Author Topic: Republican Tax Plan 2017  (Read 380970 times)

powskier

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Re: Republican Tax Plan 2017
« Reply #100 on: November 03, 2017, 12:35:33 AM »
Surprisingly , looks like we'll save a few grand, if it passes as proposed. Mainly by bracket changes and doubling of standard deduction. ( we itemize between 14k and 18k , so the standard deduction going to 24K will help us)

Increasing the debt in times of economic prosperity is  so dumb. This entire circus and their tax plan reminds me of a local bar slogan : "we cheat the other guy and pass the savings on to you".

dragoncar

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Re: Republican Tax Plan 2017
« Reply #101 on: November 03, 2017, 02:11:32 AM »
A 25% rate for pass-through businesses. Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the so-called pass-through rate. There will be some guardrails on what kinds of businesses can claim this rate, to avoid individuals abusing the lower tax. Seems reasonable that legit small businesses shouldn't be taxed at a higher rate than corporations, though it looks like there will still be a difference.
Unless I’m missing something his doesn’t make any sense to me.  Why should a pass-through entity (eg contractor) pay a lower rate than an individual (eg salaried employee)?  The comparison to corporate rates is not apt— corporations are not pass through, so the dividends they pay are taxed (the oft maligned double taxation, but it’s explained by the lower corporate tax rate and internal reinvestment tax deferral).  I have no problem with small businesses paying the corporate tax rate as long as their owners also pay taxes on their withdrawals from the business account 

dresden

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Re: Republican Tax Plan 2017
« Reply #102 on: November 03, 2017, 03:27:11 AM »
I am skeptical of the bill.  Here is what MSNBC is reporting on brackets.

Under the House bill there will be four brackets: 12 percent, 25 percent, 35 percent and 39.6 percent.

12 percent: This rate applies to single filers above $12,000, up to $45,000. Married couples are subject to this rate starting at $24,000, up to $90,000.
25 percent: For single filers, this rate applies at $45,000 of taxable income. Joint filers who are married are subject to this rate starting at $90,000.
35 percent: This rate applies at $200,000 for singles and $260,000 for married couples.
39.6 percent: The top rate applies at $500,000 for singles and $1 million for married filers.


I don't think there is a "0" rate from 0-24,000 for couples which makes me suspect the 25% rate is starting at 66,000 rather than the current 76,000 and the 24,000 standard deduction is actually the 0-24,000 0% range.    That is not how the current brackets work - the standard deduction isn't baked into the brackets which is why I think that 24,000-90,000 bracket is BS and it's really 0-66,000 for 12%.  So this means people making 70-80k after standard deduction will pay more - much more if they currently get a decent savings from itemizing.  It seems most over 200k will come out ahead and the higher the income the more certain it becomes you will come out ahead. 

From what I can tell the bill helps primarily the 300k+ earners.  Obviously those with high pass through income are the biggest winners.

The bill would save me a little bit this year by eliminating the 28% rate ,but next year I go to part time @24 hours and with the lower income next year my taxes are slightly higher under the new plan with 3 exemptions and some benefit from itemizing under the current law.   The difference in tax won't even be noticeable but it's ironic my taxes are going up to pay for a cut for people making more than me.  This is all assuming there is no 0% bracket from 0-24,000 thousand they are making it appear the bracket is raised by including the standard deduction as a 0-24,000 bracket.
« Last Edit: November 03, 2017, 03:49:49 AM by dresden »

boarder42

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Re: Republican Tax Plan 2017
« Reply #103 on: November 03, 2017, 04:06:25 AM »

sokoloff

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Re: Republican Tax Plan 2017
« Reply #104 on: November 03, 2017, 04:20:51 AM »
From what I can tell the bill helps primarily the 300k+ earners.  Obviously those with high pass through income are the biggest winners.
Unsurprisingly, it doesn't help high income earners in high state tax states. It's almost like they were able to nearly perfectly target blue states...

nalor511

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Re: Republican Tax Plan 2017
« Reply #105 on: November 03, 2017, 04:34:58 AM »
I would love to see the US stop taking citizens when residing outside the country.

ZiziPB

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Re: Republican Tax Plan 2017
« Reply #106 on: November 03, 2017, 04:59:08 AM »
I would love to see the US stop taking citizens when residing outside the country.

If you mean taxing, then YES, me too :-)  Or at least apply the corporate rate for foreign profits of 12%...

