Trump Tax Reform and Home Prices

[eyephone]

Whatever happened to ?you will be able to file your taxes on a single post card ? ?

I knew it was a gimic when it was introduced.

 

[mikebruin]

What about being a realtor?

Well, clearly the world would come to a halt without this important profession.

Unfortunately, my read on this is, a realtor is a service provider and will not qualify for the 20% passthrough deduction.  This may not be an issue for some, as I believe the disqualification only applies to individuals making over 150k or married taxpayers making over 300k.  At that point I think the 20% deduction phases out over the next 50k of income for individuals and 100k of income for married taxpayers.
https://evergreensmallbusiness.com/...-dozen-things-every-business-owner-must-know/

It's possible that if you have employees in your business or a large amount of real estate, you may still qualify.  The 20% deduction is limited to 50% of wages paid or 25% of wages paid plus 2.5% of unadjusted basis.  Not sure how this limitation will work in conjunction with the service provider businesses though.

Likely, if you are below the income thresholds, you will be able to deduct the 20% regardless of whether your service business is considered 'qualified business income'.  It's the new Section 199A rules.  This is just my interpretation, though, so far based on what I've read.  I have yet to read the actual text of the new laws in full, I've only seen pieces.  I believe there may also be limitations and different buckets to track, similar to passive/active losses, you may need to track different parts of your income separately (you could have one LLC that has a restaurant business and a real estate business, and you would have to track those separately despite being in the same LLC - wages you pay in the restaurant business might not help you in the passthrough deduction if you wanted to apply the W-2 50% limit to the real estate portion of the business).

Simplicity - this tax bill does not accomplish.  Big savings for businesses and the wealthy, yes.  I hope more businesses adopt Wells Fargo's approach and decide to pass on at least a small portion of the savings to their employees.

 

[usctrojancpa]

What about being a realtor?

Well, clearly the world would come to a halt without this important profession.

Unfortunately, my read on this is, a realtor is a service provider and will not qualify for the 20% passthrough deduction.  This may not be an issue for some, as I believe the disqualification only applies to individuals making over 150k or married taxpayers making over 300k.  At that point I think the 20% deduction phases out over the next 50k of income for individuals and 100k of income for married taxpayers.
https://evergreensmallbusiness.com/...-dozen-things-every-business-owner-must-know/

It's possible that if you have employees in your business or a large amount of real estate, you may still qualify.  The 20% deduction is limited to 50% of wages paid or 25% of wages paid plus 2.5% of unadjusted basis.  Not sure how this limitation will work in conjunction with the service provider businesses though.

Likely, if you are below the income thresholds, you will be able to deduct the 20% regardless of whether your service business is considered 'qualified business income'.  It's the new Section 199A rules.  This is just my interpretation, though, so far based on what I've read.  I have yet to read the actual text of the new laws in full, I've only seen pieces.  I believe there may also be limitations and different buckets to track, similar to passive/active losses, you may need to track different parts of your income separately (you could have one LLC that has a restaurant business and a real estate business, and you would have to track those separately despite being in the same LLC - wages you pay in the restaurant business might not help you in the passthrough deduction if you wanted to apply the W-2 50% limit to the real estate portion of the business).

Simplicity - this tax bill does not accomplish.  Big savings for businesses and the wealthy, yes.  I hope more businesses adopt Wells Fargo's approach and decide to pass on at least a small portion of the savings to their employees.

Sounds like I won't qualify from my read....oh well. 

 

[Hugo Township]

I looked at the bill. specifically, page 25-35 of the PDF herehttp://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

13 ??SEC. 199A. QUALIFIED BUSINESS INCOME.
et al

11 ??(1) IN GENERAL.?The term ?qualified trade
12 or business? means any trade or business other
13 than?
14 ??(A) a specified service trade or business,
15 or
16 ??(B) the trade or business of performing
17 services as an employee.
18 ??(2) SPECIFIED SERVICE TRADE OR BUSI19
NESS.?The term ?specified service trade or busi20
ness? means any trade or business?
21 ??(A) which is described in section
22 1202(e)(3)(A) (applied without regard to the
23 words ?engineering, architecture,?) or which
24 would be so described if the term ?employees or
1 owners? were substituted for ?employees? there2
in, or
3 ??(B) which involves the performance of
4 services that consist of investing and investment
5 management, trading, or dealing in securities
6 (as defined in section 475(c)(2)), partnership
7 interests, or commodities (as defined in section
8 475(e)(2)).

