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Your Retirement Income and The New Trump Tax Plan

As many of you know, Congress has passed a sweeping overhaul to the U.S. tax code just a few months ago, the largest change to the U.S. tax code in 30 years. The new rules do not change long-term capital gains tax rates themselves — for the 2018 tax year they’re 0%, 15% and 20%, the same as for 2017. But the thresholds have changed, as you can see below:

2018 Capital Gains Tax Rates

Long-term capital gains tax rate

Single

Married, filing jointly

Head of Household

Married, filing separately

 

0%

$0 to $38,600

$0 to $77,200

$0 to $51,700

$0 to $38,600

15%

$38,601 to $425,800

$77,201 to $479,000

$51,701 to $452,400

$38,601 to $239,500

20%

$425,801 or more

$479,001 or more

$452,401 or more

$239,501 or more


* Short-term capital gains are taxed as ordinary income.

Essentially, that means if you’re married and file jointly, and you can keep your income below $77,201 you will pay nothing in capital gains.

Real Estate Tax Benefits

Investment property owners will continue to be able to defer capital gain taxes using 1031 tax-deferred exchanges which have been in the tax code since 1921. No new restrictions on 1031 exchanges of real property were made in the new tax law. However, the new tax law repeals 1031 exchanges for all other types of property that are not real property. This means 1031 exchanges of personal property, collectibles, aircraft, franchise rights, rental cars, trucks, heavy equipment and machinery, etc. will no longer be permitted beginning in 2018.

Deductions and Interest

Investment property owners can continue to deduct net interest expense, but they must elect out of the new interest disallowance tax rules. In the past, you could just deduct the full amount of the interest from a mortgage or loan. The newly introduced interest limit of 30% of your earnings before interest and taxes (EBITDA) is effective in 2018 and applies to existing debt. However, real estate is one of the few exceptions in the new tax law, and you can opt out of these new limits. However, that will mean that you have to use the newer depreciation tables.

Property owners opting to use the real estate exception to the interest limit must depreciate real property under slightly longer recovery periods of 40 years (vs. 39.6 years before) for a nonresidential property, 30 years (vs. 27.5 years before) for a residential rental property. Keep in mind that longer depreciation schedules can have a negative impact on the return on investment (“ROI”) and property owners will need to take into account these longer depreciation schedules if they elect to use the new real estate exception to the interest limit. So, it can be complicated, and there are no hard and fast rules. You’d have to look at what your final savings would be under both methods, and then obviously choose the one that will cost you less.

So as you can see, these once in a generation Trump tax reforms that were signed into law in December have created many new challenges and opportunities. We know that each – the new Trump Tax Plan, and preserving and growing your wealth – are complex topics in themselves. To help people better understand the new opportunities that are available, we are hosting an all new professional panel discussion at Lockkeeper's in Valley View this May! This panel discussion is entitled “How to Help Preserve AND Grow Your Wealth Under the New Trump Tax Law,” and we’ll discuss these once in a generation challenges and opportunities. This panel discussion specifically designed for those with a portfolio of $500,000 or more. Our panel will feature 3 experts, with over 30 years combined experience in financial, tax, estate-planning, and insurance strategies. These fill up very quickly, so call or click here to sign up!

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