I'm not sure how many of you have taken the time or energy to read Trump's proposed tax plan. But, we should all pause and read it with careful consideration. @Brandon Hall has already done a great summary of the plan. https://www.biggerpockets.com/renewsblog/tax-plan-... I will seriously suggest that those who are looking to captalize on captial gains tax advantages on the sale of their primary home do so before Jan. 1 if that was on your radar. @Linda Weygant and @Amanda Han , I'd love to get you to weigh in your opinions on the proposed tax bill. This could be a doozy folks!!!
I also want to encourage everyone to read Brandon's blog. His info he shared about better tax strategies on the BRRRR process should NOT be missed. https://www.biggerpockets.com/renewsblog/author/br...
Thanks @Meghan McCallum for the kind words. Will it crush dreams? Nah. But it will change our approach with investing in real estate.
Interestingly, the tax bill rewards you if you are a passive owner of an entity. Many of our clients have partnership LLCs. If you can prove you passively participated in the LLC's activities, your flow through income will be capped at a 25% marginal rate.
At the same time, if you materially participate in the entities activities, you don't get to enjoy the 25% cap.
Senate bill is now out and we have updated our Google Doc with a comparison analysis. I'm writing a new BP article that will drop next week.
Hide your coin purses this, is a doozy!
While I do read up on proposed changes and absorb what is likely to affect me and my clients, I honestly can't get myself worked up over these proposals, even though on the surface they seem pretty bad.
This particular proposal still has to get through committee before heading back to house and senate and the odds that it will look anything close to what it looks like now is, in my opinion, pretty slim.
There are a few reasons why I think that this is unlikely to pass as written:
1. The proposal has been completely written by one party with no input from the other. There has been no attempt to reach across the aisle on this. However, the ways and means committee this has to go through, while definitely not balanced along partisan lines, does have several moderates on both sides. I think there will be quite a bit of meeting in the middle on several of the most heinous proposals. When committees meet, usually cooler and more moderate heads prevail when the cameras are away from the floor.
2. Voters sent a pretty strong message last Tuesday that they are leaning away from Trump and Republicans. Many a savvy politician will look at that and realize that some of the hard line stances they have been taking are no longer going to fly politically.
3. The longer the public and press has to review the proposals, the more there is a tidal wave of criticism of it. Along with item #2, I believe that smart politicians will mark the proposal up so that it is a lot more palatable.
4. This Congress is probably going to go down in history as being unable to pass anything, regardless of them labeling it as "must pass". It's been almost a year and there has been no significant legislation coming out. While I think this may make them feel even more pressured to pass this, I think cooler heads will prevail.
I may be a bit too optimistic on this, but honestly, only time will tell. My best advice is to adopt a Wait and See attitude. As Brandon mentioned in his blog post, other than trying to hurry up and dump a primary residence you've had between 2 and 5 years by the end of December, there is very little action anybody can take on a lot of this.
Once we know the final law that is passed, we'll be able to start taking action and recommending new structures where applicable.
TL;dr - don't panic.
@Brandon Hall can you spend some more time explaining the “passive participation” concept? This is very confusing. Additionally, I’m a vacation rental owner which I self manage on the booking sites. Is it true that this will be exposed to a self employment tax, and why is this viewed differently? Thank you!
@Meghan McCallum thank you for starting this post! I posted a similar post on the short term rental category expecting a bunch of comments and responses and only got 2. Maybe because it’s Friday but I really thought people would be more attuned to what’s going on in Congress.
personally my taxes would go down appreciably
Credit card interest was taken away in the 80s, we came up with equity lines, LT capital gains increased, 1031s were used, no home mortgage interest, I will rent my brothers house and vice versa just like they do in Europe. Real estate investors deal with what is thrown at them. Don't worry you will be just fine.
@Carl Fischer , I'm sure we'll be fine. We always are (until we aren't). I really just love the opportunity to draw attention to how much both our local and federal political decisions play in our real estate businesses. As it becomes time to vote in different localities I felt like MORE people should be paying attention. YES, amazing CPA's will figure out the next great loophole (that's why CPA's and the loopholes are great). It could be scary if certain parties push this through in exchange for votes against something else. You never know with this administration.
Not everyone is or has access to amazing CPAs. It could take quite an effort to properly educate everyone. I for one am very concerned.
BP forums provide access to many knowledgeable people for free. If you don't have access to great resources its your own fault. Technology is leveling the playing field.
Every law helps some people and hurts others. Or helps us in one area and hurts in another. That's why lobbyists are paid so much.
@Carl Fischer yes I’m aware and I’m in no way passive and feeling sorry for myself. I’ll be combing the forums hoping to cut through all the ambiguity.
I in no way wanted to insinuate you were passive- just the opposite. The fact that you are active in BP shows your initiative. I just wanted to alleviate any anxiety you were experiencing. The 70s & 80s were trying times and we finally got answers for new policies but no Internet or cell phones were available, which are extremely helpful in getting the information out to people. I was born about 50 years premature. Enjoy today as well as reaching your family goal of retiring early. Gatlinburg autumn is beautiful --a day or 2 there also relieves anxiety. Good luck.
No room in business for dreams or dreamers. When the playing field changes Business always adjusts.
What works yesterday changes tomorrow and we change along with it. When one tax loop hole closes another always opens.
At this stage, the answer is Play the game. In the general sense, real estate investing is a great bet and where we (BP Nation) need to be. It's a nice box to be in.
Trump, as a big time real estate investor, pays $0 tax. All tax-wise legal. That's fact. If you say 'no that's fake...', then show me his taxes;)
If the dream (per OP topic) is to pay reasonable, limited, or no tax (legally (I assume) like Trump) then the goal is tax credits or deferrals to offset income. depreciation allowance is untouched. GREAT ANSWER! Some tax credits still exist. Just read the text. It's not that long, only about 150 pages. People like me who put money in and planned for future 1031 exchanges on real estate timber resources... we are... OUT! WE LOSE. Tough $#!& for us! I say DEAL WITH IT. I will find a new game.
I am living through this as we speak. Any tax plan in 2017 will be effective 1/1/2017. I'm thinking there are others scrambling to figure this out in late stages of 2017, and I have my plan .. all subject to change.
How do you mitigate tax liability at this stage? Cap Gains tax liability is out of your control if you didn't do a 1031 real estate exchange. ITC and other mitigation strategies are, maybe, still in play. Unless congress says otherwise. I see no way to plan. The uncertainty created is all the result of... THANKS CONGRESS! THANKS TRUMP! (Can't believe any of them have above 0% poll stats.) Housing is a big creator of jobs and economic growth. If they just leave us alone and let us build, I thing we will be ok.
It’s a moot point, little to none of it is going to pass which was obvious months ago.
The Democrats are unified on opposing anything Trump wants whether it is actually bad or a cure for cancer. The sell out neutered,establishment, wing of the Republican Party won’t sign on to anything unless their paymaster, donor class wants it promoted. So, just like real immigration reform, the majority of congress is effectively opposed to anything the majority of Americans would actually want.
Whatever you think of our president, his political naivety is often surprising, which isn’t the worst thing I can say about a politician.
@Steve B. Perfectly said!!! Love it because it’s so true.
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