Reducing taxable income through interest expenses and depreciation are the cornerstone to a Real Estate Investors tax return. What happens if President Trump and the Republican Congress pass, “A Better Way” tax reforms?
Does a simpler tax code eliminate depreciation? What about repair regulations, cost segregation and the 1031 exchange?
All of these are possible in the Republican Congress attempt at tax reform.
Jonathan McGuire, a real estate consultant at Aldrich Advisors, discusses all of these at length and provides examples of how the proposed changes compare to what the current tax consequences.
While the goal is to simplify tax reporting and collection, the pain of change may scare you at first glance. The changes make the consequences more directly related to the transaction and eliminate many current record keeping exercises to calculate taxes owed.
Here is a look at some of the biggest changes from current tax plan.
- Reduce the number of marginal tax rates for individuals from seven to three rates. The compression looks to reduce the highest tax bracket from 39% to 33%.
- Eliminate all Itemized deductions; state and real estate tax, except for mortgage interest and charitable donations.
- Eliminate the capital gains tax rate and replace it with a 50% exclusion for investment income. The remaining 50% would be taxed at the individual’s ordinary income tax rate.
- Eliminate the deductibility of all business interest expense.
- Full repeal of the 1031 Exchange
- Replace depreciation with immediate expensing of ALL personal property and buildings. Depreciation recapture, will likely be ordinary income.
On a scale of one to ten, Jonathan believes that as much as sixty percent of the proposed changes will become part of the tax code. The only certainty in life are death, taxes and change.
For more, email Jonathan at: