What does the new tax reform mean for real estate investors?

9 Replies

With the annoucement of the new GOP tax bill, I have seen a chunk pertains real estate taxes involving deduction limits. Without going into political stance could someone please explain what this new tax reform bill will mean for real estate investors?

Thank you.

Based on what I've read, the deduction on your personal mortgage has been reduced to $500,000 on ANY NEW MORTGAGE and there is a repeal of the AMT.  Real estate tax deductions are still in place but State Income/Sales Tax Deductions are out the door.

From an investment perspective, the impact should be positive (with the removal of AMT if you are subject to AMT) and have no effect on mortgage deductions.  I haven't seen anything indicating a change to the $25k loss allowance limitation on property rentals and I haven't seen anything indicating a change to business profits and losses.

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To clarify, property taxes are still deductible in the plan but capped at 10k. State and local income taxes are no longer deductible. As for the mortgage interest deduction, any new mortgages are capped at $500k of debt for the deduction. Existing mortgages are grandfathered under the old rules. Also the deduction is only for primary residences now. Second homes and home equity loans are no longer deductible. Also the exemption from tax on proceeds on sale have changed. You must now live in the property for 5 out of the last 8 years to have the capital gain exempted, and you can't do it more than once every five years. Finally AMT is repealed which helps a little.

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.

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.

I've paid all of $276 in federal income taxes over the last 14 years.

By doubling my standard deduction and not disallowing investment property benefits like deducting mortgage interest. property taxes, allowing depreciation still, etc I see it being even more favorable so far.

I shouldn't be the one who benefits from 'tax reform', but I will.  I'm not mad about that but don't think it's really fair to the working class, schlepping into work everyday.  

@steve Vaughan is that because you’re a full time investor and therefore your loss deductions aren’t capped?

Originally posted by @Steve Vaughan :

I've paid all of $276 in federal income taxes over the last 14 years.

By doubling my standard deduction and not disallowing investment property benefits like deducting mortgage interest. property taxes, allowing depreciation still, etc I see it being even more favorable so far.

I shouldn't be the one who benefits from 'tax reform', but I will.  I'm not mad about that but don't think it's really fair to the working class, schlepping into work everyday.  

I'm in the same boat.  I'll benefit even though I probably shouldn't.

I have tax clients that are freaking out right now.  I'm telling them to calm down for a couple of reasons.

1.  There is literally no use fretting about something that still has to go through committees, then back through the House and the Senate before it even gets to the President's desk.  This thing is going to be so marked up and altered by then, it may barely be recognizable.  Your time is much better spent doing literally anything else.  Whether you are navel gazing or researching your next property, it is a better use of your energy.

2.  After last night's "Democratic Tidal Wave" (or whatever you want to call it), the voters sent a pretty clear message that they are not on board with Republicans and their policies.  Many a Republican politician is (or maybe should be) rethinking some of what they've been saying if they want to hang onto their seat when they are next up for election.

3.  The analysis from non-partisan, partisan and bi-partisan think tanks of this bill are, across the board, scathing.  Nobody has anything good to say about these proposals.  That doesn't mean that parts of it won't pass, but the odds that this thing is going to pass as it is written right now are pretty infinitesimal.

My best advice is to calm down.  Listen and read what's out there.  Call your congressperson if you want.  But panicking and planning for this thing right now is wasted energy.

Originally posted by @Caleb Heimsoth :

@steve Vaughan is that because you’re a full time investor and therefore your loss deductions aren’t capped?

 Oh- I'm probably a one-off, Caleb.  Massive amounts of depreciation and no w-2.  Some of my larger multi-families had land value (per the county assessment) of only 3% of the PP.  All by design and a factor into my purchase decisions.  

I also buy to hold everything for at least 366 days.  No flipping or lending.  Ordinary income costs.  Cheers!

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