AIPIS 215 - What the GOP Tax Reform Means For You and Your Properties with Ryan Schellhous

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It's my pleasure to welcome Ryan Schellhouse. He is the founder and principal of Indigo Spire CPAs and advisors and he's here to talk to us about a very, very important topic that affects everybody in the US Very directly, but also all of you around the world. Of course, we have listeners in 165 countries worldwide and this will trickle throughout the entire planet what we're about to talk about. And that is the first real tax reform we've had in about three decades. This is extremely significant. I think it's very good for most people listening. You're going to benefit by this, this. I think everybody ultimately will probably benefit through the trickle up, down and all around effect. But let's see what Ryan Sundays. He's a CPAs and he knows his stuff. Ryan, welcome. How are you?

Great, Jason, thanks. Thanks for having me on.

It's good to have you on.

This is good stuff.

This is a big, big deal, folks. Everybody's got to realize the single largest expense in any of our lives are taxes. So we've got to be good at this. We cannot be bored by taxes. We cannot lay it off on somebody else. We have got to have some degree of knowledge. Of course we want to get experts like Ryan on board to help us prepare our tax returns, but we've got to have some level of our own knowledge to bring to the table. Ryan, give our listeners a sense of geography. Where are you located?

I'm in San Jose, California. Firm's been here for about three years now. A little bit about me. I spent my most of my career at Ernst Young and Deloitte and Touche as a, as a tax guy. So been my pleasure to kind of strike out on my own a little bit. And our firm here has got a bunch of people helping out and working for us. We primarily do tax and tax advisory, but we also have a small audit practice, some advisory, kind of the traditional CPA services that you'd come to expect.

Fantastic. Well, when I was introduced to you through a mutual friend a few well, several months ago now. I was just always very impressed with your level of knowledge. And of course you've got that big firm background, so that's great too. But you know, without the big firm invoices and bureaucracy.

So I'm working on that part. I'm working on the invoice.

You try to get those invoices and bureaucracy up, right? Yeah, exactly. Yeah, that's, that's what happens ultimately with everything. But hey, Ryan, can we sort of take a high level view and then we'll kind of go down the funnel, if you will, on the GOP or formerly Trump Tax Reform act, what are sort of some of the big nuggets that we want to know about and then we'll drill down.

Yeah, absolutely, Jason. And I think that's a great approach to kind of help get our minds around this. Like you said, this is the biggest reform in over 30 years, since 1986. It's the biggest changes to the tax code in terms of complexity. The bill itself coming out of conference was over 1100 pages. And in terms of money, this is the biggest bill that we've perhaps ever had in terms of tax from a high level perspective, there's the way I like to think about it is how did these things get rated in terms of revenue either up or down? Did these things cost the government or did these things raising money? And when you look at that from that perspective, the biggest items are, and principally what's been celebrated on the floor of Congress is the lowering of the corporate tax rate from 35% for most companies down to 21%. Now this achieved a couple of different aims, right? It was a goal of the GOP to get it to there. But maybe more importantly and kind of the big picture is it puts us more in line with all of our trading partners. This is a corporate tax rate that for a long time we kind of stood out as being much, much higher taxed to corporations than almost any other country in the world. And this kind of puts us in line with.

It was just an incentive for these companies to go offshore and do all kinds of crazy things. There are a couple of documentaries on this. I watched one of them. I think the technique that Apple and Google use to evade essentially taxes or avoid them maybe is the better word, is the right, the double Irish twist or something like that. You know, where they set up this entity in Ireland and Microsoft does it too. They license the software and the pre intellectual price. Just a big, big bunch of crap. And you know, this will make it so we're not penalizing these companies to keep more of this money onshore. So are we going to see a repatriation of wealth back to the us?

