I'm Gonna Pay More Taxes--Thanks, Trump!

[Felicity]

Spoiler alert: It goes up for a while, then dips well into the 1% range (~$2 mil +).

I can't see part of the article linked because the UI sucks, but what I can see shows that the average tax rate dips a bit at the higher levels.  Even if this is the case these taxpayers are still paying more in taxes.  25% of a very large number is still larger in absolute value than 28% of a smaller number.  How does this show that they're paying less in taxes?

Sorry for not being clearer - I meant less taxes relative to income (i.e. effective tax %), which I believe is what most people mean when they say the uber rich are paying less in taxes than the middle class or the merely rich. This is what most people get upset at, at any rate, and the impetus for the Buffett Rule talk.

Estate taxes:  Few people actually pay these. For starters the exclusion is huge, one would need to have an estate north of 5 million before they even need to worry about it. That number is adjusted for inflation. Done right it is over 10 million for a married couple.

If someone is near that number a good attorney along with a good CPA will help them shield tons of money. There are so many ways of shrinking an estate back under 5 million. Many of the ways involve setting up complex trusts that move from the original owner and have charities and family members for beneficiaries. Ever hear of someone leaving millions to a charity upon death? It is normally because they like that charity more the IRS.

They call out two main things (1) Capital gains and dividends taxed at lower rates (2) "Step-up in basis" for inherited wealth (quotes from both sections below)

Both 1 & 2 are taxes paid on taxes. That is why they get special treatment.

1. The corporation already paid taxes before they paid you dividends. That is why your tax rate is lower.

2. you get a step up in basis because the estate pays taxes on the total value. It would be REALLY messed up to charge dad's estate 40-50% in taxes, and then tell his kids they still have to pay taxes on the gains in those stocks they just paid 40-50% taxes on...  They are probably selling the stocks just to pay the estate tax. Now yes, I just explained how many people don't pay estate taxes, but that is the logic behind it.

Whether it would be messed up or not is more of an individual judgment call. I'm of two minds, really, on estate taxes in general... Yes, most people are not affected by estate taxes and they're easy to get around, as others have mentioned. So...while I can see the logic between not wanting to increase income inequality/preserve the idea of the American Dream (tm), estate taxes don't seem to be that effective (except possibly in employing CPAs and lawyers, which I guess would boost the economy somewhat).

On dividends/capital gains...it just seems wrong to *not* tax them higher for some if it means the proportional tax burden of a millionaire can be lower than an upper middle class family, no? What are your thoughts? Should there be no tax rate for capital gains?

[RangerOne]

And there in lies much of the problem. People see high marginal tax rates and they think rich people pay a lot in taxes. True for some especially in the mid $200k-$500k salary range, but depending on how rich you are and what business you are in some pay less taxes than any person in the middle class.

If we are going to pretend to have progressive tax rates on people and corporations we should at least do a reset and make sure that people are paying the taxes they should be on paper.

So far these latest round of cuts are nothing of the sort. They are considering closing a handful of loopholes while opening up the estate tax. The rate cuts help mostly the 1% maybe even the top 5%-10% of earners in some areas. There is nothing in this tax plan that isn't simply going to continue the same trend we have been seeing of a higher concentration of wealth and more suffering for those at the bottom of the labor pool.

The only thing Trump has even mentioned that could provide any real stimulus for the labor pool is investment in infrastructure which I would guess the Republicans will do their best to reign in and keep from being all it could be.

[RangerOne]

Spoiler alert: It goes up for a while, then dips well into the 1% range (~$2 mil +).

I can't see part of the article linked because the UI sucks, but what I can see shows that the average tax rate dips a bit at the higher levels.  Even if this is the case these taxpayers are still paying more in taxes.  25% of a very large number is still larger in absolute value than 28% of a smaller number.  How does this show that they're paying less in taxes?

Sorry for not being clearer - I meant less taxes relative to income (i.e. effective tax %), which I believe is what most people mean when they say the uber rich are paying less in taxes than the middle class or the merely rich. This is what most people get upset at, at any rate, and the impetus for the Buffett Rule talk.

Estate taxes:  Few people actually pay these. For starters the exclusion is huge, one would need to have an estate north of 5 million before they even need to worry about it. That number is adjusted for inflation. Done right it is over 10 million for a married couple.

If someone is near that number a good attorney along with a good CPA will help them shield tons of money. There are so many ways of shrinking an estate back under 5 million. Many of the ways involve setting up complex trusts that move from the original owner and have charities and family members for beneficiaries. Ever hear of someone leaving millions to a charity upon death? It is normally because they like that charity more the IRS.