Code Sec 1202(e)(3)(A) reads:https://www.law.cornell.edu/uscode/text/26/1202
any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees

hope this helps someone.

edit: congratulations to the engineering and architecture lobby. AIA useful for once!

 

[lnc]

Not sure if many here still follow Calculated Risk but I still follow his blog regularly.  Here is his prediction regarding to 2018 housing and the new Tax.
http://www.calculatedriskblog.com/2017/12/question-10-for-2018-will-new-tax-law.html

My sense is the low end of the housing market will be fine. The Mortgage Interest Deduction (MID) will be capped at interest on a mortgage up to $750,000 instead of $1,000,000, so the lower priced markets will not be hit by the reduction in the MID. There might be some additional taxes for these buyers due to the limits on SALT and property taxes, but this should be minor.

I also expect the high end of the market to be fine. The high end is already doing well even with the MID capped at $1 million. For these buyers, the bigger impact will be the SALT and property tax limitations, but there will be offsets for these buyers due to the lower rates - and these buyers will likely benefit from the corporate tax cuts.  Many of these buyers will also benefit from the changes to the Alternative Minimum Tax (AMT).

It is the upper-mid-range in the certain markets that will probably slow.  This might be in the $750,000 to $1.5 million price range.  These potential buyers probably don't benefit from the AMT or corporate changes, but they will likely be hit by the SALT and property tax limits. 

There could be a ripple effect.  If the upper-mid-range slows, that could impact some of the purchases in the next higher range.  This is my current guess on the impact.

 

[usctrojancpa]

Not sure if many here still follow Calculated Risk but I still follow his blog regularly.  Here is his prediction regarding to 2018 housing and the new Tax.
http://www.calculatedriskblog.com/2017/12/question-10-for-2018-will-new-tax-law.html

My sense is the low end of the housing market will be fine. The Mortgage Interest Deduction (MID) will be capped at interest on a mortgage up to $750,000 instead of $1,000,000, so the lower priced markets will not be hit by the reduction in the MID. There might be some additional taxes for these buyers due to the limits on SALT and property taxes, but this should be minor.

I also expect the high end of the market to be fine. The high end is already doing well even with the MID capped at $1 million. For these buyers, the bigger impact will be the SALT and property tax limitations, but there will be offsets for these buyers due to the lower rates - and these buyers will likely benefit from the corporate tax cuts.  Many of these buyers will also benefit from the changes to the Alternative Minimum Tax (AMT).

It is the upper-mid-range in the certain markets that will probably slow.  This might be in the $750,000 to $1.5 million price range.  These potential buyers probably don't benefit from the AMT or corporate changes, but they will likely be hit by the SALT and property tax limits. 

There could be a ripple effect.  If the upper-mid-range slows, that could impact some of the purchases in the next higher range.  This is my current guess on the impact.

I agree with them in general, however Irvine is a slightly different animal with foreign cash buyers who could care less about AMT, SALT deductions, etc.  I think in Irvine the lower-end of the market (sub $800k) will continue to be tight, the middle of the market ($800k-$1.2m) we won't see much change, the upper middle of the market ($1.2m to high $1Ms) we'll see softening, and the upper part of the market ($2m+) it'll probably soften up less than the upper middle of the market.  I do think that the number of transactions in 2018 will drop from 2017 as we'll see less homes being listed on the market which will benefit the home builders.  This will lead to prices on the lower-end and middle of the market to continue their increase while the upper middle and upper part of the market will probably be flattish in terms of price appreciation.

 

[fortune11]

Not sure if many here still follow Calculated Risk but I still follow his blog regularly.  Here is his prediction regarding to 2018 housing and the new Tax.
http://www.calculatedriskblog.com/2017/12/question-10-for-2018-will-new-tax-law.html

My sense is the low end of the housing market will be fine. The Mortgage Interest Deduction (MID) will be capped at interest on a mortgage up to $750,000 instead of $1,000,000, so the lower priced markets will not be hit by the reduction in the MID. There might be some additional taxes for these buyers due to the limits on SALT and property taxes, but this should be minor.