Well, yeah, and perhaps some of the most complex parts of this new bill deal with international taxation. So aside from the lowering of the rate, we're moving to a territorial income system for corporations. What that really means is that under old rules, companies could be taxed on their income wherever they earned it, and all their subsidiaries would be subject to U.S. tax. And generally we would defer that tax until that money was brought back to the us. We'd create these structures and you know, this is what I did at Ernst and Young. I'm guilty as charged. Right. We used to set these structures up and we had kind of a playbook of places and strategies we use, whether it was Ireland, Netherlands, the UK became in vogue kind of towards the end with some of their tax reform. Whole idea is that we would transfer certain types of intellectual property from big US companies to these low tax or no tax jurisdictions. Then they would exploit that IP outside the US and earn a ton of money. So famously, and it's even mentioned in the conference report of this bill, Apple has some more close to $250 billion sitting offshore and all these entities in cash because it can't bring that money back to the US without incurring tax and maybe even more importantly accruing the tax for their financial statements. So this bill also provides a transition period whereby Apple and all the other companies that have money stashed offshore are going to pay a one time tax of between 15 and a half and 8% of their stashed earnings. Once they pay that tax, which is payable over eight years, they're free to bring that money back to the US completely tax free. So Apple for example, with their 250 billion, they pay $20 billion, which is a huge bill, but now they've got 230 billion that they can bring back to the US and do whatever they want with.

Wow. If that doesn't trickle through the economy, I can't imagine it can do anything else. You know, I heard this one commentator, you know, a CEO, and I didn't catch the name because I came into the interview partway in, but you know, I was listening to CNN in the car. He was talking about how, I mean, he was obviously a liberal, so he didn't know what he was talking about. A little sarcasm there folks, but not really.

You know, he was saying, well, all this is gonna do is make the rich richer. It's just a tax cut for the rich, et cetera. We don't really need to hire any more people. So with all the money we save, I think, you know, it's not gonna help the economy. He says, I'm just gonna go out and buy more real estate and stocks. And I'm thinking, what a moron. I mean, he thinks that doesn't help the economy. That doesn't trickle through. I mean, every time I buy a property, I look at how much more money I'm spending. You know, I'm hiring people to improve it, to fix it up. You know, the painters, the flooring people. I mean, trickle down economics, man. How do you, how do you not understand that? And, and this is not a poor person. This is a wealthy CEO who actually thinks this way. I just couldn't believe it. So lower taxes will trickle through. You know, it'll cause more investment. Investment is capital formation. Capital formation creates employment. It creates wealth. You know, this is how the thing, this is how it works, folks. No, it's, it's good, right?

And I think the Wall Street Journal, they've. One of the key aspects of this tax reform bill that we haven't even touched on yet is how quickly it came together. I was literally in a conference maybe six weeks ago, outlining to the participants at that conference that, yeah, tax reform, something everybody talks about but never can get done.

Right?

Well, they got it done, pulled together these tough decisions and then. And honestly, it all kind of started when Senator McCain walked into the vote for Obamacare repeal, put his thumb down and handed the GOP a defeat on Obamacare repeal. And that just mobilized the forces and that, that's how we ended up with the tax bill we did today, I think. Yeah, there was so much political pressure to deliver a signature win by the end of 20 2017. This is where we're at.

Yeah, they, they did their work around. They did it through tax policy rather than through the Affordable Care act or otherwise known as Obamacare. That has been obviously.

Yeah, we'll talk about that as one of the provisions in there.

Yeah, okay, good. We'll talk about that. Now why don't you talk about the, the mandate requirement? I guess it's been lifted. Right.

So one of the principal aspects of Obamacare was required everyone to get insured either through an employer or through the individual exchanges or through Medicaid. And what this bill does, interestingly, it's not even one of the highest scoring revenue losers to the bill. The penalty for not purchasing insurance now is statutorily Set to zero. So like you said, it's using tax policy to repeal certain parts of Obamacare. Now, if you do not go get insurance like you're supposed to, under Obamacare, you still have a penalty. It's still calculated on your tax returns. The penalty will never be more than zero.

I love it. That's awesome. It's like getting a traffic ticket from one of those unconstitutional speeding cameras or red light cameras, right? You get your ticket in the mail and instead of saying, you know, yo, 300 bucks, it says, yo, zero. You got a ticket, but you don't owe us anything. That said, all intents and practices is nothing. Okay, good. Let's get back to the big chunks. I'll shut up about my political views because I'm getting some hate mail. I can tell people are already writing it. So go ahead.

Again, the biggest one was lowering the corporate tax rate to 21%. The next biggest one right after that was there was a substantial widening of tax brackets and lowering of rates for individuals. So the top rate used to be 39.4%. Now that the top rate's 37% and that trickles all the way through the rate tables, both for single people, heads of household, married, finally jointly, all the rates are down and all the brackets are wider. So you have to earn a lot more money in order to move up into the next tax bracket. Now, that was a big one.