Bird In Hand

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Re: Republican Tax Plan 2017
« Reply #107 on: November 03, 2017, 07:09:19 AM »
12 percent: This rate applies to single filers above $12,000, up to $45,000. Married couples are subject to this rate starting at $24,000, up to $90,000.
25 percent: For single filers, this rate applies at $45,000 of taxable income. Joint filers who are married are subject to this rate starting at $90,000.
35 percent: This rate applies at $200,000 for singles and $260,000 for married couples.
39.6 percent: The top rate applies at $500,000 for singles and $1 million for married filers.


I don't think there is a "0" rate from 0-24,000 for couples which makes me suspect the 25% rate is starting at 66,000 rather than the current 76,000 and the 24,000 standard deduction is actually the 0-24,000 0% range.    That is not how the current brackets work - the standard deduction isn't baked into the brackets which is why I think that 24,000-90,000 bracket is BS and it's really 0-66,000 for 12%.  So this means people making 70-80k after standard deduction will pay more - much more if they currently get a decent savings from itemizing.

Feel free to correct me if I'm wrong, but I believe MSNBC presented the information incorrectly.  I don't believe there's any change to how the standard deduction is treated in the new plan; it will continue to reduce the total taxable income as in the current code, and then brackets will apply to taxable income in the same way.  i.e., the standard deduction will continue to reduce taxes paid at the highest marginal rate for your income.

If deductions (including the standard deduction) were switched to reducing taxable income from the lowest bracket, I think this would have been widely reported and discussed.

wenchsenior

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Re: Republican Tax Plan 2017
« Reply #108 on: November 03, 2017, 07:41:44 AM »
I haven't had time to look this bill over. Does anyone who has know whether it proposes eliminating medical FSAs as well as dependent care FSAs? That would suck, since I just started using one as our medical bills have climbed steadily the past few years.

NeonPegasus

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Re: Republican Tax Plan 2017
« Reply #109 on: November 03, 2017, 08:16:13 AM »
4- DPAD is going away. Domestic Production Activities Deduction. This will directly affect very few, restricted to business owners who qualify, but it could indirectly affect thousands of American jobs as it removes incentives for manufacturing jobs in the United States. Not surprising given the current powers that be, but it isn't being highlighted by anyone and it is going to really screw the middle class.

The part that worries me the most is the loss of the tax credit for keeping manufacturing in the US.  We are already at a disadvantage to many foreign competitors who have incredibly cheap labor and no environmental/safety protections.  Given all of the talk about keeping manufacturing jobs in the US and excoriating those who offshore, I am frankly stunned that this is on the chopping block.

Selfishly, I don't like that this is going away but I believe it should. I take the DPAD and it saves me thousands in taxes every year. The funny thing is that there is literally no way I would not qualify. See, it covers not only manufacturers but also construction companies and contractors that make substantial improvements to buildings. There is no way that we could move that part of our business offshore. How exactly would we outsource onsite fabrication and installation of railings? So,in that sense, it is just a boondoggle. Since it is a deduction on the personal tax return, it applies mainly to pass through type entities so I can't see how many manufacturers there would be that are small enough for that business designation to make sense that would also be considering outsourcing production.


Tax on private university endowments? No, that's dumb.  Education is already too expensive. Well, I think Harvard can spare 1.5% of its profits on the 20B in endowment they have. They have room for that.
I'd rather Harvard do other things with that money, but that's just me.

Create a tax on large private university endowments: Private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Possibly disagree. This may really make it harder for private universities to offer good scholarships.
That is an excellent point. I was supportive of the idea when I first heard about it, but your argument is entirely compelling to me.


My thinking on this is that an endowment would operate similarly to our own stashes in FIRE. They must maintain a certain amount in the endowment so that it can grow and fund future scholarships. I think it really could hurt smaller colleges that spend a higher percentage of their endowments on scholarships. For example, my alma mater has ~900 students, which would allow a tax free endowment of $90mm. Their current endowment is $223mm. The financial aid awarded by the college last year was $22mm. That's already 10% of their endowment. An excise tax on the additional endowment would cost $1.8mm, which is 8% of what they spend on scholarships each year. Guess who will end up hurting?

