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Old 12-20-2017, 02:42 PM   #421
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Originally Posted by jetpack View Post
Finally found a good summary of the new 199A Business deductions



https://www.watsoncpagroup.com/SubS.pdf

Thanks, just what I needed to confirm that sole proprietor landlords get the 20% pass-through business deduction. For me, this more than makes up for the limit on SALT deductions, and (because of reduced taxable income) might allow me to continue doing Roth conversions going forward.
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Old 12-20-2017, 03:06 PM   #422
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Originally Posted by Katsmeow View Post
Yes, they lose personal exemption. But no people who won't be able to itemize because of the increase in the standard deduction don't necessarily come out ahead. They may or may not.

For example - let's say that under the old law you could itemize and got the benefit of the itemized items plus exemptions.

Married filing jointly standard deduction was $12700. Plus you get $8100 total for exemption. This is for couple with no kids. (I am not including in this the over 65 deduction).

So, let's say your itemized deductions were $22,700.

You would itemize deductions plus get the exemptions and your taxable income would be $30,800 less as a result.


Under new law you don't get the exemptions. Your standard deduction is $24,000. Since your itemized deductions are less than that, you won't itemize. So, your taxable income is now $24,000 less as a result.

In other words, your taxable income would be $6,800 more under the new plan than it would be under the old law.

You can also imagine situations where someone under the old law had $30,000 or $40,000 in itemized deductions and under the new law would not have deductions as high due to the SALT limitation or other changes.

Now -- as to whether your taxes would go up or down for 2018 it will depend on how all of that shakes out for you and you have to factor in changes in tax brackets and tax rates.

It gets even more complicated for people with kids who lose the personal exemptions but there are changes in child tax credits.
But everyone loses the $8100 exemption so to me that's immaterial to the deductions issue. And if your exemptions were $22700 & the std is $24000, you now have have $1300 less taxable income. Seems like you're conflating two separate issues. As for limitations on SALT deductions, that's the intent as I see it.
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Old 12-20-2017, 03:11 PM   #423
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I'm not sure I entirely understand the pass-through deduction. It doesn't currently affect me, since I don't have any pass-through income.

But, am I correct in understanding that if I have some future side income stream - say, I start writing a blog, or selling trinkets - I should organize as (say) an LLC, and then the first 20% of income from the venture is not taxed?

How about real estate income - say I flip a house, or buy one and rent it out - is the income from this also subject to the 20% deduction? Do I need to organize as a business in order to claim it?
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Old 12-20-2017, 03:18 PM   #424
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For the past seven years we have had schedules A,B,C,D, and E attached to our 1040. Our Schedule A itemized deductions have been $22-24K, but with the $10,000 limit on SALT we will be lower so will probably not have a Schedule A for 2018. But the rest of the alphabet soup will be there. No postcard filing for us!
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Old 12-20-2017, 03:20 PM   #425
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I would think it would be straight forward as well, but from my experience in the field I know that the devil is in the details and it does get complicated.... if companies are already complaining there must be some good reason as I'm sure the CEOs want to book those profits as soon as possible.

I used to kid with my tax specialist colleagues "How can one get paid so much for adding and subtracting a bunch of number and multiplying the result by 35%?"

Another thing that will be interesting is for net income based incentives whether the rate change is carved out.... one would think it should be but you never know.

One good thing.... it'll reduce P/E ratios from the high levels that they are currently at.

https://www.forbes.com/sites/peterjr.../#12e80d8a4eee
From my experience it would be due to the fact that tax departments are instrumental in setting intercompany price of goods and the change in tax rates does not allow for enough time to come up with reasons to change revenue recognition that will pass muster with the IRS for “arm-lengths” transactions and therefore taxes will not be optimized for the company. Thus nothing to do with deferred taxes but using that as cover for intercompany pricing.

But it is very interesting in that the journal entry for all practical purposes is to debit outstanding liabilities and credit equity, reducing debt leverage. US companies are suddenly going to become much better credit risks.
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Old 12-20-2017, 03:23 PM   #426
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But the credit to equity goes through the P&L! It is going to mess up comparability for many years to come but I'm sure they wil find some way to report... they always do.

It's also wreak havok with CAPE-10 and other ratios.
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Old 12-20-2017, 03:23 PM   #427
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I'm not sure I entirely understand the pass-through deduction. It doesn't currently affect me, since I don't have any pass-through income.

But, am I correct in understanding that if I have some future side income stream - say, I start writing a blog, or selling trinkets - I should organize as (say) an LLC, and then the first 20% of income from the venture is not taxed?