So that's a tax cut. That right there is a tax cut for everybody or only most people?

Everybody. So there are certain tax brackets that overlap a little bit from the old law. So you may not necessarily see a tax rate decrease at your exact level of income, but it's $1.2 trillion worth tax cuts just scored within this rate table expansion and rate decrease. So it's a tax cut across the board for almost everybody in terms of rate. Okay, now obviously there's two parts to taxes. One is the rate and the other is the base upon which that rate is applied. And almost all these other provisions we're going to be talking about the base, either it's broadening the base by eliminating deductions, or it's narrowing the base by including other things that can be deducted from your income before those rates, which are now across the board lower, are applied.

Okay, go ahead just a little bit.

For your real estate investors out there who may be using their self directed IRA and incurring ubit, we'll talk a little bit about that.

Now, further down the road is is what's that stand for again? You know, like unrelated business income tax. Yeah, right.

Yeah, yeah. And I don't necessarily want to get into all the details about what UBIT is on this interview, but for those who are subject to ubit, they know who they are. The rates that are applied on unrelated business income are now just slightly lower as well. So even those guys are winning a little bit.

All right, good.

Perhaps most famous, as it relates to the. For individual taxpayers, what we used to do is you would go through and you'd calculate all your items of income and then you take certain above the line deductions and then you apply either the standard deduction or your itemized deductions, whichever one was higher. Okay. So one of the things that is in this bill is the increase of the standard deduction. So more people will just use the standard deduction and will no longer be incentivized to itemize their deductions.

So that's a simplification, right?

You could call it a simplification. There are some underlying policy things. Right. If you, some people may not be quite as incentivized to donate to charity, for example, because they're still in the standard, this higher standard deduction. So they wouldn't actually see a tax benefit from a contribution to charity or something like that. But yeah, it's a simplification. And there will be a lot more people who can file these simpler 1040 forms now because they are not necessarily going to be itemizing their deductions on Schedule A.

Okay. Now, one of the promises that I think got ratcheted out in the political infighting and lobbying is the idea that you could file your taxes on a postcard. That's not going to happen, right?

No.

Okay. But, but it was a goal and we, we did move in that direction. Right. Granted, you're going to make a lot of money and people in your business are going to make a lot of money because we've got a new thing, you know, that's the first new big thing in three decades. So, you know, you're going to be explaining it, adjusting strategies for people, et cetera, et cetera. But overall, this is a simplification, isn't it?

For some people, for a lot of individuals, it may be a simplification. There just be a little less paperwork they've got to keep track of. On the international side, it's more complex times four of what it used to be.

If someone's got stuff going on overseas, you mean.

Right, yeah. Right. So for like the apples and Facebooks that I'm sure no one is feeling that.

Who cares? Hey, listen, Apple, Apple, the company I used to love and trust, Trust. I'm now really mad at them. They're throttling back everybody's old phone. Real scam scandal finally broke. I'm glad they got nailed. Okay, so I hope to see some litigation on that one. Class action law.

Yeah, I'm holding one of those, I'm holding one of those right now.

Those throttled back phone.

I wonder why it started going so much slower.

As soon as the upgrade comes out they just kill everybody's old phone. It's what a disgusting, disgusting shame on Apple. But you know, no one listening is an Apple executive that's working in their tax department. Right. So you know, nobody cares about that. Very few people listening will have international affairs that they need to worry about. Most people are strict. Their tax life is simple.

Yeah. Yes. Skip a lot of that stuff. Nobody needs to know the new definition of globally low taxed intangible. I don't think that's interesting for anyone.

Okay, we'll see if listening right now.

Maybe some of the more interesting things is so kind of like I'd mentioned before, you start with income and then you get rid of your above the line deductions. Then you take a standard deduction or an itemized deduction. Then you used to take a personal exemption amount for the number of people in your household. That personal exemption amount is gone. And that's actually the largest revenue raiser in the whole bill is the elimination of this personal exemption amount and it's being replaced by this higher standard deduction as well as for the people that that exemption amount was benefiting or people had a lot of people in their household most of the time that that means you had several children that offset that revenue increase is being offset by an enhanced child tax credit. So for those with kids under the age of 18, your child tax credit is going from 1,000 to $2,000 and that's a credit instead of a deduction. Again, a credit is better than a deduction because it reduces your tax dollar for dollar. And maybe more importantly for a lot of the people that might be listening, the phase out income level is moving up. So a lot more people will have a chance to take the child tax credit. And that's part of the reason they introduced that into the bill was to kind of offset the problems or the increase of tax that comes about by having no more personal exemptions.

Okay, so is this an encouragement to have kids? Then it's a better deal. Right.

In some Respects. Yeah, in some respects.

Okay, go ahead. What else?

A few more things on the individual side. Then we'll kind of shift to some more of the headlines of the bill. You know, famously, the mortgage interest deduction remains, but the amount of interest you can take is capped to $750,000 of acquisition debt.

Down from a million?

Yeah, down from a million.

Okay.

There'd been a lot of haggling over that, and so that's kind of where they landed. It's important to note this is for new debt. Anybody who had, you know, a million dollar loan before and was paying. Oh, they're grandfather expense deductions. Those are grandfathers. And even refis of grandfathered acquisition debt, as long as the new refinanced amount is not more than the amount you owed on your old mortgage, that those are grandfathered as well.

Right, right. Okay. So purchase money or refi. So long as it's not above what original acquisition cost. Right. And so, yeah, anyway, whatever. It doesn't even matter because your grandfather. It's just the old law. But this is going to have. Now this is going to have an interesting effect. I believe, Ryan, that overall this tax reform act is going to be massively good for the economy. I think it's a huge stimulus. Okay. Overall. But you know, okay, so say you're winning and life's going to be better, you're going to be more prosperous under this and the whole economy will. But if you're going to go out, buy a $1.5 million house and live in it and have a $1 million mortgage, you're gonna be a little less motivated to do that. Now, I did some math on this and you know, feel free to jump in on this. I was doing it this morning, talked about it on another episode, just briefly, but basically a payment on a $250,000 mortgage at 4.5%, I think I did it, is about 1270 bucks a month.

Month.

And so we'll assume that maybe $1,100 of that is interest in the beginning of the loan. Right. Amortized loan. That's the deduction. You would lose that delta, that $250,000. So this could put some dampening downward pressure on the high end market. Right?

I would expect so, yeah.

Okay.

This is noted as a revenue raiser in the bill. So obviously the CBO guys, the Congressional Budget Office guys, they anticipate it to have an effect as well.

Yeah. Interesting. Okay, folks, go rent your high end home just like I've always told you to do, and then Buy a bunch of lower priced rental properties you rent to other people. Go ahead, Ryan, what else?

Right. There's a limit on deductibility of taxes paid. This one's gonna hurt for a lot of folks.

It's gonna hurt the items in the expensive places. Yep.

Yeah. So your state income tax, property taxes, all taxes together, some together is capped at $10,000. Wow. That's going to hurt some folks.

If you're in New York or California or Boston or New Jersey, you're going to get. That's going to hurt.

Yeah, that is going to hurt some smaller bits that may be of interest to some folks. There's a repeal of all the miscellaneous deductions that used to be in there kind of towards the bottom of Schedule A. And I know that's just tax geek language, but there were a number of deductions such as union dues, tax prep fees, hobby losses, loss on IRAs, stuff like that that we're all subject to 2% for. Those are all. Those are all taken out.

Okay, good.

One of the things that people were excited about, about some of the drafts of the bill is the repeal of the Individual Alternative Minimum Tax, the amt. Yeah. AMT is back and is going to stick around. However, and this is a huge revenue loser in the bill. The exemption amount is much higher than it used to be. So fewer people are going to inadvertently just bump into the amt. And something that the GOP has been trying to do forever with AMT is get this exemption amount scaled with inflation. So fewer people are going to accidentally look up at their tax return at the end in April and be like, let's add back here in amt. That's going to happen to fewer people.

Okay, so that's good news. Right, because fewer people will have to pay Alternative Minimum Tax or amt. Right.

It's not as good as what was initially sold.

Right.

To the American public, but it's not too bad.

Okay.

