THE Thread on the Final GOP Tax Bill - Q&A

THE Thread on the Final GOP Tax Bill - Q&A

CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

Happy Holidays! As of today, the House and Senate have sent the GOP Tax Plan to the President to sign into law. 

I've seen numerous threads popping up about the GOP Tax Bill. I wanted to start a thread to consolidate questions and basically provide a user guide (via the Q&A) for years to come. 

I invite all tax pros on BP to contribute to this thread. It will be neat to see discussion on the tax bill itself, but also loopholes and strategies that develop once the massive bill has been digested. 

Link to the bill.

Key highlights from the bill: 

1. Mortgage interest deduction allowed on up to $750k of new acquisition debt starting Jan. 1, 2018. (Does not apply to rentals)

2. Interest paid on home equity loans that are not "acquisition debt" is not deductible. (Debt tracing rules will apply - if you use a HELOC to buy rentals, you can still deduct the interest).

3. State and Local Taxes (SALT) are limited to an aggregate $10,000.

4. A "freebie" deduction will be available beginning in 2018 for "combined qualified business income." Calculating the deduction can be complicated. Per our current understanding, you cannot use the deduction for activities generating passive losses. This includes sole props, meaning you do not need to utilize an entity (LLC/S-Corp) to qualify for the deduction as far as we can tell.

5. C-Corp tax rate reduced to 21%. 

6. AMT still exists but the exclusion is higher.

7. Bonus depreciation is now 100% for assets with a useful life of less than 20 years.

8. 529 plan funds can now be used to pay for public, private, and religious elementary and secondary education.

9. Penalty from Obamacare individual mandate has been eliminated.

10. Rehabilitation tax credit reduced in scope.

11. Domestic Production Activity Credit (DPAD) eliminated. 

12. Standard deduction increased, personal exemptions eliminated. 

What did not change:

1. Section 121 Exclusion - aka Capital Gain Exclusion on primary residence

2. Depreciation schedules. (Except for commercial properties on ADS). 

Ask away!

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Most Popular Reply

Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y

I am so glad for BP and people smarter than me!

See this reply in the discussion

272 Replies

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  • CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Shawn H. you are correct. 

    @Rod Hanks yes, first and second home. 

    @Ryan E. probably not, but it depends on how much you are making. With the potential "freebie" deduction granted to sole props, LLCs, and S-Corps, you're likely better off going the S-Corp route. At least that's what our test runs have shown us thus far. 

    @Tonette Whitted our firm tried to simplify it here: https://docs.google.com/document/d/1wXgWAnxAvPcUVK2a8Ixlqvpts6pirkDZ49Jba5Cmzwc/edit#heading=h.7udtcfyc9kw7

  • Real Estate Professional · Royal Oak, MI · Member since 2012 · 32 posts · 15 votes
    8y

    Do you think that you will have to qualify as a real estate professional to get the 20% exclusion? Would this apply to real estate agent commission income also? 

  • Mitchell, SD · Member since 2017 · 11 posts · 5 votes
    8y

    Thanks for keeping us informed Brandon!

  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Brandon Hall, That too is my understanding - 1031 remains for real property and is eliminated for personal property.  The impacts of this on dost segregation will be interesting.  Much study needed to determine the right course when there is the opportunity for instant expensing vs inclusion in the 1250 portion.  I'm not bright enough to see the end game yet.  The actual details will flesh out with statute details and commentary.

    The 1031 Investor5140 Reviews
  • Scott JensenPro Member
    Financial Advisor · Blaine, MN · Member since 2014 · 478 posts · 387 votes
    8y

    @Brandon Hall I wish I could give you more votes for that summary!  I'm definitely keeping it as a reference.  So, it seems like net rental income  from a sole proprietorship (on a Schedule E) would be eligible for the new QBI deduction?

  • CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Austin M. to determine the businesses that are excluded, we look at Sect 1202(e)(3)(A):

    (A) any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees,

    The new tax plan specifically allows engineering and architecture businesses to take the deduction. But based on the above code, it would appear that realtors and brokerages would not qualify for the deduction. 

    @Scott Jensen yes indeed!

  • Real Estate Professional · Royal Oak, MI · Member since 2012 · 32 posts · 15 votes
    8y
    I thought those excluded businesses only applied if the income was over 315K a year.

