2018 Tax Update w/ [Commentary] thoughts of where we are going???

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Here is my findings of the newly released 2018 Tax Brackets. I know so exciting.

The maximum contribution for 401(k) plans is rising to $18,500 in 2018, up from $18,000 in 2017 — this also applies to 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. The catch-up contribution for those age 50 and up remains $6,000 for all of these plans.

Who Qualifies for a Roth

The IRS also increased the maximum earnings allowed by those who can a Roth IRA to $120,000 to $135,000 for singles and heads of household, and $189,000 to $199,000 for married couples filing jointly; these ranges are $2,000 and $3,000 higher than 2017 respectively.

[I personally don’t like these QRPs or qualified retirement plans (Roth-IRA, Solo 401ks, etc) if you are an active real estate investor. If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts.

When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using the QRP loans get you the second tier financing options, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

Caveat: If you are late to the game and already have a fat 401k then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it.]

Transit and Parking

The other types of benefit that has changed is pre-tax payments for transit passes and parking fees; it’s risen by $5 a month, to $260 a month. [These are the scarcity mindset things that are confusing]

Otherwise, other changes for 2018 include deductions, exemptions and income tax credits.

Source: Forbes

Source: Forbes

Source: Forbes

Source: Forbes

Student Loans

The maximum deduction for interest on student loans remains $2,500. Eligibility for the deduction starts phasing out with individual incomes surpassing $65,000 and joint return incomes exceeding $135,000. Taxpayers become completely ineligible when they pass $80,000 and $165,000 respectively.

Deductions in 2018

Single taxpayers and married couples filing separately get a standard deduction of $6,500 in 2018, up from $6,350 in 2017.

The standard deduction is $13,000 for married couples filing jointly, up from $12,700 in the prior year; and for heads of households, the standard deduction is $9,550, up from $9,350 in 2017.

The standard deduction for a taxpayer who can be claimed as a dependent by another taxpayer is a maximum of whichever figure is greater: $1,050 or $350 plus the dependent’s earned income.

The additional standard deduction for the aged and blind is $1,300. The additional standard deduction for unmarried taxpayers is $1,600.

[Expenses for your real estate business are above the line expenses Whoohoo]

Penalties [A cost of doing business]

This year’s penalties for not having health insurance — and not having a waiver or exemption — remains the same as 2017: 2.5% of your adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher.

The IRS continues to impose the penalty of revoking passports for anyone with serious tax delinquencies, and the threshold for that is $51,000 in tax year 2018. [For many of you have that have visions of living abroad parts of the year]

Estate and Gift Taxes

On the opposite end of the spectrum, the amount of money that married couples can pass to each other without taxes goes up to $5.6 million per individual, up from $5.49 million in 2017. Note that the term estate tax is often misunderstood by the media to include heirs other than children when that isn’t always the case.

[Things that I ponder for myself is if I should put more money into my Health Saving Account. I believe you are going to have health expenses before you ever spend a retirement dollar so you should fill this bucket first. I don’t screw around with any Qualified Retirement Plans] 

@Lane Kawaoka

Great writeup.  Looking forward to an update if/when Trumps new tax plan gets passed.  I go against the grain (in BP school of thought) and have my deferred comp maxed, hoping if a new tax plan is passed that it doesn't lower the 401k contribution amount (which some sources are reporting will be the case). 

@Sean K. , Here,here. Also my employer is willing to give me $8250 a year toward my retirement and I am supposed to pass that up??? Crazy talk. I had a 20% return on my TSP this year. Thank you very much, I will definitely keep contributing and getting that free 5% matching.

If they play around with the contribution limits to pass the Tax cuts then I will switch to the Roth TSP (after tax) It has no income limitation and I am starting to think that even in retirement I will be in a high bracket. Would love to see the pass through rate change and AMT death!

@Sean K. I think the key is just keep asking what the cool kids are doing. @Albert Bui is one of those cool kids and is just going to start calling his primary residence baller pad over 500k loan a business place.

@Patrick M. you need to change your mindset about taxes... I want to pay as much taxes that means I'm kicking butt and making a lot of money. I personally don't like TSP which are these QRPs or qualified retirement plans (Roth-IRA, Solo 401ks, etc) if you are an active real estate investor. If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts.

When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using the QRP loans get you the second tier financing options, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

Caveat: If you are late to the game and already have a fat 401k then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it. 

Originally posted by @Lane Kawaoka :

@Sean K. I think the key is just keep asking what the cool kids are doing. @Albert Bui is one of those cool kids and is just going to start calling his primary residence baller pad over 500k loan a business place.

@Patrick M. you need to change your mindset about taxes... I want to pay as much taxes that means I'm kicking butt and making a lot of money. I personally don't like TSP which are these QRPs or qualified retirement plans (Roth-IRA, Solo 401ks, etc) if you are an active real estate investor. If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts.

When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using the QRP loans get you the second tier financing options, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

Caveat: If you are late to the game and already have a fat 401k then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it. 

I'd of course create a documentation trail for that point above the 500k exclusion of course (or above 250k since im not married, whew) as 1031 exchange. I'd first rent out my primary residence for atleast 6 months or so of rents received seasoning before I put it on the market to sell it so I will have intent for long term "investment," for  a 1031x.

@Lane Kawaoka thanks but no thanks on the TSP advice. I enjoy my work too much to retire now and I am paid too well. I worked through the financial crisis and watched all of the brilliant property maneuvers of now broke individuals, I know, I know "It can only go up." Thanks but no thanks- I will keep my diversification and the almost $10k free my employer gives me.

As for you wanting to pay as much as you can in taxes- I don't know what to say? I actively seek to minimize my tax liability so that I can keep more of my money. The AMT of course does not help- but we will see...

Again- if real estate investing was my occupation, different story. I enjoy reading about peoples success stories when they lift themselves out of dead end, unfulfilling jobs or unhappy lives. Not me- I have my couple of multies and I may get another, but it is a part-time thing and that is what makes it so great. Thanks.

@Patrick M. you are living the dream!

I think its rare to find people who do what they are good at and what they like.

@Patrick M.

I echo Lance on the tax bill.  I don't mind that my tax bill -- even after doing everything I can legally to minimize it -- is going up this year.  I hope it increases in $1 million some day.  When that happens, it just means that I made a boatload of money before taxes that year.

@Lane Kawaoka I agree about living the dream- although I suspect that the more you move into purpose driven "professions" the more satisfied people there are. I tend to think we may run into far more people on this site and in this field who are looking for a way "out" of their day job because of the possibilities REI offers. And really that is the beautiful thing about it- it is a great equalizer in a sense. I think it is extraordinarily fun to have a couple multifamilies that are profitable.

@Dave Toelkes the funny thing is that I could make a tremendous amount more in REI and pay far less in taxes than I do in my current profession- but I would not be as fulfilled. Best of luck on the higher tax bill!

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