Analyses of the New Tax Reform Coming Out

The new Republican tax reform proposal has finally been published this week, and analyses of it are now coming out on various sites.

One very good analysis came from Michael Kitces on his blog here.

I suggest the readers to read Michael’s analysis as it summarizes the key points very well with excellent examples. It also addresses the issue I raised in my last article – the step-up basis remains intact even with the estate tax repeal, which is a huge windfall for the rich.

My bottom line: mixed benefits for the middle class. Some popular deductions and exemptions will be lost, but others increased and made more useful.

People in traditionally Democratic-leaning states will probably see tax increases because of the SALT deduction limitations, fringe benefits reduction and mortgage interest deduction limitation. Although some impact may be mitigated by the AMT repeal. In any case, these people are of no consequence for the Republicans, so they’re easy target.

The very wealthy (people who own >$20MM) are definitely benefiting. The tax rate reductions will affect them the most, they will likely benefit from the AMT repeal, and from the 25% rate for the passive pass-through income. Reduced corporate tax rate will also help the wealthy as more money will be available to withdraw as dividends. The beneficial treatment of cash repatriation is also a benefit for mostly the very wealthy investors.

In fact, the real estate investors will gain the most. The 25% pass-through income reduces the tax rate of the rental income for high earners by up to 14.6%. The reduction of the property tax and mortgage deductions (and essentially eliminating them for most of the taxpayers) will also be most beneficial for large-scale real estate investors since it dis-incentivizes home ownership. That means more people will stay as renters instead of trying to get their own place – more passive (25% rate) income for the real estate sharks.

One might think the law was written to specifically benefit some wealthy real-estate magnates.

Your Little Advisor

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