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Kitces Tax Review - Just Out

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  • Kitces Tax Review - Just Out

    Michael Kitces' Evaluation of the Tax Plan, preempting his usual Friday Recommended Reading email.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

  • #2
    Thanks for the link.  This is a quote from it touching on a question I had about the mortgage interest deduction...I don't quite understand what this means.

    Fortunately, though, existing acquisition indebtedness is grandfathered, such that ongoing interest payments on acquisition indebtedness up to $1,000,000 of debt principal remains deductible (even beyond the new $500,000 limit), and a refinance of pre-November-2ndacquisition indebtedness remains deductible (even above the $500,000 limit) as long as the refinance does not increase the debt balance above the remaining acquisition indebtedness balance at the time.

     

    What I want to know is if I do a cash out refinance on my house after this bill goes into effect, will the new mortgage still be fully tax deductible?  My new balance would still be well under the 500k limit, so I assumed it would, but just curious.

    From what he says above it sounds as if a cash out refinance would not be grandfathered in and would be subject to the 500k limit.  That would prevent current large mortgage owners from further increasing their balances above what they currently have.

    Comment


    • #3


      What I want to know is if I do a cash out refinance on my house after this bill goes into effect, will the new mortgage still be fully tax deductible?  My new balance would still be well under the 500k limit, so I assumed it would, but just curious. From what he says above it sounds as if a cash out refinance would not be grandfathered in and would be subject to the 500k limit.  That would prevent current large mortgage owners from further increasing their balances above what they currently have.
      Click to expand...


      As long as the new mortgage is under $500k. If you do a cash-out refi above $500k and your original balance was below $500k, you will be able to deduct interest only on $500k. However, if the original mortgage was between $500k and $1M and you refinance and don't increase the debt, you'll still get to deduct your mortgage interest 100%.

      What I don't know is this: If your mortgage is between $500k and $1M and you do a cash-out refi, will that knock your deductible interest back down to debt of $500k or the former amount? Say you have a mortgage of $750k and you do a COR of $950k - can you deduct interest on $750k or only $500k. I suspect $750k, but I don't know.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        Although, a lot of it seems to make sense, the final plan should really make sure almost everyone comes out ahead.  Increasing the business tax bracket slightly, would give room to retain somethings lost or reduce some of the other brackets and truly make everyone have a lower tax burden.

        Also, I've always felt necessary medical expenses should be allowed to be itemized in full, but that is just me.  I suppose the higher personal deductions will aide with some of that.

        Although, people argue about why they should have to basically pay for those with larger families, a society should at some level encourage stable families.  After all, our entire social security program is based on current workers paying for the "retired" ones.  We are going to need lots of "current" workers in the future.  :O)  So, leave the deductions for children in place.

        Again, a slight increase in the business proposed tax bracket should cover leaving some of the other things in place and still provide savings for companies to make more capital improvements, hire more employees, or buy more boats.

         

        cd :O)
        Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31

        Comment


        • #5




          Although, a lot of it seems to make sense, the final plan should really make sure almost everyone comes out ahead.  Increasing the business tax bracket slightly, would give room to retain somethings lost or reduce some of the other brackets and truly make everyone have a lower tax burden.

          Also, I’ve always felt necessary medical expenses should be allowed to be itemized in full, but that is just me.  I suppose the higher personal deductions will aide with some of that.

          Although, people argue about why they should have to basically pay for those with larger families, a society should at some level encourage stable families.  After all, our entire social security program is based on current workers paying for the “retired” ones.  We are going to need lots of “current” workers in the future.  :O)  So, leave the deductions for children in place.

          Again, a slight increase in the business proposed tax bracket should cover leaving some of the other things in place and still provide savings for companies to make more capital improvements, hire more employees, or buy more boats.

           

          cd :O)
          Click to expand...


          This is exactly what I dont get. They could easily have given a major corporate break to say 25%, and not had to take so much from everyone else, made it universally more palatable. Lots less cutting things that are popular etc...as well.

          Comment


          • #6
            Really interesting, thanks for the link.

            Comment


            • #7
              Yep, it would be a much more equitable and easily swallowed pill if they would just be more reasonable with the corporate tax rate.  They could maintain the deduction for SALT for instance or maintain the personal exemption, etc.  A 10% drop in the corporate rate would still be considered massive.

              It doesn't make sense to us because we're being left out of the secret backroom negotiations that took place to arrive at these numbers.  There are lots of selfish things built into this plan.  It's no mistake, for instance, that they chose to get rid of the SALT deduction since they knew it would primarily affect the coastal, heavily democratic states, yet doesn't affect strong red states like Texas, KY, or IN, etc. And we don't need to explain why they want to get rid of the AMT (trump's 2005 tax return showed he got hit with a 30 million dollar AMT bill) or the repeal of the estate tax, obviously only affecting those with massive cash left over at death.

