Prepaying property tax

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Submitted by bewildering on December 2, 2017 - 10:27pm

So the GOP plan is going to get rid of itemizing my taxes next year.

Does anyone know if I can prepay my property taxes due to San Diego in April 2018? I have an escrow account with my loan servicer.

Submitted by SK in CV on December 5, 2017 - 8:05pm.

flu wrote:

For rental properties, doesn't mortgage, property tax, and just everything else count on as cost of running your rental? So none of that changes right?

Yes, but. None of that changes, but it doesn't mean the value of your properties are unchanged. If you own single family residences as rentals, they'll sell based on what other single family residences are selling for, not based on ROI.

The value of multi-unit rentals may go up with this tax change. Lower taxes on passive income can increase ROI.

Submitted by Coronita on December 5, 2017 - 10:01pm.

SK in CV wrote:
flu wrote:

For rental properties, doesn't mortgage, property tax, and just everything else count on as cost of running your rental? So none of that changes right?

Yes, but. None of that changes, but it doesn't mean the value of your properties are unchanged. If you own single family residences as rentals, they'll sell based on what other single family residences are selling for, not based on ROI.

The value of multi-unit rentals may go up with this tax change. Lower taxes on passive income can increase ROI.

I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

First of all, for many people, mortgage interest deduction a primary isn't going to be affected. The only ones affected are those new buyers that take out a mortgage larger than $500k. Old mortgages are grandfathered, right? I mean, are there many folks taking out jumbo loans these days? Maybe. I don't know. Second, property tax is now capped at $10k. CA property tax is roughly 1%. So this only impacts people with an assessed value more than 1 million. I'm sorry, if you own a $1.5 million home, and are in a financial disarray because you can't deduct and extra $5000 in property taxes for the entire year, and you weren't already bending over in AMT, you got much bigger problems to worry about.

That leaves state tax deductions. Maybe I'm missing something. But lets just say someone's AGI is $200k. State income taxes, 10%. So that's an extra $20k taxable income versus last year... Tax rate of say 39% (which is probably much higher than what it is actually), that's like $7800 extra taxes... Yes, it's a painful check to write...But for someone with an AGI of $200k, is this really going to drastically affect one's well being? I mean, these were the same arguments at one point said to some of us a few years ago too.

Again, don't get me wrong, I think Trump is horrible, and the GOP has gone off a deep end, and this tax "reform" is ridiculous... I'm just not not seeing how this tax "reform" is going to be as doom and gloom as people make it out to be. It's painful and annoying at worst imho.

So this might affect a handful of would be buyers who no longer have the budget to buy a SFH .... Ok, that sucks. Doesn't this keep rental demand (and therefore rent prices) high? Doesn't this create a floor for how far home prices may fall, given that if it's cheaper to own than rent, people will buy?

And I'm only talking about these folks whose AGI is at this level... Not the folks that make much less, which I would agree get hit harder....No question about that.

Submitted by SK in CV on December 6, 2017 - 7:15am.

flu wrote:

I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

I agree. Not devastating to any individuals, except in rare situations. Low income people can get hit with higher taxes. For those making $30K with 3 kids, losing $500 can be devastating. It could also be devastating to

The problem is not so much with itemized deduction changes. Outside sales people and W-2 truckers could get killed. I can think of a few others that will also.

A HUGE windfall for some wealthy and ALL uber-wealthy.

It could be devastating for what it portends, and what it holds for the economy down the line. It's pretty similar to the tax cut from the late 20's. Something bad happened after that.

Submitted by Coronita on December 6, 2017 - 8:30am.

SK in CV wrote:
flu wrote:

I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

I agree. Not devastating to any individuals, except in rare situations. Low income people can get hit with higher taxes. For those making $30K with 3 kids, losing $500 can be devastating. It could also be devastating to

The problem is not so much with itemized deduction changes. Outside sales people and W-2 truckers could get killed. I can think of a few others that will also.

A HUGE windfall for some wealthy and ALL uber-wealthy.

It could be devastating for what it portends, and what it holds for the economy down the line. It's pretty similar to the tax cut from the late 20's. Something bad happened after that.

Agreed. Which is why I sort of chuckle at the irony here. I have a feeling the ones that are going to get hit the most, some of them probably voted for Trump and wanted this without really knowing about it...
(BG where are you?.. Lololol)

I mean how many senators actually read the 500 page tax reform before voting on it....just like how many read the actual ACA before folks voted on it. Maybe one of these days Congress can actually start doing things not out of spite for the other party. Lol.