How about real estate income - say I flip a house, or buy one and rent it out - is the income from this also subject to the 20% deduction? Do I need to organize as a business in order to claim it?
It will be interesting to see if you need to be a "real estate professional" to get the deduction or would just owning 1 rental house be enough?
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Old 12-20-2017, 03:23 PM   #428
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I keep hearing news folks speculating on the advantages of waiting till the new year to sign the tax bill. But my memory from civics is that the President has 10 days to sign or the Bill is automatically passed (pocket vetoed if Congress recesses). Ten days from now is the 30th.
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Old 12-20-2017, 03:32 PM   #429
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Iím not understanding the rationale behind the pass-through deduction. Or maybe Iím not reading the rules correctly.

We own a house that we rent to full-time tenants. The house is in our names, not a business name. For 20years we have been reporting the rental income and expenses on Schedule E and claiming the net rental income on our personal 1040.

If Iím reading correctly, we will now get to deduct 20% of the net rental income? So if we net $5000 from the rental, we deduct $1000?

That will benefit us, but why? Why do we get that income for free? Is it to reward business owners so they (in theory) reinvest/grow the business and boost the economy?

I donít want to be political. If someone can give me the Economics 101 answer thatís fine.

Moderators: if you think this question will drag the thread into forbidden territory, please remove it and accept my apologies.

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Old 12-20-2017, 03:42 PM   #430
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But the credit to equity goes through the P&L! It is going to mess up comparability for many years to come but I'm sure they wil find some way to report... they always do.

It's also wreak havok with CAPE-10 and other ratios.
Yes and perhaps investors deserve a bit more credit than they are given with respect to continue to buy stocks despite the high Cape-10. Suddenly corporations that had a 25 PE now have a 20 PE.
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Old 12-20-2017, 03:44 PM   #431
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I would expect home prices overall to decline, because mortgages just effectively got more expensive, and most home buyers rely on a mortgage for the majority of the purchase price.

I also would expect higher end home prices to decline more with the $1M -> $750K limit reduction.

When will this happen? It really depends on how quickly home buyers understand the impact on affordability. I would expect some, maybe many, people will buy without understanding the impact and the find out at tax time that they made a mistake. But those with good honest realtors should be notified in the buying process.
I have never purchased a home because of the mortgage deduction and I bet very few do.

If your comments are directed at mortgages over $500,000, I am more agreeable. Especially in states impacted by the loss of the SALT deduction. That being said, homes in big cities like S.F., NY, etc... are way too high, so maybe a downward correction could be a good thing for future buyers.
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Release of final tax bill details
Old 12-20-2017, 03:45 PM   #432
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Release of final tax bill details

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Originally Posted by Curmudgeon View Post
But am I correct in understanding that if I have some future side income stream - say, I start writing a blog, or selling trinkets - I should organize as (say) an LLC, and then the first 20% of income from the venture is not taxed?



How about real estate income - say I flip a house, or buy one and rent it out - is the income from this also subject to the 20% deduction? Do I need to organize as a business in order to claim it?

No need to form an LLC. If youíre a sole proprietor (yourself and/or your spouse filing jointly) earning non-employee business income reported on Schedule C, you can qualify for the 20% pass-through deduction. There are limits to the deduction if you exceed an income threshold.

Rental income reported on Schedule E would also qualify for the deduction. Flipping a house would be capital gains, not business income, so this deduction would not apply.

Take a look at the link posted by jetpack, which is full of examples.
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Old 12-20-2017, 03:52 PM   #433
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I keep hearing news folks speculating on the advantages of waiting till the new year to sign the tax bill. But my memory from civics is that the President has 10 days to sign or the Bill is automatically passed (pocket vetoed if Congress recesses). Ten days from now is the 30th.
I did a quick search on this. One source indicates that Sundays do not count in the 10 day period, so maybe this can stretch it into the new year?
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Old 12-20-2017, 03:54 PM   #434
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Iím not understanding the rationale behind the pass-through deduction.
GOP wanted to cut the corporate tax rate. Doing just this would look bad, as it favors 'big business' over 'small business', and might also not be as good at stimulating the economy as an across-the-board business tax cut. So, non-corporation businesses were given the 20% pass-through deduction.

Probably giving the cut to property owners, single-person businesses, etc. is just an unintended consequence.
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Old 12-20-2017, 03:56 PM   #435
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I have never purchased a home because of the mortgage deduction and I bet very few do.

If your comments are directed at mortgages over $500,000, I am more agreeable. Especially in states impacted by the loss of the SALT deduction. That being said, homes in big cities like S.F., NY, etc... are way too high, so maybe a downward correction could be a good thing for future buyers.
Same here.