They call out two main things (1) Capital gains and dividends taxed at lower rates (2) "Step-up in basis" for inherited wealth (quotes from both sections below)

Both 1 & 2 are taxes paid on taxes. That is why they get special treatment.

1. The corporation already paid taxes before they paid you dividends. That is why your tax rate is lower.

2. you get a step up in basis because the estate pays taxes on the total value. It would be REALLY messed up to charge dad's estate 40-50% in taxes, and then tell his kids they still have to pay taxes on the gains in those stocks they just paid 40-50% taxes on...  They are probably selling the stocks just to pay the estate tax. Now yes, I just explained how many people don't pay estate taxes, but that is the logic behind it.

Whether it would be messed up or not is more of an individual judgment call. I'm of two minds, really, on estate taxes in general... Yes, most people are not affected by estate taxes and they're easy to get around, as others have mentioned. So...while I can see the logic between not wanting to increase income inequality/preserve the idea of the American Dream (tm), estate taxes don't seem to be that effective (except possibly in employing CPAs and lawyers, which I guess would boost the economy somewhat).

On dividends/capital gains...it just seems wrong to *not* tax them higher for some if it means the proportional tax burden of a millionaire can be lower than an upper middle class family, no? What are your thoughts? Should there be no tax rate for capital gains?

I think in a simplified tax code we would absolutely have to start taxing capital gains as normal income. This is part of the only path to ever guaranteeing that a very wealthy person, on the dollar, is paying a fair share of taxes relative to everyone lower on the ladder.

After that is done they can argue about what maximal rate is too high and stifles investment.

With regards to estate taxes no matter the level it does to a degree reek of double taxation. Someone in theory shouldn't owe the government family money to die. I think if we had equitable income tax on all forms of income from labor and investment we could seriously consider eliminating estate taxes all together. Perhaps they may consider leaving some token estate tax to encourage some philanthropy.

If a wealthy persons families inherits all their wealth and business holdings and continue to be patriots and pay taxes then we are all the better for it.

In our current system eliminating the estate tax for people that already have a lower effective tax rate than me because I work is just adding insult to injury.

[Schaefer Light]

I think we should just scrap the whole system and move to a national sales tax.

[tomsang]

I think we should just scrap the whole system and move to a national sales tax.

This is an incredibly recessive tax system.  The poor/middle class spend most of their money on goods and services.  The 1% spend very little.  A wealth tax would be fastest at mitigating wealth inequality.

[Peter Parker]

I think we should just scrap the whole system and move to a national sales tax.

This is an incredibly recessive tax system.  The poor/middle class spend most of their money on goods and services.  The 1% spend very little.  A wealth tax would be fastest at mitigating wealth inequality.

Well what about having a national sales tax plus a steep estate tax....

What good is money if you can't buy stuff/things?

And what good would it be to keep it if there was a stiff estate tax?

This would stimulate the economy, be naturally progressive (poorer people buy Kias while the rich buy their BMWs).  Would capture illegal money when they buy bling, and would eliminate a great deal of the IRS.  This way everyone would be contributing to the good of the country, no loopholes, etc.

Seems like a better system than the one we have now....

[mr_orange]

Source:  I am a tax partner at a top CPA firm.  If you are paying any significant taxes on commercial real estate you are doing something wrong.  Look into Cost Segregation, 1031 exchanges, entity structure, and financing structure to limit or eliminate your taxes.

I guess pretty well every real estate developer or operator worth his salt is doing it wrong then.  If you're paying little or no tax you are probably investing in a pretty poor project.  Perhaps an example would be illuminating.  I am quite familiar with reverse delayed exchanges, entity structuring (I own a crowdfunding platform and structure SPEs pretty well every month), cost segregation, chattel appraisals, multi-layered financing structures (senior, mezzanine, equity, etc.), waterfalls, etc. 

Taxes are certainly a consideration in project selection, but they are far from the dominant reason pretty well every real estate investor I know invests in projects.  Great projects drive higher taxes.  Again, the goal is maximal after-tax gains; not minimal taxes.  If you're paying almost nothing in taxes you're doing it wrong. 

Real estate is the name of the game not because of the huge appreciation. It works because of the favorable tax, leveraging and financing structures available for this type of business. 

