How is your 2018 taxes compared to your 2017 taxes?

User Forum Topic
Submitted by flu on April 11, 2019 - 9:17pm

I'm trying to figure out my taxes still, but I have the worst case numbers, and something isn't correct...

Unless I did something seriously wrong this year or last year, I'm seeing a pretty big drop in my tax bill in 2018 versus 2017.

My taxable income between 2018 versus 2017 is about the same, but the total federal taxes I'm paying this year is about $17k less than last year, and my effective tax rate dropped by 5%.

I don't get it. Am I one of the lucky tax cut lottery winners? I don't think so. But I'm double checking and can't find something I did wrong that would cause such a big difference.

Maybe no AMT this year? But I don't think that would do it. Anyone else seeing something similar?

Submitted by temeculaguy on April 11, 2019 - 11:47pm.

You might be the lucky winner or you might just realize the MSM has been less than honest since the majority of people benefited. I ended up about the same, perhaps slightly worse off. But my kids and step kids who do not own homes benefited greatly. I do their taxes, and those who do not itemize but were kinda on the cusp of would be buyers were the big winners, but nobody will tell you that, most polls and articles say the opposite. I still encourage those in low price and low tax states to buy, but those still in So Cal I think this may be the X factor, however I have seen no evidence yet that it impacting prices. The reality is the people that can afford So Cal homes pay enough in state taxes to use up the salt limit that property taxes are no longer deductible, self included. But no sign of that yet in prices, not sure if we will see it. The market can remain irrational longer than you can stay solvent, as the saying goes.

Submitted by The-Shoveler on April 12, 2019 - 9:41am.

My Taxes were about the same but my primary home Tax bill is fairly small so I may be a exception.

I have some vacant land that the property tax could not be deducted (hit SALT limit), but I understand that I will be able to write that off when I sell it.

Submitted by flu on April 12, 2019 - 10:32am.

temeculaguy wrote:
You might be the lucky winner or you might just realize the MSM has been less than honest since the majority of people benefited. I ended up about the same, perhaps slightly worse off. But my kids and step kids who do not own homes benefited greatly. I do their taxes, and those who do not itemize but were kinda on the cusp of would be buyers were the big winners, but nobody will tell you that, most polls and articles say the opposite. I still encourage those in low price and low tax states to buy, but those still in So Cal I think this may be the X factor, however I have seen no evidence yet that it impacting prices. The reality is the people that can afford So Cal homes pay enough in state taxes to use up the salt limit that property taxes are no longer deductible, self included. But no sign of that yet in prices, not sure if we will see it. The market can remain irrational longer than you can stay solvent, as the saying goes.

Interesting... Thing thing with previous year, when I itemized, I never got the full itemized deduction anyway, because under AMT, the deductibility of SALT was already being limited for me with federal taxes. However, I always thought that even with the AMT limit, my tax would still be lower than what it is now with no AMT... I'm still trying to reconcile the difference.

For me, it no longer makes sense for me to itemize, as I have no mortgage on the primary, and the remaining mortgage is on my investment property, which goes into the expense side of that rental... And my property taxes except my primary goes to the expense side of rentals too, so that hasn't changed.

There is one other difference. I made $0 in donations last year to charitable organizations since I was anticipating a standard deduction and because I forgot to setup a charitable trust in time last year... But my charitable contributions were not in excess of 4 digits anyway in the prior year to begin with, so I doubt that makes a significant difference.

hmmmmmmm

My tax rate might go even lower if I can qualify my rentals under QBI, lol.

What was also really weird is that when I did my kid's taxes (as I file my kid separately due to capital gains from investments in a custodian account), TurboTax automatically qualified some of her income from REIT investments I made on her behalf as QBI... I didn't understand that either, but since it was just a dry run estimate and I filed an extension with an overpayment on my kid's taxes, I'll sort that out later... But that was also weird.

Meh, I'll figure this out later....I'm off to L.A. to do an amusement park staycation for the next few days....

Submitted by plm on April 12, 2019 - 11:15am.

My tax rate was lower as well this year even though I had more income. The main reason was no longer paying AMT and the increase in the standard deduction. AMT doesn't allow deductions for state and property tax so I never did get hit by the 10K limit in SALT this year. Also on the tail end of my mortgage so there isn't much interest to deduct. Standard 24K deduction much higher than what I would have gotten from itemizing.

So I think the new tax plan is lower this year unless you didn't pay AMT last year and could have itemized a large amount of SALT and mortgage interest.

Interesting concept that the new tax rules are more advantageous to being a landlord vs being a home owner. By being a landlord taxes and mortgage are completely deducted while a homeowner would be limited by 10K SALT and mortgage deduction might not be enough to itemize.

Is it possible to rent to yourself?

Submitted by bibsoconner on April 12, 2019 - 12:52pm.

My tax bill was considerably lower (~5000 lower) too. I'm ready to become a Trump supporter. Do I just need to get a MAGA hat or do I need to rip children from their mothers' arms and put them in cages? Perhaps just grabbing a woman inappropriately or threatening a Canadian would suffice? Whatever it takes.

Submitted by flu on April 12, 2019 - 1:06pm.

plm wrote:
My tax rate was lower as well this year even though I had more income. The main reason was no longer paying AMT and the increase in the standard deduction. AMT doesn't allow deductions for state and property tax so I never did get hit by the 10K limit in SALT this year. Also on the tail end of my mortgage so there isn't much interest to deduct. Standard 24K deduction much higher than what I would have gotten from itemizing.

So I think the new tax plan is lower this year unless you didn't pay AMT last year and could have itemized a large amount of SALT and mortgage interest.

