Effects of new reduced mortgage deduction proposal? (retirement)

[yellowstatus]

Originally Posted by jayrandom

I'm totally on board with getting rid of the deduction, either with just a lower limit or entirely. It's just a harder pill to swallow when overall tax collections are going to go way down. This is a tax cut for the ultra-rich at the expense of the just ordinary rich. The point is a tax cut for the ultra-rich and business onwers. I don't see that aspect of this bill going away.

Exactly what jayrandom said. Capping the mortgage deduction is fine, but hard to swallow when paired with massive tax cuts to the rich.

Look up the loophole on "carried interest" that allows hedge fund managers to count their income as capital gains. Many hedge fund managers have made over $100 million a year and a 23% tax rate, lower than employees earning $100k a year.

The proposal will also a massive new loophole for counting personal income as business "pass through" income. Believe me that clever accountants will outmaneuver Congress and the IRS to claim the benefit on behalf of the rich 1%

[Dm84]

Originally Posted by yellowstatus

Exactly what jayrandom said. Capping the mortgage deduction is fine, but hard to swallow when paired with massive tax cuts to the rich.

Look up the loophole on "carried interest" that allows hedge fund managers to count their income as capital gains. Many hedge fund managers have made over $100 million a year and a 23% tax rate, lower than employees earning $100k a year.

The proposal will also a massive new loophole for counting personal income as business "pass through" income. Believe me that clever accountants will outmaneuver Congress and the IRS to claim the benefit on behalf of the rich 1%

The 1% already exploit every loophole available to them. They also pay the vast majority of federal taxes. This isn't to say they deserve a tax cut but it's disingenuous to pretend that they're going to walk away paying next to nothing.

And much to people like jayrandom's disbelief, the middle class (outside of places like MA, NY, CA etc) will probably get a tax cut as part of the plan. Democrats don't particularly like it because the states that contain most of their donors are the people who will be paying more, in most cases.

I don't really support this plan and think it's a giant waste of time and energy but the proposal to cap the mortgage interest deduction at $500k is just fine with me.

[jayrandom]

Originally Posted by jayrandom

I'm totally on board with getting rid of the deduction, either with just a lower limit or entirely. It's just a harder pill to swallow when overall tax collections are going to go way down. This is a tax cut for the ultra-rich at the expense of the just ordinary rich. The point is a tax cut for the ultra-rich and business onwers. I don't see that aspect of this bill going away.

Originally Posted by Dm84

The 1% already exploit every loophole available to them. They also pay the vast majority of federal taxes. This isn't to say they deserve a tax cut but it's disingenuous to pretend that they're going to walk away paying next to nothing.

And much to people like jayrandom's disbelief, the middle class (outside of places like MA, NY, CA etc) will probably get a tax cut as part of the plan. Democrats don't particularly like it because the states that contain most of their donors are the people who will be paying more, in most cases.

I don't really support this plan and think it's a giant waste of time and energy but the proposal to cap the mortgage interest deduction at $500k is just fine with me.

I'm not sure why you think I'm some sort of rube. I know Republicans aren't stupid. They can't just push through legislation that totally alienates their voters (i.e. the red state middle class). I think they might be a bit shortsighted in this case, because pushing through a tax plan that has almost no buy-in from Democrats just means that the whole thing is likely to get reworked the next time Democrats have both houses and the Presidency.

I had actually hoped for more comprehensive tax reform that gave Democrats enough ownership in the process that it could be lasting. These are tax cuts with a veneer of tax reform, seemingly designed to be punitive blue states.

[mwbms28]

Originally Posted by yellowstatus

The proposal will also a massive new loophole for counting personal income as business "pass through" income. Believe me that clever accountants will outmaneuver Congress and the IRS to claim the benefit on behalf of the rich 1%

It's not really a "loophole." The tax structure for self-employed business owners (like myself) is brutal during the initial fast growth stages of the business. Because we must pay quarterly, we must follow the so-called "safe harbor," rule, which involves paying 110% of last year's taxes to account for growth prospects. Five years ago, we paid about 32% of our income to income taxes; the corresponding TOP marginal rate for someone who made our income was 28%. Without proper accounting oversight, many businesses in this phase will flounder because the tax strategies and cash management strategies are so opaque.