Pretty well every real estate investor I know is either hoping for significant cash flows or upside.  The selection set depends in a large degree on their personal circumstances.  Taxes are a distant consideration in almost every situation among my peer group.  I'd gladly pay a heap of taxes for a project that delivers terrific returns.  The tax tail should not wag the dog. 

I also said little to no taxes over decades.  Your use of the word None, which is a finite amount.  As a percent of their appreciation how much do these folks pay in taxes?  Most likely significantly less than someone pulling down a paycheck.

Yes, with exchanges you can certainly indefinitely defer taxes using our tax system.  A dominant part of this "appreciation" is really a "tax on inflation tax" though.  Having inflation erode one's purchasing power and then paying tax on this "gain" isn't really a great way to grow one's wealth. 

I own a multi million dollar commercial building and rental houses that cash flow very well, but they kick off taxable losses after depreciation is applied.  The reason the tax code is complicated and we have an Alternative Minimum Tax is because we can and we did create tax shelters that would eliminate taxes for decades if not forever.

Perhaps, but that does not really make those projects great projects.  Again, the goal is maximal after-tax gain; not minimal taxes.  If you're paying very little in taxes you're probably picking poor projects.  Everyone's situation is a bit different and people have different risk tolerances.  I really don't know of any real estate investors that are seeking to find projects where they shelter all of their income.  They'd gladly take higher returns in trade for higher taxes.  Any other behavior would not be that of a rational self-maximizer. 

Trump legally takes advantage of these as many Real Estate investors.  It is all legit, but he is not paying any significant taxes.  IE the reason, why he is not releasing his tax returns.  The returns would show minimal to no taxable income.  All legitimate, but the population would get hung up on the fact that he does not "Make" a lot of taxable income and obviously is not very "Rich".  When he is obviously doing very well and it would be very hard to explain that is how the wealthy play.  It would also make it harder to push through his tax plan, which will most likely eliminate taxes for many people.  The tax code is only complicated for those doing complicated transaction.  If they make it simple, then we will be able to eliminate taxes for our clients.  They will then realize that they need to pay some taxes and will begin adding different laws to make it "fair", then it will get complicated again.  This will be a huge boon for tax attorneys and accountants.  It is easy to sell services to your clients when you can say, "For $100k, I can reduce your million dollar tax bill to zero".       

I don't know all of the specifics of Trump's return, but from everything I have read he is carrying forward losses from deals struck a long time ago.  This hardly seems like a great way to limit taxes.  I presume that a lot of his carryfoward losses somehow survived later legislation that limited the games he was playing with at loss rules.  I don't think these same "strategies" would work today with the current tax regime.  Maybe they would. 

In any event this is really hard to debate in the abstract.  I don't agree that the tax shelter games that one can play optimize the risk-adjusted returns if the primary goal is to minimize taxes.  No knowledgeable investors I know of structure their affairs in this manner. 

[Malum Prohibitum]

So which is it?  Does the OP or the hypothetical family with 4 kids making $88k pay MORE or LESS under the Trump plan than under the current tax system?  I see people claiming it both ways and linking to calculators and articles to back up their assertions.  They cannot both be correct.

[Lagom]

I mean, I thought his plan was pretty clear cut. Massive (yuge!) tax cuts for the very wealthiest Americans. Modest to very modest cuts for most of the rest. And a few groups (like single parents) get  a tax increase. I haven't read anything to contradict those details other than the very important caveat that his proposal is highly unlikely to move through congress unaltered.

[ender]

I mean, I thought his plan was pretty clear cut. Massive (yuge!) tax cuts for the very wealthiest Americans. Modest to very modest cuts for most of the rest. And a few groups (like single parents) get  a tax increase. I haven't read anything to contradict those details other than the very important caveat that his proposal is highly unlikely to move through congress unaltered.

Did you read his tax plan?

He's pretty clear on his site that more people will pay no income taxes. And a lot of the credits he supposedly wants to ax hurt higher income earners a lot more than lower income earners.

So which is it?  Does the OP or the hypothetical family with 4 kids making $88k pay MORE or LESS under the Trump plan than under the current tax system?  I see people claiming it both ways and linking to calculators and articles to back up their assertions.  They cannot both be correct.

I don't think I will believe any of "Trump's tax plan" until it's actually passed in congress. After all, it's their tax plan, not Trump's.

[Lagom]

Did you read his tax plan?

He's pretty clear on his site that more people will pay no income taxes. And a lot of the credits he supposedly wants to ax hurt higher income earners a lot more than lower income earners.

I'm sure his site does say that. I'm only going off of the various independent reviews of the plan I've encountered. I don't think eliminating lots of deductions will hurt the very wealthiest nearly as much as lowering their tax bracket will benefit them. Not to mention how much of a boon eliminating the estate tax will provide (which is a whole other discussion, of course). And I haven't heard anything about, for example, eliminating the capital gains tax cap.

[obstinate]

Yeah, that 7% reduction in everything over 400k is going to mean 14k back in my pocket. I don't expect Trump to eliminate the mortgage interest deduction or state and local income tax deductions, which are the only ones I use that really matter to me. So I expect it to be a decent sized boon for my top 1% ass.

[Erica]

I think people don't realize that part of Trump's tax plan is to basically get rid of deductions.

Here is one example of a person just over poverty level in Calif benefiting from Trumps plan.

Trump is eliminating the personal deduction which is $4050 for 2016.
Instead he proposes to increase the Standard Deduction. Single person would be able to make up to $15,000 per year before paying any Fed Taxes.

Min wage in Calif-$10 per hr for 2016
$10 x 40 hr wk=$400 x 52 weeks in a year=$20,800 yearly income

-Trumps Plan-Single Filer
$20,800
-$15,00 Standard Deduction
-------
$5800 taxable income x .12%=$696 per yr or $58 a mo.

Today -Single Filer
$20,800 Income
-$4050 Personal Exemption
-$6300 Standard Deduction
-------------
$10,400 taxable income.
-9275      ($0-$9275 income is taxed 10% taxed which=$927.00)
---------
$1125 ($9276-$37,650=15% taxes which is $1125.00x.15=$168.75)

$168.75+$927=$1095.75

$1095 Today Federal Tax
-$696 Trumps Federal Tax
--------
$399.00 a year ahead w/Trumps plan
Someone who makes just slightly above poverty level in Calif will have $399 more per yr -or- $33.25 more per mo. in their pocket due to Trump. Disclaimer: I am not a CPA

Trumps website- https://www.donaldjtrump.com/policies/tax-plan

[Erica]

Cut and pasted from Trumps website
https://assets.donaldjtrump.com/HCReformPaper.pdf

3. Allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system.

4. Allow individuals to use Health Savings Accounts (HSAs). Contributions into
HSAs should be tax-free and should be allowed to accumulate. These accounts
would become part of the estate of the individual and could be passed on to heirs without fear of any death penalty.

-Rewriting the tax code to allow working parents to deduct from their income taxes child care expenses for up to four children and elderly dependents.

[onlykelsey]

I think one of the reasons people are coming to different conclusions is that we are working off a proposal.  There is no full bill yet, and the amendments necessary to 26 USC are sure to be hugely complex.  Of course it is also unlikely his proposal will pass without any changes.

[BTDretire]

And there in lies much of the problem. People see high marginal tax rates and they think rich people pay a lot in taxes. True for some especially in the mid $200k-$500k salary range, but depending on how rich you are and what business you are in some pay less taxes than any person in the middle class.

If we are going to pretend to have progressive tax rates on people and corporations we should at least do a reset and make sure that people are paying the taxes they should be on paper.

  Just a remind of how much of the tax burden the rich do pay.

Top 10% pay 70.88% of the federal tax burden.
Top 25% pay 86.78% of the federal tax burden.
http://www.ntu.org/foundation/page/who-pays-income-taxes
Bottom 20% get money from the taxpayers.

[dude]

I should save $135,000 or so.  The poor and middle class will really get the shaft if his tax plan goes into effect by minimally affecting their taxes or increasing them, while decreasing the expenditures that they use.  If the tax revenues drop by a significant amount to fund the windfall wanted by the 1%, the GOP will want to balance the budget by saying that they can not afford the programs that the poor and middle class use.  Social Security will need to be less lucrative, Medicare will be decreased, funding for education, infrastructure, health care will not have the funds and therefore will be cut.  Those that keep companies honest will be gutted, allowing the 1% to pollute our environment, take resources that they should not be taking, and put employees and customers at risk.  The elimination of the estate tax will allow dynasties to grow and consolidate the wealth to the top 50 families in the US.  Crazy, that the poor and uneducated voted to shoot themselves in the head, but it is great for my tax and financial situation.  I don't think it would be fair, but it is the will of the people so I will take it.   

^^^ Yep, THIS.

[Schaefer Light]

I think we should just scrap the whole system and move to a national sales tax.

This is an incredibly recessive tax system.  The poor/middle class spend most of their money on goods and services.  The 1% spend very little.  A wealth tax would be fastest at mitigating wealth inequality.

Two things.  1) I don't care about wealth inequality, and 2) If I was designing the system, I'd say you have to spend above a minimum amount before you owe any taxes (thus the poor would end up paying very little in taxes).

[dude]

I think we should just scrap the whole system and move to a national sales tax.

This is an incredibly recessive tax system.  The poor/middle class spend most of their money on goods and services.  The 1% spend very little.  A wealth tax would be fastest at mitigating wealth inequality.

Two things.  1) I don't care about wealth inequality,

You probably should, because it's only a matter of time before the pitchforks come out.  And frankly, without a middle class American business will suffer greatly -- in our consumer-driven economy, if people don't have the money to buy shit, the system breaks down.

[OurTown]

There is a national sales tax plan out there and it is fairly regressive, even with giving everyone an advance rebate for consumer spending up to poverty level.  I don't know if anyone has thought about a graduated sales tax where basic necessities are taxed at a relatively low level but luxury items, sin-tax goods and services (pot, hookers, gambling, booze), and possibly fossil fuel energy use are taxed at much higher levels.

[MilesTeg]

And there in lies much of the problem. People see high marginal tax rates and they think rich people pay a lot in taxes. True for some especially in the mid $200k-$500k salary range, but depending on how rich you are and what business you are in some pay less taxes than any person in the middle class.

If we are going to pretend to have progressive tax rates on people and corporations we should at least do a reset and make sure that people are paying the taxes they should be on paper.

  Just a remind of how much of the tax burden the rich do pay.

Top 10% pay 70.88% of the federal tax burden.
Top 25% pay 86.78% of the federal tax burden.
http://www.ntu.org/foundation/page/who-pays-income-taxes
Bottom 20% get money from the taxpayers.

Correction: those figures are federal INCOME tax, not total federal tax. Anyone who makes < 118k/year pays an addition 12.8% in FICA (diminishing after $118K).

It's rather impossible to get blood from a turnip, so it should be no surprise you can't get much tax out of people who don't make much money.

[GoingConcern]

I like Trump's idea of simplifying taxes, removing incentives to itemize (I don't like the idea of the idea of subsidizing real estate and high income state taxes), ending tax loopholes and increasing standard deduction.

But I would propose the following:

- Keep Estate/Gift Taxation. 
- Keep personal exemptions to help lower to middle income families
- Highest tax bracket should be increased to 35% at the minimum
- Allow head of household filing status
- End more tax loopholes

[TheAnonOne]

Im curious what amount we will save/lose under this proposal.

210k married with no kids (could be 200 to 220 generally)

[Peter Parker]

I have taken your list, and changed the suggestions.....

- Keep Estate/Gift Taxation--AGREED--This encourages spending since you cant't take it with you, which helps stimulate the economy/provide jobs.  It puts money back into circulation.

- Keep personal exemptions to help lower to middle income families No need for exemptions under a national sales tax.

- Highest tax bracket should be increased to 35% at the minimum  No need for "tax brackets under a national sales tax--the more you spend (and the more you have to spend) the more you pay.

- Allow head of household filing status   No need for "filing status" under a national sales tax--spend money, pay a tax.  Simple.

- End more tax loopholes   End tax filing (for individuals) under a national sales tax.  Greatly reduce the size of the IRS since they will not have to monitor 300 million taxpayers....They would have to monitor vendors, who do not collect the tax.

[stoaX]

There is a national sales tax plan out there and it is fairly regressive, even with giving everyone an advance rebate for consumer spending up to poverty level.  I don't know if anyone has thought about a graduated sales tax where basic necessities are taxed at a relatively low level but luxury items, sin-tax goods and services (pot, hookers, gambling, booze), and possibly fossil fuel energy use are taxed at much higher levels.

I'm not sure I consider beer a luxury..but nevertheless I like the idea of a graduated national sales tax if it results in a simpler system and replaces the current unruly, complex and frustrating federal income tax system.  My fear is that it will just be added as an additional tax. 

States and other localities already do different levels of sales tax for food vs. gasoline vs. other stuff so it seems easily do-able.

[Pooplips]

Get rid of all taxes.

Add national sales tax.

Add profit tax. Corporate profits are passed through to the shareholders directly and those individuals pay the taxes.

[Schaefer Light]

There is a national sales tax plan out there and it is fairly regressive, even with giving everyone an advance rebate for consumer spending up to poverty level.  I don't know if anyone has thought about a graduated sales tax where basic necessities are taxed at a relatively low level but luxury items, sin-tax goods and services (pot, hookers, gambling, booze), and possibly fossil fuel energy use are taxed at much higher levels.

I'm not comfortable with the government deciding what's a luxury and what's not...which is why I don't like the sin taxes we have in place already.

[Malum Prohibitum]

According to this infographic, I will be paying more taxes as a "middle income earner" under the Trump tax plan.  I will be going from a 28% tax bracket to a 33% tax bracket.  At the same time, those making twice as much as me, will see a decrease.  Unfortunately, I can't earn more so I can pay less....

I was trying to find a silver lining to a Trump presidency.  Instead, the lining is lead paint.

How do you fair?


https://howmuch.net

  Peter Parker,
Are you using just your "salary" and looking at the chart and the top marginal rate and concluding you will be worse off, or are you looking at taxable income only, after all deductions (including the Trump plan's increased standard deductions)?  Also, have you considered the impact of the lowered rates on your taxable income (not salary or gross income) for lower brackets from 91,150 to 112,000 and so on down the chain (15% lowered to 12% for $9275 to 37,500, and so on)?  You get taxed in each bracket, not just the top one.

There is a lot more to it than just looking at the chart, plugging in your salary, and seeing what the top rate is.

[TheAnonOne]

Im curious what amount we will save/lose under this proposal.

210k married with no kids (could be 200 to 220 generally)

Depending on how much you put into tax-deferred accounts (18K, 24K, 36K, 48K???) it can vary quite a bit.
Assuming under 50 maxing two 401K accounts you may see about $4000-5000 in tax savings if Congress were to pass a plan nearly identical to Trump's proposal.

Thanks! We max 1 401k and put 11k in the 2nd so probably close enough to your estimate

(Wife only makes 40 of our 200 and her company limits 401k contributions to 30% of your income, pretty dumb)

[Malum Prohibitum]

(Wife only makes 40 of our 200 and her company limits 401k contributions to 30% of your income, pretty dumb)

  That is pretty dumb.  In fact, it makes no sense whatsoever.  Limiting workers limits the highly compensated employees, too, due to nondiscrimination rules.  This sounds like one of those things that can be changed if somebody requests the change.

[TheAnonOne]

(Wife only makes 40 of our 200 and her company limits 401k contributions to 30% of your income, pretty dumb)

  That is pretty dumb.  In fact, it makes no sense whatsoever.  Limiting workers limits the highly compensated employees, too, due to nondiscrimination rules.  This sounds like one of those things that can be changed if somebody requests the change.

It's a pretty large company, so I am not sure what could be done. Even then, I don't work there, my wife does and convincing her to start that battle might be... challenging.

I thought we asked in the years passed and we could also contribute up to 30% additionally into a roth 401k up to the combined total of 18k.

The whole thing sounds like a mess.

[Malum Prohibitum]

It sounds like her employer just never updated their plan rules when Congress lifted the cap.  It might not be a battle.  It is probably something they just have not noticed.

[tomsang]

I guess pretty well every real estate developer or operator worth his salt is doing it wrong then.  If you're paying little or no tax you are probably investing in a pretty poor project.  Perhaps an example would be illuminating.  I am quite familiar with reverse delayed exchanges, entity structuring (I own a crowdfunding platform and structure SPEs pretty well every month), cost segregation, chattel appraisals, multi-layered financing structures (senior, mezzanine, equity, etc.), waterfalls, etc. 

Taxes are certainly a consideration in project selection, but they are far from the dominant reason pretty well every real estate investor I know invests in projects.  Great projects drive higher taxes.  Again, the goal is maximal after-tax gains; not minimal taxes.  If you're paying almost nothing in taxes you're doing it wrong. 

No most are doing very well.  Look at Trump and other major real estate holders. They do very well and pay very little tax.  They are not looking for deals that pay little tax.  Real Estate by its nature is a tax shelter.  Most are paying little to no taxes based on the tax benefits of owning real estate.  Nothing magical.  You make it sound like they are looking only for tax benefits. They don't need to, the tax benefits are built into real estate law.  If a real estate professional is growing his empire on a yearly basis then he will pay minimal to no taxes.  If he has not acquire property in five or more years, then the depreciation benefits will reverse. If he his developing and selling then there are no depreciation benefits. 