              It's all about who's writing the bill.  They are going to do everything they can to help themselves and screw over those they hate (wealthy democrats).

              Comment


              • #8




                Yep, it would be a much more equitable and easily swallowed pill if they would just be more reasonable with the corporate tax rate.  They could maintain the deduction for SALT for instance or maintain the personal exemption, etc.  A 10% drop in the corporate rate would still be considered massive.

                It doesn’t make sense to us because we’re being left out of the secret backroom negotiations that took place to arrive at these numbers.  There are lots of selfish things built into this plan.  It’s no mistake, for instance, that they chose to get rid of the SALT deduction since they knew it would primarily affect the coastal, heavily democratic states, yet doesn’t affect strong red states like Texas, KY, or IN, etc. And we don’t need to explain why they want to get rid of the AMT (trump’s 2005 tax return showed he got hit with a 30 million dollar AMT bill) or the repeal of the estate tax, obviously only affecting those with massive cash left over at death.

                It’s all about who’s writing the bill.  They are going to do everything they can to help themselves and screw over those they hate (wealthy democrats).
                Click to expand...


                Except aren't those wealthy Democrats going to also benefit?  Or are only wealthy Republicans affected by having the AMT removed?!?

                I think most people will see a benefit, but that benefit sure could have been bigger and more "fair" with just some slight tweaking.

                For the record, I am a Republican, most years my families income is in the $120K range.  I had a big family, but 1/2 of ours are out of the house.  We live in CA so have a high state tax rate.

                Of course, at the end of the day, is worth adding to the deficit, I don't think it is.  Budget savings should have been put in place along with the tax reform.  OTOH, if they really wanted to put more $ into the economy, tax savings for the low to middle class would most likely be spent and not saved.  Upper income earners, probably won't be spending the extra they are saving.  So a bigger tax cut to the low to middle class could better offset the lower tax revenue.
                Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31

                Comment


                • #9
                  Fair enough, I tend to forget that there are actually republicans living in those states too, lol.

                  Comment


                  • #10
                    I have a specific question regarding my situation. We're building a home and will close in a month. Builder is financing construction. Would we be grandfathered in so we're not limited to the $500k limit? Per Kitces, unless there was a written binding contract for the mortgage already in place prior to November 2nd. The building contract has language obligating us for the final mortgage, so we'd be grandfathered, yes?

                    Comment


                    • #11




                      I have a specific question regarding my situation. We’re building a home and will close in a month. Builder is financing construction. Would we be grandfathered in so we’re not limited to the $500k limit? Per Kitces, unless there was a written binding contract for the mortgage already in place prior to November 2nd. The building contract has language obligating us for the final mortgage, so we’d be grandfathered, yes?
                      Click to expand...


                      Doesnt sound like it if it hasnt closed yet. Is part of the mortgage not final yet or is it all said and done?

                      Comment


                      • #12
                        I'm sitting on the fence on whether to pull more out.  We're at ~550k right now and have plenty of equity in the house of 1.4M;  should we pull this for cheap leaveraged $$$  -- our horizon is 15-20 years....decisions decisions.

                         

                        Comment


                        • #13




                          I’m sitting on the fence on whether to pull more out.  We’re at ~550k right now and have plenty of equity in the house of 1.4M;  should we pull this for cheap leaveraged $$$  — our horizon is 15-20 years….decisions decisions.

                           
                          Click to expand...


                          Obviously the bill will not pass straight up and there will be tons of amendments/additions, but that wouldnt be tax advantaged currently. However, still can be good for purposes you mention.

                          Comment


                          • #14




                            I have a specific question regarding my situation. We’re building a home and will close in a month. Builder is financing construction. Would we be grandfathered in so we’re not limited to the $500k limit? Per Kitces, unless there was a written binding contract for the mortgage already in place prior to November 2nd. The building contract has language obligating us for the final mortgage, so we’d be grandfathered, yes?
                            Click to expand...


                            It doesn't sound like it - no mortgage in place, yes? This is a question to discuss with your CPA.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              a. I was surprised at the cost to the government of the medical expense deduction of $56.6 Billion according to Joint Committee on Taxation.  Would be good to have something available, though not sure what the solution is here.

                              b. Thought they should have limited the tax deductibility of the 401K to 9 -10k with the remaining amount of total contribution for Roth 401K.

                              c. Glad to see mortgage interest rules tightened significantly.  Hopefully the 1/2 million amount will be indexed to inflation.

                              d. Rather have seen SALT deductibility go away entirely, but at there is some reduction.  Hopefully a more critical light will be shined on all levels of government.

                              e. Estate tax should be kept as is currently.  Not a fan of the European model of multi-generational wealth transfer.

                              Comment

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