One of the signature pieces of this legislation people are going to have to bear with me because there's a little bit of detail here, is a special 20% deduction for all flow through income. Okay. Now there's going to be some exceptions to this and I'll kind of get into it here in a minute, Jason. But the idea is since the corporate rate is coming down to 21%, a majority of American small businesses are operated as pass throughs and therefore wouldn't benefit at all from this reduction in the corporate rate. So what Congress decided to do was enact this 20% deduction for flow through income. So for the tax geeks out there like me, this is the box one. On the K1s ordinary business income, you get a 20% deduction of whatever that amount is that flows straight into your tax return. It's a below the line deduction. So it's kind of taken into account right before the calculation of taxable income. I mean, this is a huge piece of the legislation. A couple key caveats here. This amount of qualified business income that gets this 20% deduction, everybody gets it up to $315,000 of total taxable income for a married person, or half of that for a single person, 157,500. Okay, so if all you do is have an S corporation or a partnership and you earn $315,000 as a married person through that partnership, as ordinary business taxable income, you get a 20% deduction and that's the end of it. It acts funny as we move above that threshold amount of 315,000 for married people and 157,000 for single people. It acts funny in two ways. That deduction goes away very quickly. And hang, hang with me here that companies that are in the performance of services in the fields of health law, accounting, consulting, financial services, brokerage services, any other business where the principal asset is the reputation or skill of the employees or owners.

Oh my gosh, that is a, that is a tricky. I can imagine all kinds of arguments on this one. And in tax court. Wow.

Oh yeah. That's where this is headed. So if you are one of those businesses that I just described and your pass through company as a married person causes you to have more than $415,000, that, that 20% deduction is all gone. Okay, so between 315 and 415 it phases. But once you go above 415, the deduction, if you're in one of those businesses operating as a pass through, it's all gone. So lawyers and accountants, doctors, they're going to have issues using this deduction the way they think they might get it.

Okay, so let me, I might be mixing up two things here, so forgive me if I am, but one of the things that people are very excited about is the reduction in the corporate tax rate from 35% to 21%. That's huge, right? Hugely significant, correct?

Yes, absolutely.

The next part of that is, is that if you have an S Corp, which is a flow through entity or an LLC treated as an S Corp, and you use the example of a partnership, I'm not too knowledgeable about partnerships because I don't do those. Maybe I have in the past, but can't think of it with this. What if you have the small business owner who has an S Corp or an llc, or the real estate investor who owns a property or several properties inside an LLC with maybe an S Corp election. I don't know if that matters or not. I think it does. How are they going to be taxed? Is this good for them or bad for them?

Great question. So it depends. First of all, let me start by saying the individual tax rates are lower. So even without this provision, if you have a profitable business, you're going to save money. What this provision does is tries to get the people that operate an S Corp, any entity that's even treated as an S Corp or an LLC that doesn't have an S Corp election schedule C businesses. This also applies. What it does is if you had, for example, after all the, all the income and all the deductions, your real estate portfolio in an LLC made 100 grand and all of your other income doesn't push you over this $315,000 limit. That 100 grand only comes onto your tax return as 80 grand. And then you apply the appropriate tax rate.

Okay, so that's.

Yeah, it's good. Yeah, it's good. What we're going to see a lot of, just like you said, is, you know, people that are doctors, lawyers, accountants, athletes, consultants, brokers, they're going to have a problem using this deduction at the higher income levels.

So in other words, it may not be great for me for my real estate business. Right?

That's right. Depending on your total taxable income at the end of the day, you may not see a benefit from this provision. The other kind of quirky thing that happens at this same income level, the 315, is if it's not one of those businesses, then you have a different limitation that kicks in based on, and I won't get into the actual formula, but based on wages that your company pays and assets that that company has. What they're trying to do here because they anticipated guys like us sitting around thinking, well, how can we avail ourselves of this? They were worried about the doctor who makes way more than 315. So ordinarily wouldn't be able to use this hive off part of his medical practice that's maybe related to, you know, maybe puts all of his equipment into a different company. That equipment is leased back to his practice that isn't available to use this particular deduction. So there's limitations on this that they're trying to prevent people from working around it. Moral of the story, Jason, is that if you make less than $315,000 as a small business owner in one of these pass through companies, you're going to see a benefit above that. If you're in one of these personal services fields or in a company that doesn't pay a lot of wages or doesn't have a lot of assets, then you're going to see limitations.