    Originally posted by @Brandon Hall:

    @Austin M. to determine the businesses that are excluded, we look at Sect 1202(e)(3)(A):

    (A) any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees,

    The new tax plan specifically allows engineering and architecture businesses to take the deduction. But based on the above code, it would appear that realtors and brokerages would not qualify for the deduction. 

    @Scott Jensen yes indeed!

  • Investor · Carbondale, IL · Member since 2009 · 95 posts · 31 votes
    8y

    Thanks Brandon for the info, helpful as always. For those that will result in a tax increase, leaves us in a tight time frame to do anything to lower our tax bill.

  • Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    8y
    Originally posted by @Dave Foster:

    @Brandon Hall, That too is my understanding - 1031 remains for real property and is eliminated for personal property.  The impacts of this on dost segregation will be interesting.  Much study needed to determine the right course when there is the opportunity for instant expensing vs inclusion in the 1250 portion.  I'm not bright enough to see the end game yet.  The actual details will flesh out with statute details and commentary.

    Very curious to hear your take on the 1031 limitation to just real property. I have business equipment and the business itself that I had hoped, someday (late 2018 at the earliest), to 1031 into other businesses. In the aggregate, the business has value above basis so the theory was (is) that a 1031 would help defer current liability on the 'goodwill'. Now that this avenue is closed, I would over time groom the business for sale and not exchange. The examples in the 1031 instructions reference equipment exchanges... my question to you is, how many exchanges are real property vs. equipment/company/non-real estate? My guess is that the congressional logic is that the rate is lower now so people/companies will just pay the 21% tax and be happy about it, so the 1031 limitation (in their minds) isn't a big deal. But I think non-RE 1031 exchanges are bigger ($ wise) than RE exchanges and that's the reason for the change. Paying LTC gains tax still bites, even at reduced rates, especially when my expectations were to exit with a 1031...

  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    8y

    Thanks for putting this out, @Brandon Hall.  You're amazing, as usual.  

    Just to be clear - the individual mandate penalty doesn't go away until 2019.  It's still in affect for 2018, so folks shouldn't go dumping their health coverage just yet.  Based on a story I heard on NPR, the reasoning for kicking this particular can down the road, so to speak, is to give congress time to figure out just what the heck they are going to do with health care.  For now, the individual mandate penalty is a strong tool for keeping the system afloat (rightly or wrongly - I'm not going to debate that issue right now).

    I am also incredibly pleased to see that the 121 Exclusion (Capital Gains on the Sale of a Personal Residence) has not changed and remains at 2 of 5 years instead of what would have been a horrible 5 of 8.

    The amount of "other stuff" included in the bill is going to take a while to digest and commit to memory.  This is stuff that's not specific to real estate investors such as:

    No alimony deduction for payers.  No alimony income for recipients.

    No more moving/relocation deduction

    Medical Expense threshhold goes back down to 7.5% (from 10%).  But likely moot for most people given the standard deduction increase/loss of SALT deduction.  You now have to be REALLY REALLY sick to get medical deductions instead of just REALLY sick.

    2% Misc Deductions are gone.  No more write offs of gambling losses, employee expenses, tax prep fees, investment fees, etc.

    529 State Education Accounts can now be used for primary and secondary schools in addition to higher education and can now also be used for religious and other private schools

    You can no longer unwind a Roth Contribution

    So many other nit-picky changes that will apply to very few folks, but will be important to get right for those to whom it does apply.

  • Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    8y

    -Does this mean getting my real estate license (I work full time as an IT pro) so I can buy and sell properties more easily and make some money off my purchases (transaction fee) will be a bad idea now, since I would likely pay more tax (the way I understand it) being a real estate pro?

    -With or without being a real estate pro, let’s say I replace a roof on a rental January 2018, then move back into the rental in February 2018, or March, etc. Would I still be able to deduct the cost of the roof 100% that year?

  • Melrose Park, IL · Member since 2017 · 49 posts · 15 votes
    8y
    Brandon Hall will previous rentals be grandfathered in to deduct mortgage interest? If it is will it be lost if you refinance, say from FHA to conventional?
  • Chris ClarkPro Member
    Wichita, KS · Member since 2017 · 65 posts · 55 votes
    8y
    Originally posted by @Rick Pinney:

    Brandon Hall will previous rentals be grandfathered in to deduct mortgage interest? If it is will it be lost if you refinance, say from FHA to conventional?

