Trump tax plan and RE

I was just looking over the general details of the trump and GOP tax plans. Looks like they plan to raise the standard deduction by a lot and possibly get rid of deductions for state taxes/property taxes (but also get rid of the AMT).

Seems like that reduces the tax benefits of home ownership. For example, with our state taxes so high many couples easily pay enough in state taxes to surpass the standard deduction. Until Amt kicks in, all the mortgage interest and property tax can be considered at a discounted rate (perhaps 0.6x). But if the standard deduction is say $30k, a lot of those deductions are now irrelevant (i.e. You would be just as well off for tax purposes of you were).

What do you think? Will this skew the rent vs buy affordability calculation?

Right now, standard deduction is $12.5k married. Let’s say I make $200k and pay exactly $12.5k in state taxes. Marginal tax rate is 37.3%.

So if I buy a $1 million house at 4%, that’s $32k in interest and $12k property tax. Effective carrying cost is $2300/mo plus maintenance. Effective payments are $3500/mo (after tax benefits).

Now let’s say standard deduction goes up to $30k, taxes not deductible, and marginal tax rate goes down to 34.3%. Only $2k of the mortgage interest is deductible on top of standard deduction. Effective carrying cost is now $3600/mo plus maintenance. Effective payments are $4700/mo.

This makes a huge difference in comparison to renting.

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I looked into it as soon as Trump won. It is a huge plus for me if he implements, but also strengthen real estate buying/holding rather selling RE. It has added boon to buyers.

Thanks for the interesting analysis.

The proposed system hurts coastal markets with high priced RE and benefits the Midwest… matches the results from 11/8/.

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Do you mean boon to rental property buyers? Bad for owner-occupied right?

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Bold highlighted actually increases tax benefits (Not reduces the tax benefits) for high cost home areas !

Increase in standard deduction discourages home buying, especially for those falls within std.deduction limits. This is mainly for low cost primary home buying less than 500k.

Removing AMT encourages high-end home buying above 1M. Most of 1M+ home buyers are hit by AMT nowadays. They can get 100% home MIRD deduction.

IMO, Rental buying is not affected by std.deduction or AMT changes, except individual tax reduction.

Std.deduction limit increase helps all people across the country. It is welcome candidate.

You are comparing std vs itemized. This affects low income earners and low cost home buyers.

For AMT hit, two deductions are mainly issues. 1) State Income taxes + 2) Mortgage Tax deduction (+property tax??? not sure). I assume 1M+ home buyers are above 225k earners. In such case, AMT removal helps them as they can easily exceed std.deduction limit 30k.

I totally agree that increased standard deduction helps everyone.

But it helps those in low cost states much more than it helps those in high cost states (as calculated above).

For those in states with low taxes, they never itemize, so high standard deduction helps them.

For us with high taxes, standard deduction increase only helps us if we rent. If we own, it’s a wash. Makes rental more attractive.

Correct !

Yes, makes owning home less attractive.

How about phase-out threshold for itemized deduction?
Does he propose any change on it?

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Republicans have a plan too. They want to keep interest deduction and charitable deductions but eliminate the rest. People should be celebrating the simplification of the tax code. It’s a huge boot to special interest who have made it very convoluted.

I never had any doubt about this (plan). But, whatever Trump assured are beyond anyone’s imagination, even challenging his team and unbelievable.

One case: How can he reduce corporate tax rate from 35% to 15%? If he reduces every year 5% and brings to 15% corp tax rate, all over the world investors will pour money to USA as US becomes tax haven to other countries, beating ireland, amsterdam, uk and Euro regions !

My take is only to 25%. He uses 15% as a starting point for negotiation.

USA is one of the top corporate tax rates country next to UAE and Puerto Rico !

Reducing corp to 25% will not benefit or attract foreigners or outsiders to invest in USA as tax havens. Corps can benefit from reduction in tax, USA tax revenue many not get more. Still many corps use the existing tax havens and continue to move out jobs, money hoarding abroad !

The governor of Kansas has some wisdom for Donald Trump, from one Republican tax-cutter to another: The reductions may take longer than expected to give the economy a sustained lift.

Like President-elect Trump, who said on the campaign trail that slashing taxes would jump-start growth, Sam Brownback in 2012 said steep cuts to personal income and small-business taxes in the Midwest state would provide the economy a``shot of adrenaline." What followed wasn’t the promised jolt. The shortfall in revenue has instead forced the government to curtail spending on everything from health care to higher education.

Brownback’s experiment offers a cautionary tale for Trump, who has placed tax reform as a central part of his strategy to more than double the pace of economic growth and add millions of well-paying jobs to the labor force.

Brownback’s critics say the state’s experience could offer an even starker warning to the incoming administration, as they blame many of its recent economic woes on tax cuts. Since the governor approved a reduction in personal income taxes and cut non-wage business income taxes for small-business owners in 2012, Kansas has fallen behind the national average in terms of job creation and personal income growth, according to data compiled by Bloomberg.

Brownback’s tax policies have been a bust,'' said Duane Goossen, a Democrat who was state budget director from 1998 through 2010.The tax cuts immediately – as soon as they were implemented – put our budget far out of balance structurally. And as a result, Kansas has struggled now for five years to just get by financially, and that’s meant constraints and cutbacks.’’

To be sure, Kansas is a major producer of oil and agricultural products, meaning the so-called sunflower state has been hit hard by the drop in commodity prices. Brownback said that phenomenon is largely to blame for his state’s economic troubles, and that tax cuts have helped small-business owners. His detractors argue reforms have limited the government’s ability to fund a much-needed stimulus.

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On the national level, we’re 4/4 in cutting tax rates and tax revenue increasing. Also, the tax revenue in Kansas actually increased at first. It didn’t decrease until 2014 then it started to increase again. Governments love to blame tax revenue as the problem when they have a spending problem. That’s like saying I have a compensation problem, because I can’t afford the ferrari I want.

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Hmm, Kansas passed that in 2012 yet they had higher tax revenue in 2013, 2014, and 2015. I think what we have here is a spending problem not a revenue problem.

This article shows the exact amount that was supposed to be given away to businesses…well, gone no matter what, everybody found out they could get some dough too.

Then, we have the present problem, a total failure.

Lawmakers said they expect to continue negotiating, though it’s still unclear how much money the Legislature will need to raise as it faces almost $900 million in projected budget shortfalls over the next two fiscal years.

The bill spiked by lawmakers would have started to raise individual income tax rates this year if it had become law.

It also would have ended the tax exemption for roughly 330,000 business owners, a policy cherished by Brownback.

It’s funny that people keeping what they earn is considered the government giving them the money.

$300m of the $900m is new school spending mandated by their Supreme Court. That is exactly my point. People love to blame revenue. They never look at the expenses side. The expenses are out of control. Expenses are growing much faster than inflation which isn’t sustainable. Besides, the tax revenue in Kansas increased!

You can also look at CA. Pension expenses have doubled since Brown became governor. Is inflation double in that time? Have tax revenues doubled in that time? Everyone will sit around and blame lack of revenue when the fact is expenses doubled in a very short time period.

Well, blame the idiots for voting for that proposition. Then, just buy a bunch of beer kegs and celebrate.

http://www.npr.org/2017/06/07/531886684/the-kansas-tax-cut-experiment-comes-to-an-end-as-lawmakers-vote-to-raise-taxes

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