Author Topic: Republican Tax Plan 2017  (Read 72132 times)

caffeine

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Re: Republican Tax Plan 2017
« Reply #500 on: November 17, 2017, 09:33:54 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

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Re: Republican Tax Plan 2017
« Reply #501 on: November 17, 2017, 09:46:29 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

caffeine

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Re: Republican Tax Plan 2017
« Reply #502 on: November 17, 2017, 09:47:27 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

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Re: Republican Tax Plan 2017
« Reply #503 on: November 17, 2017, 09:48:43 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.
« Last Edit: November 17, 2017, 09:51:21 AM by inline five »

MDM

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Re: Republican Tax Plan 2017
« Reply #504 on: November 17, 2017, 10:19:16 AM »
To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).
That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

Scortius

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Re: Republican Tax Plan 2017
« Reply #505 on: November 17, 2017, 10:20:11 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.

It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.

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Re: Republican Tax Plan 2017
« Reply #506 on: November 17, 2017, 10:26:44 AM »
State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.

It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.

Well to be fair not being able to deduct income and property taxes will hit higher earning folks more, not the middle.

sherr

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Re: Republican Tax Plan 2017
« Reply #507 on: November 17, 2017, 10:55:05 AM »
To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).
That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

Sort of.

Quote
The reason to use marginal tax rates in this decision is that you can make the decision separately for every dollar you invest. If the next dollar you invest will be taxed at 25% now and 25% when you retire, then the tax situation is break-even.

So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).
« Last Edit: November 17, 2017, 11:12:29 AM by sherr »

sherr

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Re: Republican Tax Plan 2017
« Reply #508 on: November 17, 2017, 11:07:37 AM »
It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.
Or they could, I don't know, work with Democrats to come up with a bill that is able to pass by invoking cloture instead.

Given that "bi-partisan compromise" is a dirty word to the current Republican party, no, they cannot.

djadziadax

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Re: Republican Tax Plan 2017
« Reply #509 on: November 17, 2017, 12:00:21 PM »

Quote

No one wants to do weeks worth of tax work. But if the alternative is a $5k a year tax increase, I don't want simplification...

There is a value proposition here. I am willing to suffer complex taxes if it offers me more money in my pocket. If you are not losing anything to move to a simple standard then of course that less tax BS will sound like the best option.

Are you a high earning family? It seems to always be the case for people who compain about actual middle class getting a tax break. Because for our family, this law would result in a $2500 tax break while taking all of 20 min to prepare the tax return. But again, we live in 750 sq ft, all of 4 people.

djadziadax

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Re: Republican Tax Plan 2017
« Reply #510 on: November 17, 2017, 12:13:52 PM »
DINC here with no mortgage, moderate property taxes, have state income tax, and maxing out two pre-tax retirement accounts.  I would consider this a pretty average MMM household.  We will save about $1,800 in taxes under the House plan.  Why is everyone so outraged?  What am I missing?

Well put.  I've ran my numbers under both bills, and I save money.  I think there has been way too much focus on what is being eliminated and not enough people seeing how the bracket changes offset the losses.

I wonder the same thing -  we will save on taxes, and we make around 150K and that is with one person currently not eligible for 401K!!

djadziadax

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Re: Republican Tax Plan 2017
« Reply #511 on: November 17, 2017, 12:18:50 PM »
Saw this chart this morning.

https://www.yahoo.com/finance/news/house-just-passed-1-5-trillion-tax-bill-thats-brutal-poor-people-194334563.html

I'm guessing a lot of FIREs end up in that red box.

This is called - "How to lie with statistics"...Economy projections beyond a 2-3 yr period are useless, and even those are crap usually. 10 -20 year period are just hilarious. Yahoo News progressive sledgehammer falls on anything that is not pure socialism.


djadziadax

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Re: Republican Tax Plan 2017
« Reply #512 on: November 17, 2017, 12:22:08 PM »

Quote

Well to be fair not being able to deduct income and property taxes will hit higher earning folks more, not the middle.

No one on  this topic is fair. Everyone evaluates through their own biases. And no one is willing to state what a "fair" tax system according to them would be. The hypocrisy.

DarkandStormy

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Re: Republican Tax Plan 2017
« Reply #513 on: November 17, 2017, 12:22:53 PM »
Saw this chart this morning.

https://www.yahoo.com/finance/news/house-just-passed-1-5-trillion-tax-bill-thats-brutal-poor-people-194334563.html

I'm guessing a lot of FIREs end up in that red box.

This is called - "How to lie with statistics"...Economy projections beyond a 2-3 yr period are useless, and even those are crap usually. 10 -20 year period are just hilarious. Yahoo News progressive sledgehammer falls on anything that is not pure socialism.

Are...are you intentionally being obtuse?

Quote
The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper in tax matters, released its evaluation of the House GOP’s tax bill

Progressive and LIBRUHLS are only releasing what the JCT and CBO - both NON PARTISAN - are pulling together and publishing.

Take your issue up with them, not Yahoo Finance or liberals.
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MDM

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Re: Republican Tax Plan 2017
« Reply #514 on: November 17, 2017, 12:24:31 PM »
To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).
That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.
So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).

Don't know if you were misled by something you read, but there are some subtle but important points you may be missing.

Last one first: of course one "can't just look at the marginal rate on the last dollar and make decisions based on that alone."  No argument there, but that isn't the suggested comparison.

One needs to look at the marginal rate on "amounts".  E.g., if one doesn't wish to split an annual 401k or IRA contribution, the contribution amount would be $18K or $5.5K (or the >50 amount) respectively.  Similarly, one might use a 4%/yr withdrawal ratio on the projected balance of this year's traditional contribution to get the withdrawal amount that goes in the denominator for the marginal calculation. Say, 4% of $18K returning 5% real for 30 years would be an extra $3100.  The withdrawal marginal rate is [(tax including the $3100) - (tax without the $3100)]/$3100.

Using (tax including the $3100)/(total income) could cause one to make bad choices and pay too much in taxes.

Consider this example:
Someone saving 15% on a traditional contribution this year.  Regardless of whether that contribution is made, the person will pay a 25% marginal rate when withdrawing from traditional accounts, but the effective rate will be 11%.

Should the person contribute to traditional or Roth this year?

GoingConcern

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Re: Republican Tax Plan 2017
« Reply #515 on: November 17, 2017, 12:57:19 PM »
If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

 
« Last Edit: November 17, 2017, 01:01:07 PM by GoingConcern »

Thegoblinchief

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Re: Republican Tax Plan 2017
« Reply #516 on: November 17, 2017, 01:08:58 PM »
Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.
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djadziadax

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Re: Republican Tax Plan 2017
« Reply #517 on: November 17, 2017, 01:32:18 PM »
Quote

Are...are you intentionally being obtuse?


Misunderstanding of my point is not my fault. If you want to argue on that topic take it up with the leading expert of systemic risk, Nassim Taleb.
And just check how many times the CBO has been wrong in the past in their projections. Hence - how to lie with statistics - recommended reading for many MBA programs...

https://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728

Kevin

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Re: Republican Tax Plan 2017
« Reply #518 on: November 17, 2017, 01:47:20 PM »
I encourage everyone who takes issue with the tax bill to call their Senators. I've called both of mine 3 times since last week. Only got through to a human once, but left messages all the other times.

djadziadax

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Re: Republican Tax Plan 2017
« Reply #519 on: November 17, 2017, 02:08:21 PM »
Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.

Actually you may really not need to be excel wizard to do this...you can actually just use a calculator.

1. Calculated whether your mortgage deduction (on 500K)+charitable contribution+property taxes will be over 24K if MFJ. If not, you know you will be taking the standard deduction.

2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.

3. Subtract your retirement contributions (401K, IRA if applicable) from your total income

4. Subtract your medical premiums from your income (i believe this stays pretax)

5. Subtract your Standard or Itemized deduction

6. That will give you your taxable income. Then, multiply that x 12% if up to 90K.

7. That gives you your tax.

8. Subtract from 8 the combination of your child and flex credits (1600 per child, 300 per adult in household)

9. That is the tax you will be paying.

I think that is pretty correct but am open to corrections.

ZiziPB

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Re: Republican Tax Plan 2017
« Reply #520 on: November 17, 2017, 02:18:00 PM »


2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.


Huh?



Undecided

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Re: Republican Tax Plan 2017
« Reply #521 on: November 17, 2017, 02:51:36 PM »

and now I have to take it all back.  The new tax plan crushes medicare and the ACA exchanges in order to fund tax cuts for billionaires, EXACTLY like their health care proposal did earlier this year. 


Hey, it's not like they're getting rid of Obamacare altogether. They're leaving the Obamacare taxes in place (the 3.8% NIIT and the .9% Medicare surcharge).

dragoncar

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Re: Republican Tax Plan 2017
« Reply #522 on: November 17, 2017, 02:56:15 PM »
If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

No, it's like going to the store and I want to buy some milk.  But the price went up 10 cents because the government stopped subsidizing the milk.  I say, now that's more expensive than juice, so I'll buy the juice instead.  Then some guy on the internet tells me I'm wrong because nobody makes a decision to buy milk based on 10 cents and I tell him to give me 10 cents if it's no big deal.

No matter how much extra value someone assigns to home ownership, there's still a break even point where you are on the fence.  Maybe renting costs $1000 and buying costs $1200, but I choose to buy because I'm willing to pay $200 extra to own.  Now the price goes up to $1400, but I'm not willing to pay a extra $400 to own.  So I rent.  Is this really hard to grasp?

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Re: Republican Tax Plan 2017
« Reply #523 on: November 17, 2017, 03:12:38 PM »
If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

No, it's like going to the store and I want to buy some milk.  But the price went up 10 cents because the government stopped subsidizing the milk.  I say, now that's more expensive than juice, so I'll buy the juice instead.  Then some guy on the internet tells me I'm wrong because nobody makes a decision to buy milk based on 10 cents and I tell him to give me 10 cents if it's no big deal.

No matter how much extra value someone assigns to home ownership, there's still a break even point where you are on the fence.  Maybe renting costs $1000 and buying costs $1200, but I choose to buy because I'm willing to pay $200 extra to own.  Now the price goes up to $1400, but I'm not willing to pay a extra $400 to own.  So I rent.  Is this really hard to grasp?

No it's completely understandable.

Except your example is not correct because there are no $500k mortgages for $1400/month.

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

It's already limited to $1m. Correct me if I am wrong but the new tax plan will lower that to $500k mortgages.

How does this hurt the middle class? If anything it's a tax on the wealthy because they can't deduct as much.

jean

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Re: Republican Tax Plan 2017
« Reply #524 on: November 17, 2017, 03:19:10 PM »
Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.

Actually you may really not need to be excel wizard to do this...you can actually just use a calculator.

1. Calculated whether your mortgage deduction (on 500K)+charitable contribution+property taxes will be over 24K if MFJ. If not, you know you will be taking the standard deduction.

2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.

3. Subtract your retirement contributions (401K, IRA if applicable) from your total income

4. Subtract your medical premiums from your income (i believe this stays pretax)

5. Subtract your Standard or Itemized deduction

6. That will give you your taxable income. Then, multiply that x 12% if up to 90K.

7. That gives you your tax.

8. Subtract from 8 the combination of your child and flex credits (1600 per child, 300 per adult in household)

9. That is the tax you will be paying.

I think that is pretty correct but am open to corrections.

That's seems about right, except the mortgage interest provision is only for new loans (so if you happen to already have a $500k+ mortgage, you can deduct all interest) and property taxes are capped at $10k.  This is the house plan.  The senate plan allows no property tax deduction and allows interest on mortgages up to $1M no change.  The senate plan also has different tax brackets.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #525 on: November 17, 2017, 03:21:12 PM »

Quote

No one wants to do weeks worth of tax work. But if the alternative is a $5k a year tax increase, I don't want simplification...

There is a value proposition here. I am willing to suffer complex taxes if it offers me more money in my pocket. If you are not losing anything to move to a simple standard then of course that less tax BS will sound like the best option.

Are you a high earning family? It seems to always be the case for people who compain about actual middle class getting a tax break. Because for our family, this law would result in a $2500 tax break while taking all of 20 min to prepare the tax return. But again, we live in 750 sq ft, all of 4 people.

I agree this is only an issue, for the most part, for people considering buying a median priced Cali home. If you can't or wouldn't itimize then this would be a small tax break.

They are keeping a lot of bullshit tax breaks to give breaks to people who need them even less than I do.

Though I will admit if I weren't negotiating to buy a home right now I'd be happier about California's housing market getting a small reality check.

There will be a lot of unhappy home owners paying more taxes. I can't comment on if the whole lot are just a bunch of "rich kids". But I know we are not fucking multi millionaires getting to ditch the estate tax to spoil our kids....


FIREchiefsr

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Re: Republican Tax Plan 2017
« Reply #526 on: November 17, 2017, 03:23:50 PM »

and now I have to take it all back.  The new tax plan crushes medicare and the ACA exchanges in order to fund tax cuts for billionaires, EXACTLY like their health care proposal did earlier this year. 


Hey, it's not like they're getting rid of Obamacare altogether. They're leaving the Obamacare taxes in place (the 3.8% NIIT and the .9% Medicare surcharge).

Good point.  I hadn't really thought about that.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #527 on: November 17, 2017, 03:24:35 PM »
So the rate reductions and doubling the standard deduction will sunset for individuals in 2026 under the Senate plan.  Maybe we can all FIRE by 2026 so we can avoid the worst of the increase!

This is just a bullshit way to bypass fiscal responsibility. The reality is the adminstration and Congress that is there in 2026 will be all but forced to extend the cuts... Just like we did for bush. It let's them claim they aren't jacking up the deficit as much. But they know that we will likely not let the breaks expire....

Where as a democratic Congress would certainly let corporate breaks expire.

*I don't think this is a terrible thing. The claim taxes will go back up in 2026 is what I am calling bullshit. They probably won't for most people making under 200k.
« Last Edit: November 17, 2017, 03:29:56 PM by RangerOne »

sherr

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Re: Republican Tax Plan 2017
« Reply #528 on: November 17, 2017, 03:26:12 PM »
To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).
That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.
So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).

Don't know if you were misled by something you read, but there are some subtle but important points you may be missing.

Last one first: of course one "can't just look at the marginal rate on the last dollar and make decisions based on that alone."  No argument there, but that isn't the suggested comparison.

One needs to look at the marginal rate on "amounts".  E.g., if one doesn't wish to split an annual 401k or IRA contribution, the contribution amount would be $18K or $5.5K (or the >50 amount) respectively.  Similarly, one might use a 4%/yr withdrawal ratio on the projected balance of this year's traditional contribution to get the withdrawal amount that goes in the denominator for the marginal calculation. Say, 4% of $18K returning 5% real for 30 years would be an extra $3100.  The withdrawal marginal rate is [(tax including the $3100) - (tax without the $3100)]/$3100.

Using (tax including the $3100)/(total income) could cause one to make bad choices and pay too much in taxes.

Consider this example:
Someone saving 15% on a traditional contribution this year.  Regardless of whether that contribution is made, the person will pay a 25% marginal rate when withdrawing from traditional accounts, but the effective rate will be 11%.

Should the person contribute to traditional or Roth this year?

Well, thanks for correcting me, you've given me a lot to think about. That person should contribute to Roth this year.

I feel like at least half of my point to inline five was that that's a highly improbable scenario. If you're only in the 15% bracket while working, you're almost certainly not going to have enough money or be used to the lifestyle that would cause you to withdraw enough in retirement to be in the 25% bracket. Most retirees spend less in retirement than they do while working, and far less than they make while working, so on average Traditional accounts are going to be better for most people. But that's not the portion you were arguing against.
« Last Edit: November 17, 2017, 03:29:35 PM by sherr »

RangerOne

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Re: Republican Tax Plan 2017
« Reply #529 on: November 17, 2017, 03:32:29 PM »
Ive got to assume I am just in the unlucky middle. I make to much and get phased out of tax breaks for the "middle class"  but I don't make enough to celebrate the death of AMT
 I have got to assume that alot of OC folks and Bay area people will not care as much about losing deductions because AMT was probably doing that already... Though it is just a guess on my part. Never had to calculate my AMT tax....

Undecided

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Re: Republican Tax Plan 2017
« Reply #530 on: November 17, 2017, 03:33:36 PM »

and now I have to take it all back.  The new tax plan crushes medicare and the ACA exchanges in order to fund tax cuts for billionaires, EXACTLY like their health care proposal did earlier this year. 


Hey, it's not like they're getting rid of Obamacare altogether. They're leaving the Obamacare taxes in place (the 3.8% NIIT and the .9% Medicare surcharge).

Good point.  I hadn't really thought about that.

I've never been one to cry out for tax reductions (although I do wish the federal government spent our money differently), but as someone who is "targeted" by these tax proposals (seemingly more by the House proposal than by the Senate proposal, although I've given up trying to figure it all out precisely until there is a new law), I'm starting to feel it!

Undecided

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Re: Republican Tax Plan 2017
« Reply #531 on: November 17, 2017, 03:40:29 PM »
Ive got to assume I am just in the unlucky middle. I make to much and get phased out of tax breaks for the "middle class"  but I don't make enough to celebrate the death of AMT

The combination of eliminating or limiting the SALT deductions and playing with the boundaries of the brackets (most significantly, the House proposal starting the 35% bracket at $260k for MFJ, rather than ~$416k where it starts now) makes for a lot less celebrating of the death of the AMT than you might imagine. And it's really more like "I don't pay enough taxes to my state/county/city to celebrate the death of the AMT."
« Last Edit: November 17, 2017, 03:48:03 PM by Undecided »

sokoloff

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Re: Republican Tax Plan 2017
« Reply #532 on: November 17, 2017, 04:01:25 PM »
However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.
Renters are already (and still will be) getting the full mortgage interest deduction (via the supply side deductions their landlords are able to take, which serve to change the economics and increase the supply of rental housing vs a world where no mortgage interest was deductible for landlords).

MDM

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Re: Republican Tax Plan 2017
« Reply #533 on: November 17, 2017, 04:29:35 PM »
Vast majority of people would actually be better off in Roth accounts, so it actually encourages the wrong behavior.
Well that's a pretty bold sourceless assumption. How do you figure?

...

It's not that simple because many things in retirement are based on taxable income. The lower your taxable income the more benefit you can take advantage of.

For the 1% of people like us yes the Trad might make more sense as we plan to retire early then convert the trad to Roth in a low tax bracket but we are NOT typical.

Still no numbers or sources I see. Okay.

I don't disagree that that's a consideration, but a 5% (for 15%-bracketers) discount on your entire retirement income is a pretty big difference to overcome. Never mind the 15% discount for 25%-bracketers. And that's even with me generously assuming that retirees will be "earning" the median US household income; most won't, expenses tend to be less in retirement (the biggie is that a lot of retirees have a paid-for house and / or retire to lower cost-of-living areas when they're not shackled to their job locations anymore). The less they "earn" the more imbalanced it is in favor of Traditional accounts.

And again, having the choice of which account you want to put money into based on your own plans / assumptions is obviously better than having that choice removed. You'd have to do an awful lot of mental gymnastics to explain how a force-everyone-to-use-Roth plan would be "better for the vast majority of people".
Despite the fact that marginal vs. marginal is the correct math, I vote with sherr on the "if one had to guess what is best for a random person" issue here.

One really needs to look at one's specific situation (e.g., ACA or not; low income credits or not; pension or not; how much SS benefit; etc.) because the rules of thumb in the traditional vs. Roth arena have many exceptions.

jean

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Re: Republican Tax Plan 2017
« Reply #534 on: November 17, 2017, 05:28:57 PM »
I pay a bit under $20k in mortgage interest, $11k in property taxes, about $9k in state taxes, no kids.  The MJF personal exemption is $8,100 (included in itemized deductions).  Our house is not special - less than 1500 sq ft, older, not fully updates - but we live in an expensive area and didn't buy all that long ago.  Kids are planned but not here yet. 

The house plan has my taxes increasing by $570/month, and the senate plan has them increasing by $320/mo.  And I guess these will increase over time since the bracket changes will sunset. This significantly changes the rent vs buy math we carefully evaluated when purchasing.  Yes, we can still afford it, but the breakeven date is pushed out.  Are there people who can't afford a $570/mo increase in housing costs that have higher incomes?  Probably - we didn't buy at the edge of our budget.

Should someone like me pay more taxes?  Sure, maybe I should. BUT I don't think that I should pay more so that the following can happen:
- the rich can inherit tax-free, and with the step-up basis not changed
- corporations can get a permanent tax break, which they will pass to shareholders (not employees)
- ACA individual mandate can be repealed. WTF is that doing in this tax bill? (I know why it was put there, but still. WTF.)

The crazy thing is if I were a higher earner (say $450k AGI)  my taxes would go down a bit under both scenarios due to the repeal of the AMT.  What?!? The bill is targeted to hit people exactly like me.

I would like to see a bill that helped the true middle class (which I admit isn't me) without all of the corporate tax breaks and giveaways to the wealthy.  This is what I hate about this bill.
« Last Edit: November 17, 2017, 05:36:43 PM by jean »

teen persuasion

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Re: Republican Tax Plan 2017
« Reply #535 on: November 17, 2017, 05:55:17 PM »


2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.


Huh?
+1

Is this new?  I don't remember this change.

dragoncar

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Re: Republican Tax Plan 2017
« Reply #536 on: November 17, 2017, 06:05:52 PM »


Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

No, it's like going to the store and I want to buy some milk.  But the price went up 10 cents because the government stopped subsidizing the milk.  I say, now that's more expensive than juice, so I'll buy the juice instead.  Then some guy on the internet tells me I'm wrong because nobody makes a decision to buy milk based on 10 cents and I tell him to give me 10 cents if it's no big deal.

No matter how much extra value someone assigns to home ownership, there's still a break even point where you are on the fence.  Maybe renting costs $1000 and buying costs $1200, but I choose to buy because I'm willing to pay $200 extra to own.  Now the price goes up to $1400, but I'm not willing to pay a extra $400 to own.  So I rent.  Is this really hard to grasp?

No it's completely understandable.

Except your example is not correct because there are no $500k mortgages for $1400/month.

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

It's already limited to $1m. Correct me if I am wrong but the new tax plan will lower that to $500k mortgages.

How does this hurt the middle class? If anything it's a tax on the wealthy because they can't deduct as much.

See your statement above, bolded.  Although my example is generalization to any mortgage size, you suggested eliminating the deduction entirely. 

Renters pay landlords who, guess what, deduct their mortgage expenses.  If landlords couldn't deduct that expense, they would likely raise rents.  So homeowners are no more subsidized by renters than vice versa.

How does all this hurt the middle class?  I guess it depends on whether you consider "upper middle class" to be in the middle class, but I do.  There are plenty of people in California who this will hurt that can't afford extravagant lives beyond having a home in an area with nice climate.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #537 on: November 17, 2017, 06:13:43 PM »
I pay a bit under $20k in mortgage interest, $11k in property taxes, about $9k in state taxes, no kids.  The MJF personal exemption is $8,100 (included in itemized deductions).  Our house is not special - less than 1500 sq ft, older, not fully updates - but we live in an expensive area and didn't buy all that long ago.  Kids are planned but not here yet. 

The house plan has my taxes increasing by $570/month, and the senate plan has them increasing by $320/mo.  And I guess these will increase over time since the bracket changes will sunset. This significantly changes the rent vs buy math we carefully evaluated when purchasing.  Yes, we can still afford it, but the breakeven date is pushed out.  Are there people who can't afford a $570/mo increase in housing costs that have higher incomes?  Probably - we didn't buy at the edge of our budget.

Should someone like me pay more taxes?  Sure, maybe I should. BUT I don't think that I should pay more so that the following can happen:
- the rich can inherit tax-free, and with the step-up basis not changed
- corporations can get a permanent tax break, which they will pass to shareholders (not employees)
- ACA individual mandate can be repealed. WTF is that doing in this tax bill? (I know why it was put there, but still. WTF.)

The crazy thing is if I were a higher earner (say $450k AGI)  my taxes would go down a bit under both scenarios due to the repeal of the AMT.  What?!? The bill is targeted to hit people exactly like me.

I would like to see a bill that helped the true middle class (which I admit isn't me) without all of the corporate tax breaks and giveaways to the wealthy.  This is what I hate about this bill.

This is pretty much where I am at. Sure anyone is salty about paying more taxes. Not every low income person will get screwed. But it seems a very weird choice to punish home owners in high cost of living states so multimillionaires can get a tax break.


ixtap

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Re: Republican Tax Plan 2017
« Reply #538 on: November 17, 2017, 06:17:25 PM »
There are plenty of people in California who this will hurt that can't afford extravagant lives beyond having a home in an area with nice climate.

Location, location, location.

I think most California's are more hurt by the loss of SALT than the loss of the mortgage deduction. in Jean's example, the numbers currently come out equal, but the mortgage interest will go down, while the taxes should be expected to rise, if nothing else because we hope that Jean's salary and property value continue to rise.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #539 on: November 17, 2017, 06:33:43 PM »

No it's completely understandable.

Except your example is not correct because there are no $500k mortgages for $1400/month.

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

It's already limited to $1m. Correct me if I am wrong but the new tax plan will lower that to $500k mortgages.

How does this hurt the middle class? If anything it's a tax on the wealthy because they can't deduct as much.

I don't think you are entirely wrong but it is more complicated than renters subsidizing homeowners. For one renters rent from owners getting tax breaks. So if you believe subsidizing a corporation leads to higher incomes so to you should believe that subsidizing landlords leads to lower rents for renters. Maybe you think both are bull.

Thats actually a pretty good analogy :) I think.

I believe that in some cases this is true and in others its not. Let me give an example. If all land lords lose their tax deduction and the carrying cost of their properties goes up $200 a month. You better bet if at all possible those costs will passed straight to the renters However I think in some cases, were rents are maxed out do to wages, that may not be possible. In those cases we may just see fewer land lords, which I would consider a good outcome if the goal is home ownership.

So in summary I think the government subsidy goes both ways. Some times renters catch a break because carrying costs for land lords are lowered and in part the rent is determined by the carrying cost. In others maybe the tax incentive is artificially increasing the number of landlords making demand for starter homes to high and driving away would be home owners forcing people to rent creating more rental demand and driving up rents from that angle.

The only black and white reality here, is if either version passes into law, homeowners  in Californians high cost areas are gonna pay $100's of dollars more for homes a month. What the average reaction will be to that is anyone's guess but it probably won't be to just smile and pay more. The market and local governments will need to adjust and I think it will be messy and cause an unduly large portion of the population grief.

But I think the process is disingenuous and we should be admitting that a big part of what might happen is we are removing market distortions due to tax breaks from residential real-estate market and that shit is going to be painful. At least for the high cost of living cities in the US.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #540 on: November 17, 2017, 06:45:14 PM »
At this point a house like plan pretty much fucks to dust the mortgage interest deduction since it will never beat or barely beat the standard deduction, unless you itemize for business reasons.

They should just kill it all together or reformulate it into a simple straight forward tax credit for mortgage interest. Then everyone from every state would get some home ownership relief and it would somewhat counter the whip lash from expenses going up for multi property owners.

The only question there is are they even still interested in having tax incentives for homeowners. I think the only answer based on their proposal is no. But many GOP law makers would probably argue the opposite.

inline five

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Re: Republican Tax Plan 2017
« Reply #541 on: November 17, 2017, 07:51:55 PM »

No it's completely understandable.

Except your example is not correct because there are no $500k mortgages for $1400/month.

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

It's already limited to $1m. Correct me if I am wrong but the new tax plan will lower that to $500k mortgages.

How does this hurt the middle class? If anything it's a tax on the wealthy because they can't deduct as much.

I don't think you are entirely wrong but it is more complicated than renters subsidizing homeowners. For one renters rent from owners getting tax breaks. So if you believe subsidizing a corporation leads to higher incomes so to you should believe that subsidizing landlords leads to lower rents for renters. Maybe you think both are bull.

Thats actually a pretty good analogy :) I think.

I believe that in some cases this is true and in others its not. Let me give an example. If all land lords lose their tax deduction and the carrying cost of their properties goes up $200 a month. You better bet if at all possible those costs will passed straight to the renters However I think in some cases, were rents are maxed out do to wages, that may not be possible. In those cases we may just see fewer land lords, which I would consider a good outcome if the goal is home ownership.

So in summary I think the government subsidy goes both ways. Some times renters catch a break because carrying costs for land lords are lowered and in part the rent is determined by the carrying cost. In others maybe the tax incentive is artificially increasing the number of landlords making demand for starter homes to high and driving away would be home owners forcing people to rent creating more rental demand and driving up rents from that angle.

The only black and white reality here, is if either version passes into law, homeowners  in Californians high cost areas are gonna pay $100's of dollars more for homes a month. What the average reaction will be to that is anyone's guess but it probably won't be to just smile and pay more. The market and local governments will need to adjust and I think it will be messy and cause an unduly large portion of the population grief.

But I think the process is disingenuous and we should be admitting that a big part of what might happen is we are removing market distortions due to tax breaks from residential real-estate market and that shit is going to be painful. At least for the high cost of living cities in the US.

You were the first one who was logical about this. The others simply piled on to the whole 'If landlord costs goes down rental costs go down' theory.

That's all it is, a theory.

It assumes everyone has a mortgage on rental property and demand decreases. Just like reducing Corp taxes won't lower prices or magically get people paid more, lowering a landlords costs doesn't magically make rent go down (nor does raising costs increase it).

Now, are we even sure he new tax plan won't allow deductions on rental property? Typically that would be viewed as a business expense. The current plan mentions only personal property IIRC.

Undecided

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Re: Republican Tax Plan 2017
« Reply #542 on: November 17, 2017, 07:57:00 PM »
How does all this hurt the middle class?  I guess it depends on whether you consider "upper middle class" to be in the middle class, but I do.  There are plenty of people in California who this will hurt that can't afford extravagant lives beyond having a home in an area with nice climate.

You also have to keep in mind that a lot of the discussion about “class” that focuses exclusively or nearly exclusively on income (which is itself misguided, I think) doesn’t even acknowledge that the huge cost of living differences in the US mean that for many people, their relatively high incomes in raw dollars aren’t in fact buying them a better lifestyle. It is ultimately another way in which many residents of HCOL areas subsidize many residents of LCOL areas.  It’s not like a family making $140,000 in LA is meaningfully less “middle class” than a family making $70,000 in Topeka.

Undecided

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Re: Republican Tax Plan 2017
« Reply #543 on: November 17, 2017, 08:04:59 PM »

Now, are we even sure he new tax plan won't allow deductions on rental property? Typically that would be viewed as a business expense. The current plan mentions only personal property IIRC.

Not only are business expense deductions generally unaffected by the House proposal, but the income tax rate applied to rental real estate income will generally be given special treatment with the capped 25% rate. So a person who makes $X per year from owning renal real estate may pay lower taxes than a person who makes the same income as an employee who manages rental real estate.

Sad/funny video about expense deductibility:
https://m.youtube.com/watch?v=PDB1ZJjJnPA

dragoncar

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Re: Republican Tax Plan 2017
« Reply #544 on: November 17, 2017, 08:19:15 PM »
How does all this hurt the middle class?  I guess it depends on whether you consider "upper middle class" to be in the middle class, but I do.  There are plenty of people in California who this will hurt that can't afford extravagant lives beyond having a home in an area with nice climate.

You also have to keep in mind that a lot of the discussion about “class” that focuses exclusively or nearly exclusively on income (which is itself misguided, I think) doesn’t even acknowledge that the huge cost of living differences in the US mean that for many people, their relatively high incomes in raw dollars aren’t in fact buying them a better lifestyle. It is ultimately another way in which many residents of HCOL areas subsidize many residents of LCOL areas.  It’s not like a family making $140,000 in LA is meaningfully less “middle class” than a family making $70,000 in Topeka.

Even though I live in one of the highest COL areas in the US, I don't 100% buy into a straight COL adjustrment.  I recognize that, in general, housing costs are the largest issue, which can still leave a lot or even more left over for consumer goods, which are generally the same price throughout the country (food can be more expensive, but this is a relatively small portion of expenses.  service costs scale linearly with COL, but mustachians insource as much as possible). 

I also personally believe that housing in a "desirable" city is itself a luxury: everyone in the country should be entitled to housing, but not everyone is entitled to live in SF or NYC.

Nevertheless, outsized housing costs for otherwise undistinguished homes should be taken into consideration when deciding who is middle class.  I have neighbors who work full time construction jobs, yet own homes over $500k.  I have neighbors who are teachers, firefighters, blue collar workers, and so on.  They probably make over $100k, but does that make them elite upper class?  Hell no.  They are burdened by high housing costs.

Undecided

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Re: Republican Tax Plan 2017
« Reply #545 on: November 17, 2017, 08:38:58 PM »
How does all this hurt the middle class?  I guess it depends on whether you consider "upper middle class" to be in the middle class, but I do.  There are plenty of people in California who this will hurt that can't afford extravagant lives beyond having a home in an area with nice climate.

You also have to keep in mind that a lot of the discussion about “class” that focuses exclusively or nearly exclusively on income (which is itself misguided, I think) doesn’t even acknowledge that the huge cost of living differences in the US mean that for many people, their relatively high incomes in raw dollars aren’t in fact buying them a better lifestyle. It is ultimately another way in which many residents of HCOL areas subsidize many residents of LCOL areas.  It’s not like a family making $140,000 in LA is meaningfully less “middle class” than a family making $70,000 in Topeka.

Even though I live in one of the highest COL areas in the US, I don't 100% buy into a straight COL adjustrment.  I recognize that, in general, housing costs are the largest issue, which can still leave a lot or even more left over for consumer goods, which are generally the same price throughout the country (food can be more expensive, but this is a relatively small portion of expenses.  service costs scale linearly with COL, but mustachians insource as much as possible). 

I also personally believe that housing in a "desirable" city is itself a luxury: everyone in the country should be entitled to housing, but not everyone is entitled to live in SF or NYC.

Nevertheless, outsized housing costs for otherwise undistinguished homes should be taken into consideration when deciding who is middle class.  I have neighbors who work full time construction jobs, yet own homes over $500k.  I have neighbors who are teachers, firefighters, blue collar workers, and so on.  They probably make over $100k, but does that make them elite upper class?  Hell no.  They are burdened by high housing costs.