     Mortgage interest deduction only changes for personal residence. Rentals are not subject to the new limitation.

  • Plainfield, IL · Member since 2015 · 111 posts · 17 votes
    8y

    late to the convo this might be a dumb question or already addressed but is there now a cap on property taxes up to $10,000?

    Is this on a single property or combined total of property taxes paid if own multiple properties?

    Thank you!

  • Chris ClarkPro Member
    Wichita, KS · Member since 2017 · 65 posts · 55 votes
    8y
    Originally posted by @Mike Barry:

    late to the convo this might be a dumb question or already addressed but is there now a cap on property taxes up to $10,000?

    Is this on a single property or combined total of property taxes paid if own multiple properties?

    Thank you!

    If they are rentals it doesn't apply. From my understanding of the law to this point if you have multiple personal residences it would be in total.

  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    8y
    Originally posted by @Chris Clark:
    Originally posted by @Mike Barry:

    late to the convo this might be a dumb question or already addressed but is there now a cap on property taxes up to $10,000?

    Is this on a single property or combined total of property taxes paid if own multiple properties?

    Thank you!

    If they are rentals it doesn't apply. From my understanding of the law to this point if you have multiple personal residences it would be in total.

     Not just property taxes though.  ALL State and Local Income, Sales and Property taxes are combined under the $10,000 limit.

  • Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    8y

    @Brandon Hall  Thanks for putting this together!  

    Any word on the previous limit of "Phase out of rental losses" if your income is over $100k?  I recall before it starts phasing out at $100k and you can't deduct any rental losses if your income (W2 for example) is over $150k.

  • Investor · Overland Park, KS · Member since 2015 · 26 posts · 19 votes
    8y

    Thanks for all the great info and explanations! Really appreciate it.  

  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    8y
    Originally posted by @Rick Pinney:

    Brandon Hall will previous rentals be grandfathered in to deduct mortgage interest? If it is will it be lost if you refinance, say from FHA to conventional?

     You can continue to deduct mortgage interest on your rentals. On a refinance, the debt tracing rules would need to be taken into consideration.

  • Investor · San Marcos, CA · Member since 2014 · 6 posts · 3 votes
    8y

    Brandon - Great info.  It's not clear how Property Taxes against a Rental Property are treated.... do these aggregate under the personal $10K SALT cap or can you still deduct Property Taxes paid against a Rental Property on Schedule E?

  • Rental Property Investor · New York, NY · Member since 2015 · 85 posts · 28 votes
    8y
    Fantastic thread! I’ve been worrying about the new bill and how it will effect my rentals as this is my first year of owning property.
  • Ben RaygorPro Member
    CPA · Rochester, MN · Member since 2016 · 48 posts · 51 votes
    8y
    Originally posted by @Edward Wills:

    Brandon - Great info.  It's not clear how Property Taxes against a Rental Property are treated.... do these aggregate under the personal $10K SALT cap or can you still deduct Property Taxes paid against a Rental Property on Schedule E?

    Edward, you can still deduct property taxes paid for a rental property on Schedule E.  The $10k SALT cap is only for personal state and local income taxes, personal property taxes, and personal mortgage interest.  

  • Ben RaygorPro Member
    CPA · Rochester, MN · Member since 2016 · 48 posts · 51 votes
    8y
    Originally posted by @Tom S.:

    @Brandon Hall  Thanks for putting this together!  

    Any word on the previous limit of "Phase out of rental losses" if your income is over $100k?  I recall before it starts phasing out at $100k and you can't deduct any rental losses if your income (W2 for example) is over $150k.

    Tom, nothing is changing right now for the real estate professional status.  The phaseout still begins at $100k and ends at $150k for deducting rental losses on page 1 of the 1040.  

  • Attorney · Claremore, OK · Member since 2013 · 125 posts · 61 votes
    8y

    Section 179 expenses seem to allow deduction of roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems on non-residential real property.  By "non-residential" do they mean just not on your primary residence, or only on commercial buildings to exclude rental houses?

  • Los Angeles, CA · Member since 2017 · 6 posts · 8 votes
    8y

    If I own a few rental houses + apartments under my personal name and currently report tax on Schedule E, do I qualify for the 20% passthru deduction? Or do I need to put my rentals under a Single Member LLC?

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