A 25% rate for pass-through businesses. Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the so-called pass-through rate. There will be some guardrails on what kinds of businesses can claim this rate, to avoid individuals abusing the lower tax. Seems reasonable that legit small businesses shouldn't be taxed at a higher rate than corporations, though it looks like there will still be a difference.
Unless I’m missing something his doesn’t make any sense to me.  Why should a pass-through entity (eg contractor) pay a lower rate than an individual (eg salaried employee)?  The comparison to corporate rates is not apt— corporations are not pass through, so the dividends they pay are taxed (the oft maligned double taxation, but it’s explained by the lower corporate tax rate and internal reinvestment tax deferral).  I have no problem with small businesses paying the corporate tax rate as long as their owners also pay taxes on their withdrawals from the business account

Nevermind. You're right. I was thinking about it backwards.

maizefolk

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Re: Republican Tax Plan 2017
« Reply #110 on: November 03, 2017, 08:26:05 AM »
Create a tax on large private university endowments: Private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Possibly disagree. This may really make it harder for private universities to offer good scholarships.
That is an excellent point. I was supportive of the idea when I first heard about it, but your argument is entirely compelling to me.


My thinking on this is that an endowment would operate similarly to our own stashes in FIRE. They must maintain a certain amount in the endowment so that it can grow and fund future scholarships. I think it really could hurt smaller colleges that spend a higher percentage of their endowments on scholarships. For example, my alma mater has ~900 students, which would allow a tax free endowment of $90mm. Their current endowment is $223mm. The financial aid awarded by the college last year was $22mm. That's already 10% of their endowment. An excise tax on the additional endowment would cost $1.8mm, which is 8% of what they spend on scholarships each year. Guess who will end up hurting?

I must admit I'm a little confused about this tax. I've read it reported as 1.4% tax on investment income. Given that an endowment might earn 8%/year, that'd be ~0.1% of the total endowment in taxes per year. OTOH, if it is a 1.4% tax on the value of the endowment, that's a more than 10x greater hit to the endowment.

Also keep in mind that a lot of financial aid -- particularly need-based rather than merit-based -- at universities is funded from current revenue (i.e. by the students paying full tuition), it doesn't all come out of the endowment.

This is why universities will sometimes talk about being able to increase the economic diversity of their study bodies by raising tuition. Make of that what you will.

Proud Foot

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Re: Republican Tax Plan 2017
« Reply #111 on: November 03, 2017, 09:13:23 AM »
Create a tax on large private university endowments: Private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Possibly disagree. This may really make it harder for private universities to offer good scholarships.
That is an excellent point. I was supportive of the idea when I first heard about it, but your argument is entirely compelling to me.


My thinking on this is that an endowment would operate similarly to our own stashes in FIRE. They must maintain a certain amount in the endowment so that it can grow and fund future scholarships. I think it really could hurt smaller colleges that spend a higher percentage of their endowments on scholarships. For example, my alma mater has ~900 students, which would allow a tax free endowment of $90mm. Their current endowment is $223mm. The financial aid awarded by the college last year was $22mm. That's already 10% of their endowment. An excise tax on the additional endowment would cost $1.8mm, which is 8% of what they spend on scholarships each year. Guess who will end up hurting?

I must admit I'm a little confused about this tax. I've read it reported as 1.4% tax on investment income. Given that an endowment might earn 8%/year, that'd be ~0.1% of the total endowment in taxes per year. OTOH, if it is a 1.4% tax on the value of the endowment, that's a more than 10x greater hit to the endowment.

Also keep in mind that a lot of financial aid -- particularly need-based rather than merit-based -- at universities is funded from current revenue (i.e. by the students paying full tuition), it doesn't all come out of the endowment.

This is why universities will sometimes talk about being able to increase the economic diversity of their study bodies by raising tuition. Make of that what you will.

The text of the bill reads "Net Investment Income" so yes it will be a rather small percentage of the total endowment.

As far as schools which this would apply to it would seem it would mainly apply to schools with massive endowments like Harvard or Yale. I haven't read to fully understand what is excluded from assets according to this
Quote
‘‘(C) the aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution’s exempt purpose) is at least $100,000 per student of the institution.
but for my alma mater with around 2,000 students it would need assets of $200m. Their total assets are $234m with an endowment of approximately $77m.

TVRodriguez

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Re: Republican Tax Plan 2017
« Reply #112 on: November 03, 2017, 09:41:06 AM »
(and God forbid if the dead guy didn't keep perfect records of when everything was bought and you can't prove the original basis).

I've always assumed this was the reason for the basis step-up on death, rather than representing any form of intentional tax break.

Pretty much. 

sokoloff

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Re: Republican Tax Plan 2017
« Reply #113 on: November 03, 2017, 10:34:41 AM »
Plus, only targeting private universities seems spiteful given that there are public universities with massive endowments as well (e.g. University of Michigan ~$11B, Stanford ~$22B).
Government doesn't eat their young.