Yeah, they're always trying to engineer things through the tax code. You know, this is. It totally affects people's behavior, at least smart people's behavior. You know, if you're paying attention, it better affect your behavior because you want to align your interest with working through the loopholes and getting the best deal out of it. So no one can deny that, you know, it affects people's behavior. Any other big chunks?

There are a couple more big chunks though. This won't be super applicable to the people you see here. But just for you know, everyone's knowledge, interest expense is being limited to 30% of EBITDA earnings before interest taxes, depreciation, amortization for companies that have more than 25 million in revenue, with the exception of real estate companies. So it's meant to prevent companies from being over levered.

Is that discouraging a lot of debt in your company? Is that what that's doing?

That's right.

Yeah. Okay.

That's right. For larger companies, 25 million and above.

Yeah.

Got it in top line revenue. What are some of the other good ones here? So one of the things that people always love is to talk about depreciation. So we're back into a world. We had this for a few years and then it went away for a few years. But we're back into the world where qualified tangible property that you use in your business can now be written off 100%. So as soon as you buy it, you can write off the entire value, that particular piece of property. Lots of exceptions, lots of things that you got to work through. The key part, all the times in the past, Jason, that we've had that what we call bonus depreciation, it's always had to be brand new equipment. What's really awesome about this particular part of the tax bill is that does not have to be brand new. What this means for a lot of folks that might be listening is run, don't walk to when you buy a piece of property now you definitely should be taking a look and see. I know, I just paid $120,000 for the single family home. I got a lot of assets that are bundled together that I bought for $120,000. And if you have a CPA or other qualified person divvy out for you that 120,000 into the different buckets of.

Assets that you actually got for cost segregation.

Right, cost segregation, exactly. But why that matters now more than ever before is because this provision here allows you to fully write off property, even if it's not new. So when you do cost seg before, you know, there was kind of a fun little benefit because some of the stuff would depreciate at five years or seven years.

Yeah, right. Or 15 years.

Right. A little faster than the house. But now any of that five, seven and 15 year property, we get to fully deduct the day we buy it.

Okay, so I've got good news for everybody listening. I just did a show with a company that is now doing cost segregation studies on single family homes. In the past, this was mostly reserved for, you know, larger commercial properties, apartments, etc. Because, I mean, you could always do it with your single family homes or your small duplex, fourplex things, but it, you know, it kind of didn't make. It sort of wasn't worth the hassle, if you will. Right. And the expense of going through the, the cost seg study. But this company does it for a much lower price because they have an. I mean, I'll let him speak, but I can listen to that on another episode. I just did the interview a few days ago, but basically it's an IRS approved computer model that does it. So they can do the cost seg study really inexpensively and you can get the accelerated depreciation on the various pieces of that, the components of that property that can depreciate at a faster rate. But here's my question, and this is what everybody's asking. And Ryan, I have a feeling you're going to be the Grinch on this one. Well, you're just the messenger. But I have a feeling, I have a feeling you're going to tell us there's nothing in it for people who own properties currently like the properties they already own. Do they get to take advantage of this or is it only on new purchases?

I'm going to be a semi grant. So the way the bill is worded, first of all, before I get to answer that question, there's going to be a lot of technology out there that's going to help with cost seg. I mean, stuff we're looking into for our firm as well. You know, just a very cost effective way to only do single family homes with, you know, the IRS's blessing. Because I think this is going to be huge for some people. To answer your question, Jason, is that it's any property placed in service. That's the key. Placed in service after September 27th of this past year, 2017.

Okay, so if you bought it and turned it into a rental property after September 27th. Seriously, that specific?

Yes, yeah, it is that specific. There must have been something that happened that day, some. Some type of announcement or something. But yeah, September 27, 2017. So if you made a purchase of a property in the fourth quarter of 2017, you're in luck. Merry Christmas.

But. But if you bought it three years ago, you don't get this.

Yeah, that's correct.

Bummer. Okay, well, now you got to do 1031 exchanges on all your properties and then buy new ones. So there you go. That'll be good for my business.

What about 1031 exchanges? Anything there? Well, yeah, you can't do it. I know what you're going to say. You can't do it on cattle anymore. Right?

It's limited only to real estate.

That's fine, I think.

And this is actually a revenue raiser. So Congress noticed that it was being used in ways that aren't appreciating. So now it's 1031 is limited to real estate only.