We probably mostly agree here. I’m not claiming that the various published COL comparison tools are gospel, but they exist, and they weigh various factors. I’m with you on living in a HCOL area being partly a luxury item (although it can be considerable harder for low and moderate income workers in HCOL areas to own their housing in HCOL areas). But while in-sourcing services may help people here blunt the costs of HCOL areas, that’s not the entirety of the universe of people who are affected by the tax laws. Progressive taxes and the elimination of most current itemized deductions exacerbates the COL difference (for any “class”). The seemingly significant different impacts of the House proposal in a purely political (“red state vs. blue state”) way is in some sense even sadder than the degree to which the changes apppear to benefit the ultra-wealthy.

inline five

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Re: Republican Tax Plan 2017
« Reply #546 on: November 17, 2017, 08:55:17 PM »

Now, are we even sure he new tax plan won't allow deductions on rental property? Typically that would be viewed as a business expense. The current plan mentions only personal property IIRC.

Not only are business expense deductions generally unaffected by the House proposal, but the income tax rate applied to rental real estate income will generally be given special treatment with the capped 25% rate. So a person who makes $X per year from owning renal real estate may pay lower taxes than a person who makes the same income as an employee who manages rental real estate.

Sad/funny video about expense deductibility:
https://m.youtube.com/watch?v=PDB1ZJjJnPA
Well there we go

Moral of the story if you can't beat em, join em, stop complaining about it and get in on the action

radram

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Re: Republican Tax Plan 2017
« Reply #547 on: November 18, 2017, 07:27:56 AM »
I pay a bit under $20k in mortgage interest, $11k in property taxes, about $9k in state taxes, no kids.   

That is just WOW to me jean. Those totals are what I spent in TOTALITY in 2016. 1200 square foot house, 1 1/2 acres. No mortgage.

I just can not comprehend these numbers. Do you live on a coast? I live in WI, about 70 miles from Chicago.

Undecided

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Re: Republican Tax Plan 2017
« Reply #548 on: November 18, 2017, 07:43:31 AM »
Whoa, didn't realize that deferred compensation was also being axed. I take part in a 409a plan with my company, and while it's less than 10% of my income, the taxes on that income alone pushes my family back into the "this new plan increases my taxes" group. Is it just me, or as this plan begins to get carefully dissected, does it not seem like the number of constituencies that will be against it continue to pile up?

http://www.napa-net.org/news/technical-competence/legislation/could-tax-reform-destroy-deferred-compensation/

The 457(b) goes away.


SAD!

Well that sucks.   I was about to participate in this for the first time, so this will definitely screw me on my tax planning.

Same. This Friday's check will be the first deduction lol.

Just to note it for people following "deferred comp" issues, it's interesting that one of the things the House did change was to drop the proposal to repeal 409A and otherwise accelerate the taxation of equity-based awards to the time of grant.

fuzzy math

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Re: Republican Tax Plan 2017
« Reply #549 on: November 18, 2017, 08:18:21 AM »


You also have to keep in mind that a lot of the discussion about “class” that focuses exclusively or nearly exclusively on income (which is itself misguided, I think) doesn’t even acknowledge that the huge cost of living differences in the US mean that for many people, their relatively high incomes in raw dollars aren’t in fact buying them a better lifestyle. It is ultimately another way in which many residents of HCOL areas subsidize many residents of LCOL areas.  It’s not like a family making $140,000 in LA is meaningfully less “middle class” than a family making $70,000 in Topeka.

Even though I live in one of the highest COL areas in the US, I don't 100% buy into a straight COL adjustrment.  I recognize that, in general, housing costs are the largest issue, which can still leave a lot or even more left over for consumer goods, which are generally the same price throughout the country (food can be more expensive, but this is a relatively small portion of expenses.  service costs scale linearly with COL, but mustachians insource as much as possible). 

I also personally believe that housing in a "desirable" city is itself a luxury: everyone in the country should be entitled to housing, but not everyone is entitled to live in SF or NYC.

Nevertheless, outsized housing costs for otherwise undistinguished homes should be taken into consideration when deciding who is middle class.  I have neighbors who work full time construction jobs, yet own homes over $500k.  I have neighbors who are teachers, firefighters, blue collar workers, and so on.  They probably make over $100k, but does that make them elite upper class?  Hell no.  They are burdened by high housing costs.

We probably mostly agree here. I’m not claiming that the various published COL comparison tools are gospel, but they exist, and they weigh various factors. I’m with you on living in a HCOL area being partly a luxury item (although it can be considerable harder for low and moderate income workers in HCOL areas to own their housing in HCOL areas). But while in-sourcing services may help people here blunt the costs of HCOL areas, that’s not the entirety of the universe of people who are affected by the tax laws. Progressive taxes and the elimination of most current itemized deductions exacerbates the COL difference (for any “class”). The seemingly significant different impacts of the House proposal in a purely political (“red state vs. blue state”) way is in some sense even sadder than the degree to which the changes apppear to benefit the ultra-wealthy.

I saw some video about how young people tend to migrate to blue states and self segregate. Perhaps this will cause a mass exodus out of some of those areas back to some red areas that can then become purple or blue.
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