And the limit is a $750K mortgage, which with 20% down is a $937K house. Heck, jumbo loans top out at $636K (which BTW is what I think they should have used for the limit - that way it varies somewhat by local real estate costs).

So the mortgage limit might cool off a few overheated housing markets a little bit, but I think the combined property tax and income tax limit in SALTy states might have a bigger impact on home prices in those states. In the other 40 or so states I would be surprised if there is a noticeable difference in the real estate markets.
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Old 12-20-2017, 03:59 PM   #436
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But everyone loses the $8100 exemption so to me that's immaterial to the deductions issue. And if your exemptions were $22700 & the std is $24000, you now have have $1300 less taxable income. Seems like you're conflating two separate issues. As for limitations on SALT deductions, that's the intent as I see it.
You may be losing the $8100 exemption, but you are gaining a $500 credit for every adult dependent in the house hold. So, $8100 x .12=$972 under old law, 2 x$500= $1000, so almost a wash.

Child tax credit is $2000 each but is decreased depending on income. AND only a portion of that is refundable in cash or refund.

https://www.nytimes.com/interactive/...bill-cuts.html
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Old 12-20-2017, 03:59 PM   #437
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I did a quick search on this. One source indicates that Sundays do not count in the 10 day period, so maybe this can stretch it into the new year?
Might major holidays such as Xmas and New Years also be excluded from the 10-day countdown?
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Old 12-20-2017, 04:03 PM   #438
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You can also imagine situations where someone under the old law had $30,000 or $40,000 in itemized deductions and under the new law would not have deductions as high due to the SALT limitation or other changes.

Now -- as to whether your taxes would go up or down for 2018 it will depend on how all of that shakes out for you and you have to factor in changes in tax brackets and tax rates.

It gets even more complicated for people with kids who lose the personal exemptions but there are changes in child tax credits.
This describes my tax filing for 2016, with itemized deductions around $27K, and my soon-to-be tax filing for 2017, with itemized deductions I project of around $35K, most of the increase due to higher charitable donations. Though I'm not in a SALT area, I will probably lose 2-3K of state income/real property tax deductions -- and my state income tax is mainly a function of Roth conversions. I'm not sure how we'll come out for our tax filings for 2018 if we continue the same level of charitable giving, which appears unlikely. We were hoping to increase Roth conversions but now I'm not so sure about that either.

I am grateful that they kept the medical expense deduction -- this might have been a financial disaster for many who rely on that deduction to manage their financial affairs when undergoing major medical issues. My BIL is in assisted living with MS and his medical condition will only get worse; he can manage to pay for his medical care from his pension and social security disability payments, but without the deduction his tax bill would put him in dire financial circumstances and he could not afford his current level of care.
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Old 12-20-2017, 04:08 PM   #439
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I keep hearing news folks speculating on the advantages of waiting till the new year to sign the tax bill. But my memory from civics is that the President has 10 days to sign or the Bill is automatically passed (pocket vetoed if Congress recesses). Ten days from now is the 30th.
From a quick Google, Sunday's do not count. And if congress adjourns before those 10 days, it becomes a "Pocket Veto" and dies. So when does Congress adjourn for the year? I think Congress is already on an extension to the original schedule meaning the Pres needs to sign now before they adjourn for the year. Jan 3rd starts a new "Session". Can this be right? Sorry, I'm poor on congressional procedures.
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Old 12-20-2017, 04:26 PM   #440
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I'm assuming you can itemize this year and are not in AMT territory.

If you prepay it and then the bill then falls apart, would you still be able to itemize next year? If the answer is yes, then you should pay the prop tax in 2017 as you'll get roughly the same benefit either way, it just comes a year sooner.

If the answer is no, then you have to figure the probability of the new law not going into effect vs the amount of the benefit you would be giving up by prepaying the tax. I personally think the probability of the bill failing at this point is very low, so I would take the risk of not being able to itemize next year.
First, I am assuming that if the bill isn't signed in 2017 that even an early 2018 signing means the tax law will change for all of 2018.

We itemize now but wouldn't in 2018 if the bill becomes law. Our income will be higher next year due to the start RMD's. So I'd rather not prepay the first part of our property taxes in 2017 if the tax laws did not change. It is a large sum for us.

But it looks like almost a no-brainer that the law will be signed in. I'm just looking for confirmation this tax law is maybe 99.9% probable in 2018. The New York Times is saying that the tax bill is passed. Maybe that is all the confirmation I need.
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