Need2Save

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Re: Republican Tax Plan 2017
« Reply #114 on: November 03, 2017, 12:04:26 PM »
I haven't had time to look this bill over. Does anyone who has know whether it proposes eliminating medical FSAs as well as dependent care FSAs? That would suck, since I just started using one as our medical bills have climbed steadily the past few years.

I believe that it is only the Dependent Care FSA in the cross-hairs.  A few additional nuggets that are not getting too much attention appear to be:

1. Hardships withdrawals from 401ks would no longer require you to take a loan first or prevent you from contributing for the next 6 months
2. Repeal nonrefundable credits (I think this may include the Retirement Saver's Credit but having trouble confirming - it's in section 1102)
3. Moving Expenses and Adoption Assistance Programs would no longer be excludable from taxable income
4. Change timing on how non-qualified pensions are treated as taxable income (change to when vested not when paid)
5. Recharacterizing Roth to Traditional IRA contributions repealed


PathtoFIRE

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Re: Republican Tax Plan 2017
« Reply #115 on: November 03, 2017, 12:08:06 PM »
I haven't seen it reported, but I'm guessing the carried interest loophole has also once again survived.

MDM

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Re: Republican Tax Plan 2017
« Reply #116 on: November 03, 2017, 12:10:13 PM »
I haven't seen it reported, but I'm guessing the carried interest loophole has also once again survived.
Yes, it has been reported that it has survived.  Seems to be one thing that both Dems and Reps agree on....

oldmannickels

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Re: Republican Tax Plan 2017
« Reply #117 on: November 03, 2017, 12:31:43 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.

No

HPstache

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Re: Republican Tax Plan 2017
« Reply #118 on: November 03, 2017, 12:33:51 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.

No

Could you please explain why you would not consider it to be simplified?

OurTown

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Re: Republican Tax Plan 2017
« Reply #119 on: November 03, 2017, 12:58:58 PM »
I suppose it is simplified to the extent that many filers who used to itemize would not do so under the proposed bill.

VoteCthulu

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Re: Republican Tax Plan 2017
« Reply #120 on: November 03, 2017, 01:24:47 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.

No

Could you please explain why you would not consider it to be simplified?
For one thing, they aren't replacing the existing tax code. They are amending it. While this is common and may result in code that is easier (i.e., lots has been struck out), it's tough to say if all of the other amendments to the code have been rendered null and void as well.
What does this have to do with whether the code is simplified or not?

If a hypothetical tax code was one page long and described two tax brackets, and then an amendment was passed reducing it to one bracket, that's a simplification even if the tax code is now two pages long.

Is this proposed amendment a simplification? As far as I've heard it is, but I'm certainly open to anyone who explains what parts make the code more complicated than the reduced brackets and deductions would reduce its complexity.
« Last Edit: November 03, 2017, 03:11:55 PM by VoteCthulu »

OurTown

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Re: Republican Tax Plan 2017
« Reply #121 on: November 03, 2017, 01:31:27 PM »
They may have the votes the pass this thing, we'll see.  My employer will be a big winner if it happens, hey maybe they will pay me more money!!!!!  Or, maybe not.

wannabe-stache

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Re: Republican Tax Plan 2017
« Reply #122 on: November 03, 2017, 01:32:02 PM »
Deficit-financed tax cuts make sense in a recession when you need to stimulate the economy. They don't make sense right now.
get that common sense out of here.  no room for it.

on the bright side: now every FI blogger and podcast will have something new to talk about.

CCCA

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Re: Republican Tax Plan 2017
« Reply #123 on: November 03, 2017, 01:46:39 PM »
Plus, only targeting private universities seems spiteful given that there are public universities with massive endowments as well (e.g. University of Michigan ~$11B, Stanford ~$22B).
Government doesn't eat their young.
Stanford isn't a public university. . .  unless your point was just comparing UM to Stanford to show that they have a large endowment relative to the private Universities. 

CCCA

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Re: Republican Tax Plan 2017
« Reply #124 on: November 03, 2017, 01:49:53 PM »
The increase in Standard Deduction and the reduction/limit in prop tax and mortgage interest deductions seems like it'll mean that very, very few people will benefit from any sort of mortgage deduction.  The calculus of buying a house changes pretty significantly when you take out the benefits from mortgage interest deduction.

MDM

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Re: Republican Tax Plan 2017
« Reply #125 on: November 03, 2017, 02:01:39 PM »
The increase in Standard Deduction and the reduction/limit in prop tax and mortgage interest deductions seems like it'll mean that very, very few people will benefit from any sort of mortgage deduction.  The calculus of buying a house changes pretty significantly when you take out the benefits from mortgage interest deduction.
Yes, probably so in the Bay Area.