I think the only positive.to come out of this is everyone this time feels a certain level of annoyance and financial pain such that next time, we.are a little more careful asking for "tax reform" or taxing more... And by financial pain, I mean almost Everyone.

Carenter, you were wishing for a repeal of prop 31 and felt people should be taxed more on their propety.... Well...wish granted... everyone is now.... Even folks with primary homes. Your property tax deduction is now capped. Lol...be careful what you wish for...

Submitted by harvey on December 6, 2017 - 8:41am.

flu wrote:
I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

Not devastating, just a laughably transparent, multi-faceted scam:

- It was sold as middle class tax cut. It is not.

- It will massively increase the deficit.

- It will cause the healthcare system to be even more dysfunctional.

All for no benefit, except to the 1-percenters.

It's certainly no better than what we already have, so what's the point?

I already answered my question.

Submitted by scaredyclassic on December 6, 2017 - 9:28am.

Ok then.

I need to become wealthy, now.

Submitted by Coronita on December 6, 2017 - 10:52am.

scaredyclassic wrote:
Ok then.

I need to become wealthy, now.

You already are!....In the eyes of the IRS and our federal government....At least they sure are going to tax you that way!

Welcome to our special club, called the "you're fucked tax club"... While you're only a 1st year member, unfortunately in this club, membership is lifetime and irrevocable.

The next thing you'll also learn is that even if the political winds change in 2018, and tax laws are "reformed" again, they'll figure out a way to fuck you over again.....Same shit, different special interest political party....

Submitted by Coronita on December 6, 2017 - 10:53am.

harvey wrote:
flu wrote:
I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

Not devastating, just a laughably transparent, multi-faceted scam:

- It was sold as middle class tax cut. It is not.

- It will massively increase the deficit.

- It will cause the healthcare system to be even more dysfunctional.

All for no benefit, except to the 1-percenters.

It's certainly no better than what we already have, so what's the point?

I already answered my question.

Most "tax reform" is almost always a scam, from both sides. It's politician trying to redistribute wealth among the middle class, leaving the poor and extreme rich alone. It happens from both parties.

Submitted by harvey on December 6, 2017 - 11:11am.

flu wrote:
Most "tax reform" is almost always a scam, from both sides. It's politician trying to redistribute wealth among the middle class, leaving the poor and extreme rich alone. It happens from both parties.

Lol, of course you have no facts to support that claim. You just repeat it because it fits with your "poor me" narrative.

A simple glance at the policies and legislation from the two parties will show how ridiculous that claim is. The policy differences on the estate tax alone proves you completely wrong.

Submitted by FlyerInHi on December 6, 2017 - 11:38am.

harvey wrote:
flu wrote:
Most "tax reform" is almost always a scam, from both sides. It's politician trying to redistribute wealth among the middle class, leaving the poor and extreme rich alone. It happens from both parties.

Lol, of course you have no facts to support that claim. You just repeat it because it fits with your "poor me" narrative.

A simple glance at the policies and legislation from the two parties will show how ridiculous that claim is. The policy differences on the estate tax alone proves you completely wrong.

Not just the “poor me” narrative, but the “I’m ideologocally adrift” narrative. So everything, all parties, all policies are “the same.”

And for those parents and young people who value higher education, tuition waivers will be taxable income.
https://www.insidehighered.com/news/2017...

Submitted by scaredyclassic on December 6, 2017 - 12:15pm.

cant they just lower tuition to certain grad students to $1.00?

im pretty sure higher ed is smart enough to figure this shit out. theyve been scamming the gov 4 years, theyll work around it

Submitted by Coronita on December 6, 2017 - 12:35pm.

harvey wrote:
flu wrote:
Most "tax reform" is almost always a scam, from both sides. It's politician trying to redistribute wealth among the middle class, leaving the poor and extreme rich alone. It happens from both parties.

Lol, of course you have no facts to support that claim. You just repeat it because it fits with your "poor me" narrative.

A simple glance at the policies and legislation from the two parties will show how ridiculous that claim is. The policy differences on the estate tax alone proves you completely wrong.

Harvey. I'm not the one complaining about tax increases . I think many of you are, lol....
I am laughing my ass off because it finally hit home for the rest of you that thought it couldn't be you.

Personally, I don't think things are going that bad, considering the country is burning. Lol....

Still waiting for either party to deal with foreign income earned abroad by corporations and repatriation....oh wait...never happened....because...well, we know why.

But it's not like these tax increases are doom and gloom....you'll get use to it.

With that, bye bye. I'll bow out of the "my taxes are increasing because I need to subsidize Christian fundamentalists in the south" pity party that's going on here on a couple of threads....