If you are developing and holding on to real estate and not taking advantage of Cost Segregation, 179(d), 1031, and numerous other legal IRS means of reducing your taxable income then you are missing out.  Google Cost Segregation:   http://www.buildings.com/article-details/articleid/4864/title/the-cash-benefits-of-cost-segregation  There are also tons of state and local tax benefits for building skyscrapers in areas and potentially discounted or interest free loans as well.

An example would be you if buy a $10 million or $10 billion dollar building.  The first year it kicks off 20% depreciation after a cost seg.  The first five years typically you are seeing 40% of the value of the building being depreciated.  This is very different then depreciating it over 39 years or 27.5 years.  Typically a hotel/apartment you can have 40%+ of the construction price broken down into 5, 7, 15 year lives on top of that you have the bonus depreciation rules kick in. 

Google Cost segregation benefits if you want more information. 
http://www.buildings.com/article-details/articleid/4864/title/the-cash-benefits-of-cost-segregation

So with that example if a real estate investor comes in a buys a $10 million dollar building with a $1million down.  It will kick off $2 million in depreciation the first year.  How much are you leasing out this building for?  How much are your taxes, interest, overhead and operating expenses?  You will most likely see that you have just generated a loss for the year.  Rinse and repeat and you have built a real estate empire without paying taxes.  At some point in the distant future you want to sell your building.  Ten years from now you sell your building for $20 million, which has a tax basis of $5 million.  You find another building for $20 million or more and you do a 1031 exchange and defer the gain into the future.

I have seen people with billions in real estate who have paid a minimal amount of taxes over decades using the tax code for their advantage.  If you truly are a Real Estate investor you should look into a good Real Estate CPA to implement these tax incentives.  You should do it prior to Trump coming on board as you can do a Cost Seg and capture all of the prior year benefits in the current year.  If Trump eliminates depreciation, then you will have permanently lost the benefit that was at your disposal.  All the various tax deferrals and incentives can be used to buy more real estate instead of giving the IRS 40%.

On the residential housing, we have a number of people on this board that have houses that cash flow very well and pay little to no taxes on the cash flow.       

[RangerOne]

Get rid of all taxes.

Add national sales tax.

Add profit tax. Corporate profits are passed through to the shareholders directly and those individuals pay the taxes.

Sales taxes are pretty regressive given a very high income person can only consume so much.

A lot can be done by just making the income tax more equitable. There are so many deductions at this point you almost have to come in and wipe them all out and start adding the best ones back in from scratch.

[Pooplips]

Get rid of all taxes.

Add national sales tax.

Add profit tax. Corporate profits are passed through to the shareholders directly and those individuals pay the taxes.

Sales taxes are pretty regressive given a very high income person can only consume so much.

A lot can be done by just making the income tax more equitable. There are so many deductions at this point you almost have to come in and wipe them all out and start adding the best ones back in from scratch.

Yes a sales tax would be regressive but I think a profit tax would be very progressive and hopefully the two would balance each other out. At least that's how it works in my head.

[Indexer]

On dividends/capital gains...it just seems wrong to *not* tax them higher for some if it means the proportional tax burden of a millionaire can be lower than an upper middle class family, no? What are your thoughts? Should there be no tax rate for capital gains?

What do capital gains and taxing rich people more have to do with each other?

Yes, during the last election they made a big deal out of 2 billionaires who pay less than 15% taxes because all of their income is dividends/capital gains. Those two people were Buffet and Romney. They do not represent all rich people... Prime example: Trump. He has paid zero taxes. It has nothing to do with capital gains tax rates. 

If you want to tax rich people more you can leave capital gains alone, or do what Paul Ryan wants to do which is just tax capital gains at half of the ordinary rate, and then you can tax rich people some other way if it is that important to you. Hillary's idea was to have a minimum tax for income over X level. That honestly sounds better than trying to tax capital gains like income. The reason capital gains are taxed at a lower rate is because they were already taxed before(at the corporate level).

[MilesTeg]

The reason capital gains are taxed at a lower rate is because they were already taxed before(at the corporate level).

You are thinking of dividends. Capital gains are the result of value appreciation of an asset, and have only one tax. Dividends are payment to shareholders of a share of the realized profits from selling goods and services, and are taxed twice if you are a higher income earner at an overall rate that is (in theory) on par with regular income tax. This is why there is a difference between "qualified" dividends and "non-qualified". Non-qualified dividends are dividends from companies outside the jurisdiction of the U.S. for which Uncle Sam has not already taken a corporate tax cut from.