For most of the country, probably not so much.  E.g., at 4% interest on the median home price in the U.S., after a 20% down payment, the ~$6,300/yr in mortgage interest is probably not fully above the current standard deduction (i.e., the other itemized deductions probably don't exceed the standard amount) for a single filer, and even less likely for MFJ.

At least, that's the reality.  People's perception may differ, and perception can drive behavior.

CCCA

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Re: Republican Tax Plan 2017
« Reply #126 on: November 03, 2017, 02:19:33 PM »
The increase in Standard Deduction and the reduction/limit in prop tax and mortgage interest deductions seems like it'll mean that very, very few people will benefit from any sort of mortgage deduction.  The calculus of buying a house changes pretty significantly when you take out the benefits from mortgage interest deduction.
Yes, probably so in the Bay Area.

For most of the country, probably not so much.  E.g., at 4% interest on the median home price in the U.S., after a 20% down payment, the ~$6,300/yr in mortgage interest is probably not fully above the current standard deduction (i.e., the other itemized deductions probably don't exceed the standard amount) for a single filer, and even less likely for MFJ.

At least, that's the reality.  People's perception may differ, and perception can drive behavior.


I suppose you are correct.  $200k median seems really cheap, but that is coming from the bay area (Median in CA is over $500k).  So a significant portion of home sales even now are not really impacted by the mortgage interest deduction. 


The benefit for a $500k mortgage at 4% is about $20k in interest for the first year, so you are still under the limit for standard deduction for a married couple ($24k).  And with a $10k limit on property tax the most you can deduct is about $30k, so the benefits of moving off the standard deduction is only about a max of $6k, which won't change your taxes too much (for most people in this category) maybe about at most $2k/yr.  That's not really going to change anyone's mind when they are considering buying a $500k - $1M+ house.   



Undecided

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Re: Republican Tax Plan 2017
« Reply #127 on: November 03, 2017, 02:35:34 PM »
The brackets look very beneficial for single upper income (top 10%) filers and okay for married couples - big advantages don't come for married couples until they are in the top 3% of income earners.  Definitely great for married doctors/successful business owners/lawyers.

Whether there are big advantages or big disadvantages for top 3% couples (outside the top <0.5%) seems to primarily depend on whether they live in a high income tax state. 

maizefolk

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Re: Republican Tax Plan 2017
« Reply #128 on: November 03, 2017, 02:38:33 PM »
I suppose you are correct.  $200k median seems really cheap, but that is coming from the bay area (Median in CA is over $500k).  So a significant portion of home sales even now are not really impacted by the mortgage interest deduction.

Having lived both in the bay area and outside of it, I can vouch for the fact that it really does distort ones perceptions of what normal houses or rents (or salaries) are. Definitely enjoying being back out in the rest of the world, where the mortgage payment on a nice house is 2/3s of what my old studio apartment in the bay area now rents for. ;-)

I would would add a caveat to your last statement in that I think the mortgage interest deduction has an emotional/cultural impact on people's decisions about whether or not to take out a mortgage and purchase a house that is not entirely linked to whether or not they actually end up saving any money on their taxes by doing so.

Ocinfo

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Re: Republican Tax Plan 2017
« Reply #129 on: November 03, 2017, 02:54:18 PM »
The unexpected happened for me, the latest plan drops my taxes ~11% (from about 18% to 16% rate). The reason is that I live in a high but not extreme “state” income tax location (DC) but don’t own my primary residence. Itemizing only results in a few thousand over the current standard deduction. I’m currently in the 28% bracket, and would move down into the 25% as a MFJ return + get ~$4k in less taxable income due to higher standard deduction.

I’m not a fan of these tax cuts, even though they appear to directly benefit me. I’d rather see us move towards fiscal restraint, rather than blowing up the deficit even more.


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CCCA

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Re: Republican Tax Plan 2017
« Reply #130 on: November 03, 2017, 03:01:35 PM »
I suppose you are correct.  $200k median seems really cheap, but that is coming from the bay area (Median in CA is over $500k).  So a significant portion of home sales even now are not really impacted by the mortgage interest deduction.

Having lived both in the bay area and outside of it, I can vouch for the fact that it really does distort ones perceptions of what normal houses or rents (or salaries) are. Definitely enjoying being back out in the rest of the world, where the mortgage payment on a nice house is 2/3s of what my old studio apartment in the bay area now rents for. ;-)

I would would add a caveat to your last statement in that I think the mortgage interest deduction has an emotional/cultural impact on people's decisions about whether or not to take out a mortgage and purchase a house that is not entirely linked to whether or not they actually end up saving any money on their taxes by doing so.