Submitted by SK in CV on December 6, 2017 - 12:54pm.

flu wrote:

Most "tax reform" is almost always a scam, from both sides. It's politician trying to redistribute wealth among the middle class, leaving the poor and extreme rich alone. It happens from both parties.

In fairness, there hasn't been tax reform since 1986, and that was very real. It was a transformative change in taxation in the US. The Dems have not even proposed anything I recall that they've called tax reform in the last 30 years except that which only applied to corporate taxes. Dems have never left the very rich alone. Both sides don't do it. Tax rate changes aren't tax reform.

Submitted by harvey on December 6, 2017 - 2:01pm.

flu wrote:
Harvey. I'm not the one complaining about tax increases . I think many of you are, lol....
I am laughing my ass off because it finally hit home for the rest of you that thought it couldn't be you.

I'm commenting on bad policy, not complaining about my personal taxes.

I certainly never expected a tax cut from Trump.

You read everything as a personal "pity party" because you see the world from that perspective.

Nothing has "hit me" - I'm actually tremendously blessed. I'd like to see policy that gives others a chance for the same.

Submitted by FlyerInHi on December 6, 2017 - 3:55pm.

harvey wrote:
flu wrote:
Harvey. I'm not the one complaining about tax increases . I think many of you are, lol....
I am laughing my ass off because it finally hit home for the rest of you that thought it couldn't be you.

I'm commenting on bad policy, not complaining about my personal taxes.

I certainly never expected a tax cut from Trump.

You read everything as a personal "pity party" because you see the world from that perspective.

Nothing has "hit me" - I'm actually tremendously blessed. I'd like to see policy that gives others a chance for the same.

That's how I feel too. Win win through good policies.

Submitted by Hatfield on December 6, 2017 - 6:06pm.

NotCranky wrote:
you were talking about a second dwelling on your parcel , scaredy. You might want to look into how much mortgage and property tax you can take off the top of the rental income from a 2 on 1.

Can anyone lay out how that works? In my case it seems to be great, but I don't have much knowledge about how my accountant does it(justifies it with the IRS) .


I can address that point as we live in a 2 on 1. Our tax advisor recommended that we split by square footage of the living space. So I calculated the ratio of the square footage of the rental unit vs our home. That ratio is applied to property tax and mortgage interest. I have a big Excel sheet that figures all this out, but the percentage of interest and property tax related to the rental unit shows up on Schedule E, with the remaining residence portion going on Schedule A.

That square footage ratio was also applied to the "improvements" portion of the original tax assessment for the purposes of calculating the depreciation basis on the rental unit. I'm sure it'll be fun to unwind all that when it comes time to sell.

Submitted by CA renter on December 6, 2017 - 10:27pm.

flu wrote:
SK in CV wrote:
flu wrote:

I'm not so convinced all these tax increases, as annoying as they are, are really devastating.

I agree. Not devastating to any individuals, except in rare situations. Low income people can get hit with higher taxes. For those making $30K with 3 kids, losing $500 can be devastating. It could also be devastating to

The problem is not so much with itemized deduction changes. Outside sales people and W-2 truckers could get killed. I can think of a few others that will also.

A HUGE windfall for some wealthy and ALL uber-wealthy.

It could be devastating for what it portends, and what it holds for the economy down the line. It's pretty similar to the tax cut from the late 20's. Something bad happened after that.

Agreed. Which is why I sort of chuckle at the irony here. I have a feeling the ones that are going to get hit the most, some of them probably voted for Trump and wanted this without really knowing about it...
(BG where are you?.. Lololol)

I mean how many senators actually read the 500 page tax reform before voting on it....just like how many read the actual ACA before folks voted on it. Maybe one of these days Congress can actually start doing things not out of spite for the other party. Lol.

I think the only positive.to come out of this is everyone this time feels a certain level of annoyance and financial pain such that next time, we.are a little more careful asking for "tax reform" or taxing more... And by financial pain, I mean almost Everyone.

Carenter, you were wishing for a repeal of prop 31 and felt people should be taxed more on their propety.... Well...wish granted... everyone is now.... Even folks with primary homes. Your property tax deduction is now capped. Lol...be careful what you wish for...

The Prop 13 reform that I advocate for does the exact opposite of what this reform does -- I believe it should only apply to owner-occupied residences (with a similar effect for owner-occupied commercial/industrial properties), with "capital" paying market rates on rentals and second homes, etc. I want the working/middle classes to benefit from reform, and these Republican tax reform bills do the exact opposite -- massive windfalls for capital, and the middle class (what little is left of it) will take the hit for it...again.