Lots of folks think this "double tax" is a unfair. It is, but not to the people who want it (the investor class) because it allows them to personally benefit from corporate tax dodging. IMHO dividends should just be taxed as regular income but should be tax deductible by the business. Cleaner, simpler, fairer.

[Erica]

Does anyone think the $250k/$500k tax exclusion on the sale of your primary residence will be reduced or eliminated? I remember back in the late 90s* they didn't have that and you could only do a once in a lifetime tax exclusion of $125k total and only if you were 55 or older. 

*OK that was changed in 1997 under the Tax Payer Relief Act of 1997.

I've been trying to find this out almost daily and cannot find any recent news on it including on the Donald's official website. His history is... he is very much for this exclusion.

If Hillary becomes president, which could still happen, expect to hold assets for 6 yrs or more instead of 1 yr+1day in order to get the exclusion. This would place a huge road block to our financial plan

[obstinate]

If Hillary becomes president, which could still happen, expect to hold assets for 6 yrs or more instead of 1 yr+1day in order to get the exclusion. This would place a huge road block to our financial plan

Please check your facts before posting. First, HRC's plan has (had) nothing in it about eliminating the tax exclusion for primary residences. Second, there's really no better chance of her becoming President than me.

[obstinate]

Does anyone think the $250k/$500k tax exclusion on the sale of your primary residence will be reduced or eliminated? I remember back in the late 90s* they didn't have that and you could only do a once in a lifetime tax exclusion of $125k total and only if you were 55 or older. 

*OK that was changed in 1997 under the Tax Payer Relief Act of 1997.

I've been trying to find this out almost daily and cannot find any recent news on it including on the Donald's official website. His history is... he is very much for this exclusion.

If Hillary becomes president, which could still happen, expect to hold assets for 6 yrs or more instead of 1 yr+1day in order to get the exclusion. This would place a huge road block to our financial plan

Even Hillary's proposed plan would require Congressional approval.  With an overwhelming Republican victory in the House and a slim majority in the Senate, I don't see it likely that extending capital gains requirements to 6yrs would see the light of day.

A bigger question to ask is, if Trump's plan were to be approved in the form he asked - how does the housing capital gains exclusion work when your deduction is limited to $100K single / $200K married max.  This seems like it may effectively lower the real estate gains exclusion, but how can I know until something actually passes through congress.

Hoping it doesn't go in before we sell ours. We stand to profit about 450k tax free right now! Eep!

[Erica]

If Hillary becomes president, which could still happen, expect to hold assets for 6 yrs or more instead of 1 yr+1day in order to get the exclusion. This would place a huge road block to our financial plan

Please check your facts before posting. First, HRC's plan has (had) nothing in it about eliminating the tax exclusion for primary residences. Second, there's really no better chance of her becoming President than me.

  I said no such thing. Quit being a troll

[Erica]

Does anyone think the $250k/$500k tax exclusion on the sale of your primary residence will be reduced or eliminated? I remember back in the late 90s* they didn't have that and you could only do a once in a lifetime tax exclusion of $125k total and only if you were 55 or older. 

*OK that was changed in 1997 under the Tax Payer Relief Act of 1997.

I've been trying to find this out almost daily and cannot find any recent news on it including on the Donald's official website. His history is... he is very much for this exclusion.

If Hillary becomes president, which could still happen, expect to hold assets for 6 yrs or more instead of 1 yr+1day in order to get the exclusion. This would place a huge road block to our financial plan

Even Hillary's proposed plan would require Congressional approval.  With an overwhelming Republican victory in the House and a slim majority in the Senate, I don't see it likely that extending capital gains requirements to 6yrs would see the light of day.

True, thanks for this! :)

A bigger question to ask is, if Trump's plan were to be approved in the form he asked - how does the housing capital gains exclusion work when your deduction is limited to $100K single / $200K married max.  This seems like it may effectively lower the real estate gains exclusion, but how can I know until something actually passes through congress.

When you own your home less than 1 year and 1 day,(short term capital gains) you pay ordinary taxes on it unless you qualify for an exclusion (you job location changed, health reasons w/doctors note, death, etc). The Ordinary income is looked at as if you were getting a 1099 form for working as an independent contractor. Hopefully that makes sense.

We will be using one exclusion via a doctors note due to my husbands health issues. So we won't pay capital gains tax. But these exclusions from what I understand are rare so once you've used it, it is risky to do it too many times afterwards. My fear is if we move every few years, we might be deemed a "dealer" so need to study up more on that

This is IRS Publication 523 Selling Your Home in case anyone on the forum is interested