Yes, I agree that people don't make rational decisions (with spreadsheets).  I guess if the conventional wisdom changes to where there's the general realization that there's only a very small minority that will be able to take advantage of any mortgage interest benefits, then maybe people won't really add that to their "list of reasons why I should buy this house".


All that said, we're in the camp that we will still itemize deductions.  We'll have about a total of $25-26k in mortgage interest and property tax with the limits (we used to have ~$32K).  Adding our charitable contributions to that total, it makes sense to itemize, though there's not that much benefit over the $24k standard deduction.  But since I do everything in turbotax, no reason not to itemize. 

VoteCthulu

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Re: Republican Tax Plan 2017
« Reply #131 on: November 03, 2017, 03:16:08 PM »
Furthermore, small businesses that operate as pass through might actually have more complicated taxes since they have to deal with all of the "guardrail" provisions that the law would put in place.
What are the "guardrail" provisions?

HPstache

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Re: Republican Tax Plan 2017
« Reply #132 on: November 03, 2017, 03:38:37 PM »
Here is the proposed "postcard" tax return... seems pretty simple to me.


Jrr85

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Re: Republican Tax Plan 2017
« Reply #133 on: November 03, 2017, 03:48:06 PM »
I like that renters are not subsidizing the wealthier homeowners mortgages as much with this plan (lower mortgage deduction cap, higher standard deduction).



Renters do not "subsidize" homeowners with mortgages in the federal tax code.  The interest on the debt for any residence they are renting is deductible by the landlord.  And that interest is deductible without regard for any standard deduction.  So if anything, they get a better deal, because they get the benefit of the interest deduction and the standard deduction if they don't itemize for other reasons, whereas a homeowner only gets the benefit of the mortgage interest deduction to the extent it exceeds the standard deduction.   

At the local level, it is common for homeowners to pay a lower property tax on a primary residence compared to the property tax paid on second homes and rental properties.  But that's a feature of state or local law, not the federal tax code.

ixtap

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Re: Republican Tax Plan 2017
« Reply #134 on: November 03, 2017, 04:00:02 PM »
Here is the proposed "postcard" tax return... seems pretty simple to me.



So, it doesn't actually fit on a postcard of you have so much as a savings account?

dragoncar

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Re: Republican Tax Plan 2017
« Reply #135 on: November 03, 2017, 04:25:44 PM »
For one thing, they aren't replacing the existing tax code. They are amending it. While this is common and may result in code that is easier (i.e., lots has been struck out), it's tough to say if all of the other amendments to the code have been rendered null and void as well.
What does this have to do with whether the code is simplified or not?

If a hypothetical tax code was one page long and described two tax brackets, and then an amendment was passed reducing it to one bracket, that's a simplification even if the tax code is now two pages long.

Is this proposed amendment a simplification? As far as I've heard it us, but I'm certainly open to anyone who explains what parts make the code more complicated than the reduced brackets and deductions would reduce its complexity.
It's relevant because if they don't explicitly redact old amendments to the code, then they are still active. So at the end of the day this may actually make the tax code harder to understand even though the average person may have a simpler form to file. Furthermore, small businesses that operate as pass through might actually have more complicated taxes since they have to deal with all of the "guardrail" provisions that the law would put in place.

I think the only reasonable interpretation of "simpler tax code" means "fewer resources used in tax planning and filing."  I'm not sure how that the proposal reduces the ongoing amount of effort needed to file taxes at all.  Moreover, it will necessitate a high immediate expenditure of resources while tax software companies rewrite their rules, people change all their "set it and forget it" financial plans, and so on. 

RangerOne

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Re: Republican Tax Plan 2017
« Reply #136 on: November 03, 2017, 04:32:04 PM »
I make a nice living. A little into the six figure category, family of 4. Certainly not poor, likely top 10% of family income. Not necesarily middle class, likely upper middle class, but certainly not wealthy/rich/ultra high earner by most standards.

I just ran all the numbers for my scenario based on everything I read. Best case scenario, my taxes would go up by about $800. Taxable income will increase $19k but the lower rates keep the increase reasonable. It's still an increase. Most people who itemize will end up paying more due to the loss of exemptions.

It doesn't really impact my FIRE plans, but it sure pisses me off knowing I'm paying more for this proposed "middle class tax cut" while people much more well off than me will pay substantially less.

This.

I feel we are in an odd bracket to wind up minor losers in a deal like this but that seems the way they want ti to do. It really all stems from them essentially killing any incentive to itemize which historically was a clear win over taking a standard deduction for families with a home.

My only hope would be dialing back home tax breaks will slam overpriced housing markets back into a some semblance of reality.

Viking Thor

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Re: Republican Tax Plan 2017
« Reply #137 on: November 03, 2017, 04:46:31 PM »
The increase in Standard Deduction and the reduction/limit in prop tax and mortgage interest deductions seems like it'll mean that very, very few people will benefit from any sort of mortgage deduction.  The calculus of buying a house changes pretty significantly when you take out the benefits from mortgage interest deduction.
Yes, probably so in the Bay Area.

For most of the country, probably not so much.  E.g., at 4% interest on the median home price in the U.S., after a 20% down payment, the ~$6,300/yr in mortgage interest is probably not fully above the current standard deduction (i.e., the other itemized deductions probably don't exceed the standard amount) for a single filer, and even less likely for MFJ.

At least, that's the reality.  People's perception may differ, and perception can drive behavior.
CCCA is correct, it will absolutely wipe out the tax benefits of home ownership nationwide, that's not even debatable. The standard deduction will be raised and itemized deductions will be so limited they will either not apply (most people) or have a very small impact. State tax deduction is gone, property tax deduction limited, and mortgage deduction limited for new homes purchases. For most people it's the only through the combination  of these three together that provide enough deductions for any tax benefit.

This is why all the housing industry trade groups (home builders, real estate agents) are strongly against this bill.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #138 on: November 03, 2017, 04:49:40 PM »
In reality I think this could pass close to as is with most of the lobbying probably impacting corporate tax loopholes but the middle class in most of the country will end up either not noticing or feeling slightly better off.

I don't like the home tax changes but only because of timing and the fact that I live in San Diego, where a 2 bedroom condo goes for $500k... and potential tax savings today make ownership $150-$300 cheaper a month depending on how I straddle the 25% tax bracket.

But San Diego is in the top 10 least affordable cities for housing. So in reality this change probably doesn't impact middle class families any place or city outside of the top 20 highest cost areas.

I can't help but be a bit selfish though an resent having to pay a penny more in taxes to spare those poor babies estate tax on inheritance over 5 million per child... I am less opposed to pass through changes or removing AMT since those are cutting breaks to people working for money.

RangerOne

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Re: Republican Tax Plan 2017
« Reply #139 on: November 03, 2017, 04:53:12 PM »
The increase in Standard Deduction and the reduction/limit in prop tax and mortgage interest deductions seems like it'll mean that very, very few people will benefit from any sort of mortgage deduction.  The calculus of buying a house changes pretty significantly when you take out the benefits from mortgage interest deduction.
Yes, probably so in the Bay Area.

For most of the country, probably not so much.  E.g., at 4% interest on the median home price in the U.S., after a 20% down payment, the ~$6,300/yr in mortgage interest is probably not fully above the current standard deduction (i.e., the other itemized deductions probably don't exceed the standard amount) for a single filer, and even less likely for MFJ.

At least, that's the reality.  People's perception may differ, and perception can drive behavior.
CCCA is correct, it will absolutely wipe out the tax benefits of home ownership nationwide, that's not even debatable. The standard deduction will be raised and itemized deductions will be so limited they will either not apply (most people) or have a very small impact. State tax deduction is gone, property tax deduction limited, and mortgage deduction limited for new homes purchases. For most people it's the only through the combination  of these three together that provide enough deductions for any tax benefit.

This is why all the housing industry trade groups (home builders, real estate agents) are strongly against this bill.

If it reduces incentives for people to buy multiple homes to become mini land barrens and eating up starter homes for the rest of us I am kind of a fan of getting rid of fed tax breaks on mortgages. I believe they are eliminating tax breaks on second homes altogether am I right?

I would rather they came out and but a massive FU tax on foreign purchases though.

MDM

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Re: Republican Tax Plan 2017
« Reply #140 on: November 03, 2017, 04:57:19 PM »
...it will absolutely wipe out the tax benefits of home ownership nationwide, that's not even debatable.
The point being that those tax benefits, for probably a majority of the country, are more imagined than real.

Davids

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Re: Republican Tax Plan 2017
« Reply #141 on: November 03, 2017, 05:08:37 PM »
Here is a dumb question. Does this pretty much eliminate the W4 form you fill out when you start your new job and adjust when needed (i.e. when you have a kid)?

frugalecon

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Re: Republican Tax Plan 2017
« Reply #142 on: November 03, 2017, 05:18:05 PM »
It seems this bill potentially would make it much more attractive to pay off an outstanding mortgage. I have 9 years to go in a 3% 15 year mortgage, and currently my after tax rate is a hair below 2%. If I lose the ability to itemize, I now have a 3% after tax guaranteed rate. That is way better than any other taxable fixed rate alternative.