It's crazy to see how people still hang on to trickle-down economic theory, even though it's proven to be a complete and utter failure at every turn. And, as some have already pointed out, the worst part is seeing very average working folks champion these bills. Idiocy at it's finest.

Submitted by scaredyclassic on December 7, 2017 - 8:32am.

scaredyclassic wrote:
cant they just lower tuition to certain grad students to $1.00?

im pretty sure higher ed is smart enough to figure this shit out. theyve been scamming the gov 4 years, theyll work around it

interesting analysis on this issue. gets complex...

https://academia.stackexchange.com/quest...

Submitted by FlyerInHi on December 7, 2017 - 11:58am.

scaredyclassic wrote:
scaredyclassic wrote:
cant they just lower tuition to certain grad students to $1.00?

im pretty sure higher ed is smart enough to figure this shit out. theyve been scamming the gov 4 years, theyll work around it

interesting analysis on this issue. gets complex...

https://academia.stackexchange.com/quest...

Very interesting. I think there are anti discrimination issues where all students groups have to be charged the same tuition. Also when students are funded by internal grants, those grants may be restricted to certain students or purpose by the donors.

Taxing free tuition would send many students to the poor house. I wonder about foreign students who get foreign and domestic grants to US universities. Wouldn’t that amount to US “income”.

The house bill also would tax employer paid tuition. Plus it would tax tuition waivers for college employees and family.

I guess Republicans believe college education is elitist and they want to discourage it, unless you’re rich enough to pay for it yourself.

Submitted by ltsddd on December 20, 2017 - 7:49pm.

Just made payments on the second installment.

Does anyone here know if by moving rental properties into separate LLCs could be a legal way to avoid the $10K prop tax deduction limit?

Submitted by SK in CV on December 20, 2017 - 9:48pm.

the 10K limit doesn't apply to business (which rental property qualifies), only those that are itemized deductions on schedule A.

Submitted by Coronita on December 20, 2017 - 10:49pm.

ltsdd wrote:
Just made payments on the second installment.

Does anyone here know if by moving rental properties into separate LLCs could be a legal way to avoid the $10K prop tax deduction limit?

Why? For rental properties, taxes and mortgages are fully deductible to offset income. Think of it as cost of doing business. Same thing as HOA fees, maintenance fees, cost of gardener if your lease includes one, etc.

Submitted by plm on December 21, 2017 - 8:47am.

Interest in loans should be an expense too, right? So I should get a loan on my rental and use that to pay off my mortgage on my house. This way I can write off the interest as a business expense as I will probably be taking the standard deduction next year. Also avoid the net investment 3.8% tax if I get a big enough loan to make rental just barely making money.

Is this legal?

Submitted by SK in CV on December 21, 2017 - 8:51am.

plm wrote:
Interest in loans should be an expense too, right? So I should get a loan on my rental and use that to pay off my mortgage on my house. This way I can write off the interest as a business expense as I will probably be taking the standard deduction next year. Also avoid the net investment 3.8% tax if I get a big enough loan to make rental just barely making money.

Is this legal?

If your rental doesn't have a mortgage, and you borrow against it, and use the money to pay off the mortgage on your principle residence, the answer is no. It's not deductible interest.

Submitted by ltsddd on December 21, 2017 - 9:44am.

SK - I have yet to be able to demonstrate that I spend >=750 hours/year managing the props. So it's been counted as passive income instead of a business. Am I missing something?

Flu - I hope you're right. The new tax "law", from what I have read, only mentioned the $10K cap. I interpreted that as a hard cap on how much you can deduct regardless of income or other expenses incurred wrt the rentals. For example, if the rental generates $15k in rents and the interest for the rental is also $15k, your taxable income will be $5k instead of $0 as it has been in the past.

Submitted by plm on December 21, 2017 - 10:21am.

SK in CV wrote:
plm wrote:
Interest in loans should be an expense too, right? So I should get a loan on my rental and use that to pay off my mortgage on my house. This way I can write off the interest as a business expense as I will probably be taking the standard deduction next year. Also avoid the net investment 3.8% tax if I get a big enough loan to make rental just barely making money.

Is this legal?

If your rental doesn't have a mortgage, and you borrow against it, and use the money to pay off the mortgage on your principle residence, the answer is no. It's not deductible interest.

Makes sense. I suppose if I get a mortgage and use that money to buy another rental then that is allowed. But then I would have to manage another rental.