Interesting concept that the new tax rules are more advantageous to being a landlord vs being a home owner. By being a landlord taxes and mortgage are completely deducted while a homeowner would be limited by 10K SALT and mortgage deduction might not be enough to itemize.

Is it possible to rent to yourself?

renting to yourself probably won't work....even if you could deduct SALT, you would still need to report your rent income and it probably isn't enough to offset the extra tax you'd paid on the rental income.. Also, you would lose the $250k/$500k cap gains exclusion if you sell it.

Submitted by plm on April 12, 2019 - 2:19pm.

I would never try to do this but I think theoretically it is possible but tricky since you have to charge at least fair market rent. Suppose you get a mortgage such that the interest plus depreciation of the home is equal to the rent. Then there is no income to pay taxes on but you can deduct the interest and property taxes.

I suppose you would have to sell within 2 years or stop renting for three years before selling to get the cap gains exclusion.

As an extra benefit, all repairs would be deductible as well as well as new appliances. Could write off the gardener as well. I wonder if you could rent it furnished so you can write of cable, telephone, sdg+e, and water!

Submitted by flu on April 12, 2019 - 5:43pm.

plm wrote:
I would never try to do this but I think theoretically it is possible but tricky since you have to charge at least fair market rent. Suppose you get a mortgage such that the interest plus depreciation of the home is equal to the rent. Then there is no income to pay taxes on but you can deduct the interest and property taxes.

I suppose you would have to sell within 2 years or stop renting for three years before selling to get the cap gains exclusion.

As an extra benefit, all repairs would be deductible as well as well as new appliances. Could write off the gardener as well. I wonder if you could rent it furnished so you can write of cable, telephone, sdg+e, and water!

This is an interesting discussion... not trying to poke holes in a negative way , just seeing how this could possibly work.....

Maybe renting to your friend and you renting from your friend?

The problem is when you sell, you would have to pay for depreciation
recapture unless you 1031 exchange it and then convert it back to a primary residence and spend more time in it relative to how long it was used as a rental such that the depreciation recapture is a percentage of use as a rental versus total usage as primary and as rental... or...you die and your spouse or heirs gets a step up and the recapture gets wiped clean.

Submitted by henrysd on April 12, 2019 - 8:29pm.

flu wrote:

My taxable income between 2018 versus 2017 is about the same, but the total federal taxes I'm paying this year is about $17k less than last year, and my effective tax rate dropped by 5%.

You hinted your AGI around $340K. That is a real sweet spot with the new tax law. Assuming 24K standrad deduction, txable income is 316K. It used be 33% tax bracket for income above 233K in 2017, now income above 157.5K and below 315K are only taxed at 24%. That is 9% drop in tax rate. For AMT tax payers the marginal rate was 32.5% or 35% corresponding 26% or 28% AMT rate. Every extra dollar of income also reduces AMT exemption by 25 cents, so that is how 32.5% come from: 1.25 x 26% = 32.5%

Child credit $2k for every child under age of 17. 3 kids can get 6K credit. Old law phased out child credit starting at 110K, now full credit if AGI < $400K

My AGI in 2018 is 8K less than 2017 due to the family leave time taken, but total tax is $9k less. Adjusted for income difference to assume AGI are the same for the 2 years, my tax would be 7K less.

Main difference maker for me:
Lower marginal rate of 24% from previous 32.5% AMT rate. No more AMT.

Submitted by AN on April 13, 2019 - 12:11am.

My effective tax rate went up by 25%. My itemized deductions drop by ~50%. I guess I’m not as lucky as you guys.

Submitted by NeetaT on April 14, 2019 - 6:38pm.

I calculated my 2018 taxes using the 2017 rules and the 2018 rules. Using the current rules, 2018, I saved just over $3,000.00. That $3,000.00 will be injected into the private sector via rounds of golf.

Submitted by scaredyclassic on April 14, 2019 - 11:08pm.

7500 less.

i guess thats good. a years tuition at cal state.

Submitted by flu on April 15, 2019 - 9:25am.

so it seems like the the tax cuts have been beneficial to people here so far.... interesting.....

Submitted by AN on April 15, 2019 - 10:13am.

flu wrote:
so it seems like the the tax cuts have been beneficial to people here so far.... interesting.....

Except for me

Submitted by penny on April 15, 2019 - 4:56pm.

I got the hit, and I think for most people still itemize this year, we are the unlucky ones, get a big hit in SLAT deductions, and all other is the same, maybe tax bucket is a little bit lower, but that can't compensate on the SLAT loss, all my property tax is essentially wiped off from tax deduction.

Submitted by svelte on April 16, 2019 - 7:08pm.

$12K less this year on slightly higher income.

But our refund was smaller. Funny, we didn't even notice our paychecks going up. I guess we don't live close enough to the edge. I suppose that means our refund will be even smaller next year, since the paycheck changes took effect mid year.

Submitted by flu on April 16, 2019 - 9:04pm.

svelte wrote:
$12K less this year on slightly higher income.

But our refund was smaller. Funny, we didn't even notice our paychecks going up. I guess we don't live close enough to the edge. I suppose that means our refund will be even smaller next year, since the paycheck changes took effect mid year.

so your tax went down too... interesting ... so this wasn't that bad after all for some people even in this state.

Submitted by evolusd on April 23, 2019 - 1:56pm.

I'm a salary + commission structure. Ran the numbers under both the old tax structure and new tax structure and ended up paying less as a % of AGI under the new tax laws. While my deductions were significantly less due to the SALT maximum, the Child Tax Credit (increased amount and not phasing out) helped me a bunch as I have 3 kids.

Also ran the numbers and determined that owning a home doesn't benefit me as much now tax-wise; made the decision to sell my home to move to a different high school district a bit easier.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.