segs@mhuxv.UUCP (slusky) (05/29/85)
In several of the federal tax reform proposals I have heard lately, the deduction for state and local taxes would be eliminated. I presume that both state and local income taxes and state and local real estate or personal property taxes would fail as deductions under these proposals. Does anyone know for sure? Is it just income taxes or income and property taxes? Also, what would be the implications for evaluating the taxable income from rental property? Would real estate tax on rental property be allowed to offset rent receipts? It would seem that in such a case the real estate tax is a business expense just like repairing the roof would be. On the other hand, if they're eliminating state and local taxes as deductions across the board, logical arguments may not apply. Any information you've gleaned would be appreciated. Susan Slusky mhuxv!segs --
pagiven@drutx.UUCP (GivenP) (05/30/85)
- Susan Slusky questions how the real estate tax (and, by the way, perhaps mortgage interest?) deduction on rental property will work under the proposed tax system: >Also, what would be the implications for evaluating the taxable >income from rental property? Would real estate tax on rental >property be allowed to offset rent receipts? It would seem that >in such a case the real estate tax is a business expense just >like repairing the roof would be. I simply cannot see how it could be otherwise. Imagine businesses not being able to take these items as expenses offsetting gross income? Again, rationality need not prevail when the IRS gets into the act. But if taking such taxes (and mortgage interest if they ever disallow that sacred cow) as expenses were permitted to businesses, as logic dictates, then imagine this: Create a sub- chapter S corporation for real estate holdings and management. XYZ corp. then buys your home. You pay XYZ corp $1 per month rent. XYZ corp. shows a substantial loss for the year ($12 income, thousands in expenses). The loss is distributed to you to show on your personal income taxes. VOILA! taxes and interest become tax deductions. To be sure that XYZ corp. does not permanently incur loss, subsume this scheme (scam?) into an otherwise profitable com- pany. Since operating companies for purposes of generating loss is con- sidered to be fraudulent by the IRS, I am not advocating this arrangement. It is, as the physicists say, a thought experiment. ----------------------------------------------------------------- Paul Given {ihnp4, houxe, stcvax!ihnp4}!drutx!pagiven AT&T Information Systems Laboratories 11900 N. Pecos, Rm 1B04, Denver 80234 (303)-538-4058 -----------------------------------------------------------------
jpexg@mit-hermes.ARPA (John Purbrick) (05/31/85)
> I presume that both state and local income taxes and state > and local real estate or personal property taxes would fail > as deductions under these proposals. Does anyone know for > sure? Is it just income taxes or income and property taxes? All local taxes. > Would real estate tax on rental > property be allowed to offset rent receipts? It would seem that > in such a case the real estate tax is a business expense just > like repairing the roof would be. It seems to me that local taxes are a "cost of doing business" and ought to be deductible against a landlord's profit, but there are lots of things that "ought" to be legal and aren't. Repairing the roof is a business expense if it's to maintain a property's condition, but must be depreciated if you "prolong the property's life". Go figure it out.
grl@charm.UUCP (George Lake) (06/05/85)
Real estate taxes on a rental property will be allowed, as will depreciation. When considered with your other investment income, you can't loose more than $5k due to depreciation. All in all, I'm becoming enamored of the tax plan. Perhaps because I'm about to move to Seattle, where property taxes are low and income tax is zilch. This up front, I do think that local taxes are payments for services. In my town, they include garbage collection. One town over, they have a seperate bill. Why should I get to deduct garbage collection? Taking away the local tax deduction will put some pressure on local governments to improve and streamline services.
ems@amdahl.UUCP (ems) (06/07/85)
> Real estate taxes on a rental property will be allowed, as > will depreciation. When considered with your other investment > income, you can't loose more than $5k due to depreciation. > Great. So once again the wage slave gets stiffed. So who is going to have all this investment income that can be offset by depreciation? Why, the well to do investor. And who will have wage income that can't be offset? Why the grubby little wage slave trying to use the tools of the rich to hang onto some of his money. Why, we can't have that, now can we. Maybe I shouldn't be so negative, I havn't actually seen a complete review of the effects of the 'tax reform'. But what I have seen tend to indicate that it is just one more package to benefit the already rich. -- E. Michael Smith ...!{hplabs,ihnp4,amd,nsc}!amdahl!ems This is the obligatory disclaimer of everything. (Including but not limited to: typos, spelling, diction, logic, and nuclear war)
mcb@styx.UUCP (Michael C. Berch) (06/10/85)
> > Real estate taxes on a rental property will be allowed, as > > will depreciation. When considered with your other investment > > income, you can't loose more than $5k due to depreciation. > > Great. So once again the wage slave gets stiffed. So who > is going to have all this investment income that can be > offset by depreciation? Why, the well to do investor. And > who will have wage income that can't be offset? Why the > grubby little wage slave trying to use the tools of the > rich to hang onto some of his money. Why, we can't have > that, now can we. Property taxes and depreciation on a rental property are deductible because they are EXPENSES incurred in an attempt to make money. Owning rental property is a business like any other business. You receive income and you pay expenses -- the difference is the profit upon which you are taxed. People don't realize the fundamental difference between deductions for business expenses and personal (Schedule A) deductions. Tax credits and Schedule A deductions are permitted because the government wishes to encourage certain behavior and give breaks to certain classes of people (e.g., victims of casualty or high medical expenses). Business (Schedule C) and rental/royalty property deductions are used simply to be able to calculate the profit of the business which is to be taxed. The limitation on depreciation expense is due to the way that depreciation deductions can be used to "leverage" tax losses on real estate investments, which is considered by some to be inequitable. It's true that a "wage slave" who owns no income-producing assets does not benefit from the business deductibility of such things as property taxes; on the other hand, he doesn't have to pay them, either, nor take the risk that his investment will not take in enough income to be profitable. Michael C. Berch mcb@lll-tis-b.ARPA {akgua,allegra,cbosgd,decwrl,dual,ihnp4,sun}!idi!styx!mcb
ems@amdahl.UUCP (ems) (06/15/85)
> > > Real estate taxes on a rental property will be allowed, as > > > will depreciation. When considered with your other investment > > > income, you can't loose more than $5k due to depreciation. > > > > Great. So once again the wage slave gets stiffed. So who > > is going to have all this investment income that can be > > offset by depreciation? Why, the well to do investor. And > > who will have wage income that can't be offset? Why the > > grubby little wage slave trying to use the tools of the > > rich to hang onto some of his money. Why, we can't have > > that, now can we. > > Property taxes and depreciation on a rental property are > deductible because they are EXPENSES incurred in an attempt to > make money. Owning rental property is a business like any other > business. You receive income and you pay expenses -- the difference > is the profit upon which you are taxed. > > People don't realize the fundamental difference between > deductions for business expenses and personal (Schedule A) > deductions. ... long discussion of nature of deductions for business vs personal use as they stand today ... > Michael C. Berch I believe that the original posting was in the context of the proposed *changes* to the tax law; and that they were to limit the *business* deduction of depreciation to $5k more than offsetting investment income. The point being made was that offsetting investment income will only exist among the rich. The wage earner will be unable to use depreciation in excess of $5k to shelter his income, while the rich, whose income comes from investments, will be able to shelter income with depreciation. If I have misunderstood the original posting, please post a clarification. -- E. Michael Smith ...!{hplabs,ihnp4,amd,nsc}!amdahl!ems This is the obligatory disclaimer of everything. (Including but not limited to: typos, spelling, diction, logic, and nuclear war)