Thanks

Submitted by Coronita on December 21, 2017 - 10:52am.

plm wrote:
SK in CV wrote:
plm wrote:
Interest in loans should be an expense too, right? So I should get a loan on my rental and use that to pay off my mortgage on my house. This way I can write off the interest as a business expense as I will probably be taking the standard deduction next year. Also avoid the net investment 3.8% tax if I get a big enough loan to make rental just barely making money.

Is this legal?

If your rental doesn't have a mortgage, and you borrow against it, and use the money to pay off the mortgage on your principle residence, the answer is no. It's not deductible interest.

Makes sense. I suppose if I get a mortgage and use that money to buy another rental then that is allowed. But then I would have to manage another rental.

Thanks

Yes, that's what I have been doing. Cash-out refinance loans, and use to buy another investment, the interest is deductible as an investment expense on the new investment. Or cash out refinance on one property to pay off the loan of an existing investment, that interest is also deductible as an investment expense on the property you are changing the loan on..It doesn't just apply to property. If you want to take a gamble and buy bitcoins, I believe you could in theory deduct the interest as an investment expense also....no different than margin interest you incur for stock investments (if that's also your things) is a deductible investment expense too against your investment... There are probably some caps or some floors, I don't remember the details..... The details are in Publication "550" from the IRS...

And yes I'm pretty certain the $10k cap on prop tax is on personal property tax, what you claim on Schedule A....Property tax for a rental property doesn't go on schedule A, it goes on Schedule E (or one of the forms associated to Schedule E, which I forget off the top of my head). completely different.

Submitted by plm on December 21, 2017 - 11:00am.

Didn't realize a rental was an investment instead of a business. In this case I should be able to cash out some of my stock gains and pay off my mortgage. Then I can also get a mortgage on my rental and buy stocks. Although lately my stocks have been going down while the market is up but that's another problem.

Submitted by Coronita on December 21, 2017 - 11:45am.

plm wrote:
Didn't realize a rental was an investment instead of a business. In this case I should be able to cash out some of my stock gains and pay off my mortgage. Then I can also get a mortgage on my rental and buy stocks. Although lately my stocks have been going down while the market is up but that's another problem.

I'm not sure I follow about cashing out stocks and paying off mortgage, only to turn around and borrow against the home to buy stocks again....If you do that...

1. You pay capital gains taxes on your stock sales.

2. You pay off a mortgage, and then take another mortgage out, you incur a new loan with most likely higher interest.

3. You run the risk that if you pick the wrong stocks or just invest at the wrong time in the stock market, you are now stuck with paying a mortgage to fund your stock losses.

4. If you now have rental issues (like lapse in tenants, or the general health of the rental markets goes down)....now that's coming out of your pockets.

5. Depending on how much the rest of your income, you might not be able to offset real estate losses against your W2/salaried income.

Basically, you're significantly increasing your financial risk, but I'm not seeing the potential of much greater financial reward beyond what you already have. Why take on increased risk, if the amount of reward does not significantly increase?

Submitted by plm on December 21, 2017 - 12:22pm.

flu wrote:
plm wrote:
Didn't realize a rental was an investment instead of a business. In this case I should be able to cash out some of my stock gains and pay off my mortgage. Then I can also get a mortgage on my rental and buy stocks. Although lately my stocks have been going down while the market is up but that's another problem.

I'm not sure I follow about cashing out stocks and paying off mortgage, only to turn around and borrow against the home to buy stocks again....If you do that...

1. You pay capital gains taxes on your stock sales.

2. You pay off a mortgage, and then take another mortgage out, you incur a new loan with most likely higher interest.

3. You run the risk that if you pick the wrong stocks or just invest at the wrong time in the stock market, you are now stuck with paying a mortgage to fund your stock losses.

4. If you now have rental issues (like lapse in tenants, or the general health of the rental markets goes down)....now that's coming out of your pockets.

5. Depending on how much the rest of your income, you might not be able to offset real estate losses against your W2/salaried income.

Basically, you're significantly increasing your financial risk, but I'm not seeing the potential of much greater financial reward beyond what you already have. Why take on increased risk, if the amount of reward does not significantly increase?

The difference is with the new loan it would be against my rental so I can deduct the interest. I would have to compare whether the difference in interest rate costs is less than the ability to deduct the interest.

Stocks I need to get out anyhow. Been letting my RSUs/ESPP grow for too long incurring large tax liabilites and the new tax plan should let me start selling off large chunks at the 15% capital gains rate each year. And because of the tax plan, I think other sectors will grow at the same or better than tech so it's about time for me to diversify.

I think financial risk will be reduced by being diversified. But financial risk will increase if my new loan is larger than my existing one.

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