So the "loophole" for pass-throughs is actually a great stimulus for good, small businesses in the initial expansion phase.

Also, the "pass-through" break probably will not apply to doctors, lawyers, financial advisors, and other individuals providing professional services.

Clever accountants are most profitable when the tax code is strict: when there is a liberal regime. The point of this new tax bill is to lessen the influence of clever accountants. The rich are getting their cheddar one way or the other.

[Boston_Burbs]

The biggest issue with this all is the loss of Personal exemptions. Increase in the child tax credit doesn't make up for it.

[Broknrekord3]

I'm not really sure where people seem to think a tax break will come from. If you have any kids, you're screwed. The SD is going up roughly 12k, but you're losing your exemptions, which is also 12k if it's a family of 3. Factor in not being able to write off state tax & you're already out quite a bit. A $600 increase in child exemptions doesn't make up for the exemption loss. And unless you're in the sweet spot between 75-90k, the bracket changes won't really help you. I ran some simulations for some of my clients already who asked me about the effects of his plan, and most families in the 100-150k range (which, let's be honest, is middle class in Boston metro) are looking at pay at least $1500-3000 more, depending on a range of factors.

That said, I think the mortgage deduction is not a bad idea, but I think it should allow 500-1M range to be something that is based on high-income areas. It could possibly be set up as a deduction at the state level based on zipcode with a mileage from down phase-out that is subsidized by the federal gov't. There are a million ways they could do something like this, or they could set it up similar to how SS taxing is done.

All that said, there are some good proposals in Trump's plan, surprisingly, but they are few and far between. I'm sure they'll be the first ones axed. The problem is that most of the deductions being cut have phase-outs already, so the rich didn't get them in the first place, meaning these are strictly impacting middle-class. Well, at least middle-class in high income states like Mass.

[massnative71]

Originally Posted by porterhouse

if one can barely afford a $500k mortgage they shouldn't have it in the first place. If this proposed tax code change forces more responsible borrowing in that way, it's a good thing in my book. Anything more than a conforming mortgage is an ill advised risk for most people.

I would naturally expect all realtors and associations to be against this out of hand. It would ultimately have some minor impact in terms of putting the brakes on real estate appreciation, which is a good thing in my book. I don't see it as having a major impact though. Many sales in my area at the higher end are cash transactions.


I'd be surprised if the estate tax elimination makes it through.

+1

[massnative71]

Originally Posted by Boston_Burbs

The biggest issue with this all is the loss of Personal exemptions. Increase in the child tax credit doesn't make up for it.

It would also phase out the deduction for medical expenses. Totally insane.

[GeoffD]

Originally Posted by yellowstatus

Look up the loophole on "carried interest" that allows hedge fund managers to count their income as capital gains. Many hedge fund managers have made over $100 million a year and a 23% tax rate, lower than employees earning $100k a year.

You have to be making north of $200K filing single and taking the standard deduction to have a 23% effective Federal income tax rate. I guess if you're including FICA/Medicare, it's quite a bit lower than that but somebody making $100K is likely to get all that back when they retire.

[porterhouse]

Originally Posted by mwbms28

It's not really a "loophole." The tax structure for self-employed business owners (like myself) is brutal during the initial fast growth stages of the business. Because we must pay quarterly, we must follow the so-called "safe harbor," rule, which involves paying 110% of last year's taxes to account for growth prospects. Five years ago, we paid about 32% of our income to income taxes; the corresponding TOP marginal rate for someone who made our income was 28%. Without proper accounting oversight, many businesses in this phase will flounder because the tax strategies and cash management strategies are so opaque.

Amen. I think only small business owners understand this. Others will be against it out of hand because it doesn't apply to them or some clueless friend ranted against it on social media. For many small businesses this "loophole" will barely offset skyrocketing health care costs for its employees.