I also expect the high end of the market to be fine. The high end is already doing well even with the MID capped at $1 million. For these buyers, the bigger impact will be the SALT and property tax limitations, but there will be offsets for these buyers due to the lower rates - and these buyers will likely benefit from the corporate tax cuts.  Many of these buyers will also benefit from the changes to the Alternative Minimum Tax (AMT).

It is the upper-mid-range in the certain markets that will probably slow.  This might be in the $750,000 to $1.5 million price range.  These potential buyers probably don't benefit from the AMT or corporate changes, but they will likely be hit by the SALT and property tax limits. 

There could be a ripple effect.  If the upper-mid-range slows, that could impact some of the purchases in the next higher range.  This is my current guess on the impact.

I agree with them in general, however Irvine is a slightly different animal with foreign cash buyers who could care less about AMT, SALT deductions, etc.  I think in Irvine the lower-end of the market (sub $800k) will continue to be tight, the middle of the market ($800k-$1.2m) we won't see much change, the upper middle of the market ($1.2m to high $1Ms) we'll see softening, and the upper part of the market ($2m+) it'll probably soften up less than the upper middle of the market.  I do think that the number of transactions in 2018 will drop from 2017 as we'll see less homes being listed on the market which will benefit the home builders.  This will lead to prices on the lower-end and middle of the market to continue their increase while the upper middle and upper part of the market will probably be flattish in terms of price appreciation.

Interesting that you say that upper end of the market (2m+) will hold up better than upper middle.  I tend to agree.  My thinking is similar .  The upper middle still reliant on wage income for funding / qualifying for these purchases, while upper (2m+) has other sources (investment income etc) and is also rife with cash buyers who could care less about tax law changes. 

any predictions on which Irvine neighborhoods may see the biggest drop in resale volumes  ?

 

[usctrojancpa]

Not sure if many here still follow Calculated Risk but I still follow his blog regularly.  Here is his prediction regarding to 2018 housing and the new Tax.
http://www.calculatedriskblog.com/2017/12/question-10-for-2018-will-new-tax-law.html

My sense is the low end of the housing market will be fine. The Mortgage Interest Deduction (MID) will be capped at interest on a mortgage up to $750,000 instead of $1,000,000, so the lower priced markets will not be hit by the reduction in the MID. There might be some additional taxes for these buyers due to the limits on SALT and property taxes, but this should be minor.

I also expect the high end of the market to be fine. The high end is already doing well even with the MID capped at $1 million. For these buyers, the bigger impact will be the SALT and property tax limitations, but there will be offsets for these buyers due to the lower rates - and these buyers will likely benefit from the corporate tax cuts.  Many of these buyers will also benefit from the changes to the Alternative Minimum Tax (AMT).

It is the upper-mid-range in the certain markets that will probably slow.  This might be in the $750,000 to $1.5 million price range.  These potential buyers probably don't benefit from the AMT or corporate changes, but they will likely be hit by the SALT and property tax limits. 

There could be a ripple effect.  If the upper-mid-range slows, that could impact some of the purchases in the next higher range.  This is my current guess on the impact.

I agree with them in general, however Irvine is a slightly different animal with foreign cash buyers who could care less about AMT, SALT deductions, etc.  I think in Irvine the lower-end of the market (sub $800k) will continue to be tight, the middle of the market ($800k-$1.2m) we won't see much change, the upper middle of the market ($1.2m to high $1Ms) we'll see softening, and the upper part of the market ($2m+) it'll probably soften up less than the upper middle of the market.  I do think that the number of transactions in 2018 will drop from 2017 as we'll see less homes being listed on the market which will benefit the home builders.  This will lead to prices on the lower-end and middle of the market to continue their increase while the upper middle and upper part of the market will probably be flattish in terms of price appreciation.

Interesting that you say that upper end of the market (2m+) will hold up better than upper middle.  I tend to agree.  My thinking is similar .  The upper middle still reliant on wage income for funding / qualifying for these purchases, while upper (2m+) has other sources (investment income etc) and is also rife with cash buyers who could care less about tax law changes. 

any predictions on which Irvine neighborhoods may see the biggest drop in resale volumes  ?

I think those well healed $2m+ buyers will just continue doing what they are doing because most all of them are not stretching to buy those homes like some of those $1.2m+ buyers are.  In terms of the largest sales volume drops, I think it'll be West Irvine, Woodbridge, and Westpark will see the biggest drops in sales volume in 2018 as they have sub $1m priced homes and/or have low to no Mello Roos.