CDZ State and local tax limitation on tax deductibility

Discussion in 'Clean Debate Zone' started by usmbguest5318, Dec 17, 2017.

  1. usmbguest5318
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    usmbguest5318 Gold Member

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    There's been much talk from advocates of the State and local tax (SALT) limitation on tax deductibility. The current GOP plan limits the SALT itemized deduction to $10K. That seemingly denies some measure of the SALT deduction folks take for their million-dollar-plus homes.

    Well, it doesn't really work out that that is the case. The GOP tax bill (post committee), based on what my tax planner/advisor tells me, has a tiny exception that results in a huge "no difference from before" loophole. The exception allows for the full deductibility (no ceiling) for SALT paid or accrued in carrying on a trade or a business ... [or on expenses related to] production of income.
    • What does that mean? It means that if one earns one's income via an S-corp, partnership or sole proprietorship, one can deduct the entirety of SALT paid.
    • To whom does that apply? It applies to a ton of people; pass-through entities are the most common form of business entity. If you are a partner in a firm, it applies to you. If you are a sole proprietor, it applies to you. If you are part owner in an S-corp, it applies to you. If you are like most such business owners, at the very least you live in a home and own business property for which the property taxes greatly exceed $10K/year. If you're doing fairly well, you own a second or third home, which surely puts your SALT payments above $10K. Well, worry not, you aren't going to lose that deduction.

    Some of you may recall Trump asserting that the GOP plan was going to "cost [him] a fortune, believe me, believe me." Notwithstanding that he's not identified specifically what provisions of it are going to cost him anything, much less a lot, one can be sure that the SALT provision isn't among those that will increase his tax liability.

    FWIW, neither will dropping the pass-through marginal tax rate to 20%. Currently, people in Trump's assumed income bracket are subject to a marginal tax rate of 39.6%. Of course, one need not have anywhere near as apparently high a taxable income as Trump to be in the 39.6% bracket. Barely rich folks who have taxable incomes of $500K or so also are in that bracket.
     
  2. Dont Taz Me Bro
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    Dont Taz Me Bro USMB Mod Staff Member Gold Supporting Member Supporting Member

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    I think it's well past time that New York and California leftists paid their fair share.
     
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  3. usmbguest5318
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    usmbguest5318 Gold Member

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    What has that to do with the nature or extent of SALT's deductibility as stipulated in the current GOP tax bill?
     
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  4. Toronado3800
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    Toronado3800 VIP Member

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    I don't get it, how does that apply here? (This is the CDZ, did it just pop up on the active post list and you replied?)
     
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  5. Darkwind
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    Darkwind Gold Member

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    Did you happen to catch the requirements for a single-member LLC or what is referred to as "Sole proprietorship LLC?" I've been far to busy to look into any of this.
     
  6. task0778
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    task0778 Gold Member Gold Supporting Member Supporting Member

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    Show me a link that shows how anybody gets around the $10,000 maximum deduction for SALT, property, or sales taxes paid in total. I could see it if you're running a business at home you might get away from the limit for the deduction limit on property tax but otherwise there's gotta be more to it.
     
  7. usmbguest5318
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    usmbguest5318 Gold Member

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    No, I did not see anything specifically mentioned regarding sole proprietorships whereby it differed from that which was noted for other forms of pass-through entities.


    Aside:
    "I'd like 'People Say the Strangest Things' for $200, Alex."
    "Distinguished from others of its ilk, this form of business has only one owner who is indivisibly liable for all company deeds and issues no stock."
    "What is a sole proprietorship, Alex?"
    A sole proprietorship is not the same thing as a "one-person LLC."

     
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  8. usmbguest5318
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    usmbguest5318 Gold Member

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    Do you know any pass-through business owners who don't conduct their company's business from their home as well as from other locales? For any who do, that's all that's, along with having expensive-enough dwelling needed to evade the $10K limitation.

    Perhaps what you're overlooking that for pass-through entity owners, the deduction is taken on Schedule C or Schedule E, not on Schedule A, the latter being where non-business-owners must take the SALT deduction? Schedule A deductions are "post-AGI" deductions, whereas Schedule C and E deductions are "pre-AGI" ones. All Schedule A deductions, AFAIK, have a floor or ceiling that limits the deductibility of whatever specific type of deduction one may there record, whereas, I'm not aware of any Schedule C or E deductions, other than the net operating loss deduction, that are limited.

    Though I will next week meet with my tax advisor to learn more details, as things currently stand and as has been implied by my advisor, one can qualify one's residence for the 10K SALT exception under the "regular use" rule pertaining to the use of one's home for business purposes.
    I've not yet been made aware of there being any change to the "regular use" rule; however, I'm sure that if that rule has changed, I'll next week find out about it having been changed.


    As for your explicit request about the loophole pertaining to pass-through entity owners, I've only seen one mention of it on the Internet. That's not to say there are not others, but rather that I found one and stopped looking. (I don't generally look on the Internet for corroboration of information my tax advisor conveys; I trust that he knows what he's talking about.) I looked because I'm not willing to share here the additional details (specific phrasing) included in the letter I received from my tax advisor.


    Then there is the matter of the "11th hour carve out" for Trump and his family and the small few others like him.
     
    Last edited: Dec 18, 2017
  9. yiostheoy
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    yiostheoy Gold Member

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    I have not yet dove into the pass-thru provisions in the new tax act.

    None of my clients is a pass-thru so not at the top of my list.
     
  10. yiostheoy
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    yiostheoy Gold Member

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    Supposedly the cut in the tax rates is supposed to make up for the limits on the SALT deductions.
     

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