Viking Thor

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Re: Republican Tax Plan 2017
« Reply #143 on: November 03, 2017, 05:33:59 PM »
...it will absolutely wipe out the tax benefits of home ownership nationwide, that's not even debatable.
The point being that those tax benefits, for probably a majority of the country, are more imagined than real.
A lot of people get these deductions nationwide, if course it's more prevalent in high housing cost states (with mainly Democratic congress reps, which is likely the driving factor in targeting this area for heavy cuts). Presumably  most people would know if they personally are benefiting from itemized deductions, and if not benefiting probably don't care that they are going away.

Bucksandreds

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Re: Republican Tax Plan 2017
« Reply #144 on: November 03, 2017, 05:34:20 PM »
Due to raising the income threshold for child tax credit I would make out nicely. Im completely against this as it removes the estate tax, adds to the deficit and makes the rich richer. IMHO everyone making 6 figures up needs to pay a little more (not less).
« Last Edit: November 03, 2017, 05:50:00 PM by Bucksandreds »

sokoloff

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Re: Republican Tax Plan 2017
« Reply #145 on: November 03, 2017, 05:42:23 PM »
Here is a dumb question. Does this pretty much eliminate the W4 form you fill out when you start your new job and adjust when needed (i.e. when you have a kid)?
No. How would it? No individual employer has enough information about your overall tax situation to skip the W-4 or the taxpayer responsibility for filing quarterly estimated tax payments if they are required.

dragoncar

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Re: Republican Tax Plan 2017
« Reply #146 on: November 03, 2017, 05:50:39 PM »
It seems this bill potentially would make it much more attractive to pay off an outstanding mortgage. I have 9 years to go in a 3% 15 year mortgage, and currently my after tax rate is a hair below 2%. If I lose the ability to itemize, I now have a 3% after tax guaranteed rate. That is way better than any other taxable fixed rate alternative.

I don’t think this applies to existing mortgages, and going forward $500k is still deductible no?

frugalecon

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Re: Republican Tax Plan 2017
« Reply #147 on: November 03, 2017, 05:53:50 PM »
It seems this bill potentially would make it much more attractive to pay off an outstanding mortgage. I have 9 years to go in a 3% 15 year mortgage, and currently my after tax rate is a hair below 2%. If I lose the ability to itemize, I now have a 3% after tax guaranteed rate. That is way better than any other taxable fixed rate alternative.

I don’t think this applies to existing mortgages, and going forward $500k is still deductible no?

Yes, that is true, but other aspects of the plan eliminate the advantage of itemizing for me. If state and local income taxes are not deductible, my household would take the standard deduction. Thus, the after tax cost of the mortgage is just the headline interest rate, while we would still pay tax on, e.g., interest from CDs.

Undecided

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Re: Republican Tax Plan 2017
« Reply #148 on: November 03, 2017, 05:56:56 PM »
It seems this bill potentially would make it much more attractive to pay off an outstanding mortgage. I have 9 years to go in a 3% 15 year mortgage, and currently my after tax rate is a hair below 2%. If I lose the ability to itemize, I now have a 3% after tax guaranteed rate. That is way better than any other taxable fixed rate alternative.

I don’t think this applies to existing mortgages, and going forward $500k is still deductible no?

True, but, it's that "lost the ability to itemize" point that will affect many. 75% of my itemized deduction this year will be state income taxes. My mortgage interest and property taxes on their own would be well shy of the standard deduction.

dragoncar

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Re: Republican Tax Plan 2017
« Reply #149 on: November 03, 2017, 05:57:09 PM »
It seems this bill potentially would make it much more attractive to pay off an outstanding mortgage. I have 9 years to go in a 3% 15 year mortgage, and currently my after tax rate is a hair below 2%. If I lose the ability to itemize, I now have a 3% after tax guaranteed rate. That is way better than any other taxable fixed rate alternative.

I don’t think this applies to existing mortgages, and going forward $500k is still deductible no?

Yes, that is true, but other aspects of the plan eliminate the advantage of itemizing for me. If state and local income taxes are not deductible, my household would take the standard deduction. Thus, the after tax cost of the mortgage is just the headline interest rate, while we would still pay tax on, e.g., interest from CDs.

Ah gotacha.  That might be true for me too, since state taxes were always greater than the standard deductiob