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A response to your loss of home deductions.

Home Real Estate Investing A response to your loss of home deductions.

  • Avatar jz 
    Participant
    Status: Physician
    Posts: 668
    Joined: 01/09/2016

    I’m scheming a rational  response to the curtailed  mortgage interest and property tax deductions, esp. for blue staters.  Establish your primary residence and vacation home as a Smith Family Properties, LLC.    Take business deductions for principal, interest, repair and maintenance, property taxes, property insurance. Pay rent to each.

    The downsides would be loss of capital gains deduction at sale, and  loss of stepped up basis at death. Any others that I’m not considering?

    #90729 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 383
    Joined: 10/29/2017

    I did a similar thought experiment this weekend. Look for a post called house to llc or similar. The problem is that whole you do create business write-offs in the llc, you are moving post tax personal money into the llc as per tax income. So on effect, you get a write-off, but you are writing off money you paid yourself, not the money you previously earned.

    I’m hoping the evil geniuses of the accounting world find a solution, but until they do, just focus on the lower brackets and hope to come out ahead.

    #90739 Reply
    Liked by jz
    Avatar Wiscoblue 
    Participant
    Status: Physician
    Posts: 150
    Joined: 05/17/2017

    Nah, we are screwed with this tax bill. I paid 32,000 in property tax and 70,000 in state income tax last year. That’s a hundred that I can’t deduct. I don’t have a mortgage. So no deduction there either. I guess we will just be forking over an extra 37,000 next year to Uncle Sam.

    #90842 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 383
    Joined: 10/29/2017

    😳

     

    Ouch.  That leaves a mark.  I’m in a purple state.  I’m losing a big deduction, but will still come out ahead in the new bill.

    #90844 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3452
    Joined: 01/14/2017

    Nah, we are screwed with this tax bill. I paid 32,000 in property tax and 70,000 in state income tax last year. That’s a hundred that I can’t deduct. I don’t have a mortgage. So no deduction there either. I guess we will just be forking over an extra 37,000 next year to Uncle Sam.

    Click to expand…

    Is that $37,000 a net amount?  If you are indeed a Wisconsin doctor and being taxed at 70K state that means you’re pulling in close to a million in income.  A quick calculation on the new tax plan calculator shows that you’ll be saving $7k because of the lowered tax brackets, even after accounting for the loss in deductions.

    #90852 Reply
    Liked by ITEngineer
    Avatar Wiscoblue 
    Participant
    Status: Physician
    Posts: 150
    Joined: 05/17/2017

    I guess I didn’t factor in the change in AMT.

    #90872 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3452
    Joined: 01/14/2017

    I guess I didn’t factor in the change in AMT.

    Click to expand…

    That’s something I didn’t even think about or that the tax calculator doesn’t address.  People forget about the fact that every dollar past the 10% threshold is now being taxed at a lower rate, plus the marriage penalty is eliminated for dollars up to $600k and decreased from the prior baseline thereafter.  AMT is improved as well.  All of those benefits tend to offset the loss of deductions, unless you’re in a super high tax state (NY/CA) with lots of property taxes, and not making a killing.  The 300-400k earner in CA living in a pricey house probably won’t win out here.

    #90875 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4473
    Joined: 05/13/2011

    Nah, we are screwed with this tax bill. I paid 32,000 in property tax and 70,000 in state income tax last year. That’s a hundred that I can’t deduct. I don’t have a mortgage. So no deduction there either. I guess we will just be forking over an extra 37,000 next year to Uncle Sam.

    Click to expand…

    Give me a break. You’re being overly dramatic. You’re not losing a $102K deduction. You’re losing $92K of your $102K deduction. And in return, you’re getting some other valuable stuff. Since you’re talking about the 37% bracket, I assume you’ve got a taxable income over $600K married. So you’re getting two presents in return for your lost $92K deduction. You’re getting rid of the Pease adjustment and you’re benefitting from the less progressive brackets. So let’s say your taxable income is $1M. You’ve just saved about 3% * the first $600K (that’s $18K) and about 4% of the next $400K. (another $16K) for a total of $34K. $92K * 37% = $34K. You’re coming out even.

    Don’t believe what a lot of the press is saying. Most of them don’t understand how taxes work.

    Most people in all brackets will be getting a significant tax cut. A fair number in all brackets will have a situation that is about the same (like yours). A very small number will actually see a tax increase, and that is also spread across the tax brackets and mostly applies to people in your situation – high tax states.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #90888 Reply
    Avatar Wiscoblue 
    Participant
    Status: Physician
    Posts: 150
    Joined: 05/17/2017

    Yes WCI, that was a knee jerk response to reading the bullet points on CNBC. I haven’t done my own taxes in a while. Good to know that I won’t get hit as hard as I originally thought.

    #90937 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1963
    Joined: 01/15/2017
    alpha investing

    This reform has most people who itemize going sideways and shifting a few points up one place and low another place — with the hammer coming in 5-7 years.  Other than getting more to standard deduction, it’s not really simplifying anything –and added quite a layer of complexity with the pass through.

    It’s a great business tax reform.  That is clear–from SBO to large corporations; this is huge all around.

    Whether the trickle down works — let’s see.  Some encouraging announcements of min wage increase and capital investments from the DOW companies.  I only can hope another 10 year run on the market to pad all our accounts even nicer.

    Fear of the piped piper in the sunset years though — but the can is kicked so let’s enjoy for now!

    #90954 Reply

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