (BTW, My CPA would never recommend that I make a business move based on a proposed piece of legislation, that's why I like him.)

    A sole proprietorship does not pass through another entity...it's you and taxed at your personal rates.

    A single member LLC can elect to be treated as an s-corp for tax purposes.

    The decision to move personally owned properties involves decisions around legal liability and financing, independent of proposed legislation.  I have not moved my personally owned properties.

    1Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Mike Dymski Again- semantics aside, all of these would be treated at the same "pass through" tax rate of 25% (or Senate variations). regardless of whether they are personally owned or in an LLC, correct? And again- if not can you cite the authority? If this is not the case I would really like to know.

    And if this is the case why are "some CPA's" recommending people move their properties into LLC's based on not even passed legislation?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y
    Originally posted by @Patrick M.:

    @Mike Dymski Again- semantics aside, all of these would be treated at the same "pass through" tax rate of 25% (or Senate variations). regardless of whether they are personally owned or in an LLC, correct? And again- if not can you cite the authority? If this is not the case I would really like to know.

    And if this is the case why are "some CPA's" recommending people move their properties into LLC's based on not even passed legislation?

    If someone is in the 28-40% personal tax brackets and the corporate and LLC/LP rates drop to 25% or below, that can be a big tax savings, and you never know if the timing would be prospective or retroactive.

    1Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Mike Dymski again, this would also apply to landlords who hold their properties in their own name, sole proprietorships, no? 

    I don't know if you are purposely not answering this or just messing with me. You just keep rephrasing things... I don't understand why multiple CPA's would be advising sole proprietors to form an LLC for tax purposes on proposed legislation when they will both be taxed at the same rate.

    Again- if these CPA's are advising landlords to "move personally owned properties into LLCs in anticipation of this proposal" then can you provide me some authority that says holding a personally owned rental property will not be taxed at the new rate?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y

    The proposal was to allow the LLC rate to be lower than your personal rate (i.e. no pass-through). The proposal included reducing the corporate tax rate; so, they did not want corporations paying 20% and LLC owners paying up to 40%...wanted parity.

    I just googled it and read a Forbes article.  The latest proposal is different than the original one and there is a more complex calculation for pass-through entities such as LLCs that I don't care to figure out.  I will ask my CPA in our planning meeting.  Just google it...it's in every business publication...lowering the pass-through entity rate has been a big part of the tax proposal all year (and it appears that it has been changed).  I'm signing off.

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