Right. Okay. Yeah, well, that's, that's fine with us. Okay. What else should we know?

A couple other things is we're kind of get down to the. Some of the smaller items here. The Section 179 deduction is expanded so you can write off more property. Now, that's not as helpful in light of the accelerated bonus depreciation I just spoke of. But there are some properties that can be expense under 179 that maybe wouldn't have qualified for bonus. So that, that's good.

Okay, well, nobody necessarily knows what 179 is, so you got to explain that.

Oh, I'm sorry. That's what everyone used to use for accelerated depreciation before we had this thing called bonus depreciation. So section 179 depreciation basically allows you to expense the entire purchase of certain types of property, typically tangible property that you use in your business, if you're a small business. Kind of moving down the list here. So entertainment is no longer deductible. So entertainment used to be lumped with meals. And because Congress figured that everybody was abusing that. Anyway, they just said if you've got meals, entertainment expenses in your business, it's only 50% deductible for what you actually paid for it. Now they're taking entertainment out. So if you were counting on your lawyer or accountant taking you to a, you know, out to a basketball game or something. Not anymore. This Christmas vacation, I'd try and get that done before the end of the year because. Yeah, they may be less interested in doing it after that.

Right, right. Wow. That's, that's sort of a big one, you know, that's going to affect people that sell tickets to high end events and season ticket holders and all that kind of stuff, isn't it? Because the deductibility is going away on that stuff. Huh?

I think that is going to be one of the implications here.

That's sort of a big deal actually. You know, that's going to affect a lot of things. It's not meals though, it's just entertainment. Is that what you said?

Just entertainment? That's right.

Okay, so you can feed your clients and your, your vendors can feed you and take a deduction, but it's only 50% I assume, right?

Yes. It's still only 50%. Right.

But if they want to, if they want to take you to the ball game or the concert, that's not going to be deductible, huh?

That's correct.

That's correct. No. Okay, that's significant.

Maybe this is just interesting to, you know, a very limited number of people. There's an expansion of the rules of the people that can use simplified accounting methods. So for some people, your business got so big you had to use the accrual method, which just added a lot of complexity at tax time. So the number of people that can continue to use the cash method is going to go way up based on those limits. A couple other smaller things here that it got rid of the tax deduction for most commuting fringe benefits. So if maybe part of your commute or parking was being subsidized by your employer, that's going to be no longer deductible to them. The corporate amt, they got rid of that. It's probably not ultimately super applicable here. Moving the moving deduction and moving reimbursements, those are both gone from the tax code.

Whoa, that's a cut. That's kind of a big deal. I mean, I can't tell you when I was a traditional real estate agent how many times I worked with relocation companies. And if you want to move an employee or you are an employee and your company wants to move you from, you know, Seattle to Dallas or whatever, that deduction is gone for that expensive move.

No. So the, the company will still be able to deduct what they paid to move you out there.

Okay.

You, as the employee will have to include it as income. Now, used to be that company got to deduct it and you got to exclude it. So it kind of is the best of both worlds. So now the company will get to deduct that moving expense that they paid on your behalf.

Like they're going to.

Employee will have to pick it up.

Wow. Okay. That's kind of, that's kind of significant. Yeah. Okay.

One of the things that, although it's a very small revenue raiser in the bill that was politically charged is the carried interest.

Yes, yes. The hedge funds. Yes. Talk about the hedge fund. The hedge fund guys. Yeah.

But what I think we'll actually start to see that kind of the trickle effect or the unintended consequences that, you know, for syndicators of real estate deals and stuff like that, that maybe had something similar to carried interest in the LLCs that they were putting together, they're going to have these same restrictions, which is really that they can't treat the gains coming from their interest in the hedge fund or real estate fund as being long term capital gains until they've held that interest for three years instead of just the one year.

Well, that didn't, that didn't happen though. They didn't change it or it's this.

No, no, they did.

So basically the effect there, which is interesting, is it sounds like it's encouraging hedge funds to hold assets longer. Is that true? Did I get that right?

Right. Or just not allow them to get long term capital gains for something that they only held for a year.

Right. So it's discouraging.

Either hold it for a little while.

Longer, it's discouraging one year trades, essentially.

Right?

Yeah. Okay.

The one year and one day trade within a hedge fund that if they do it within one year and one day, all of the investors, they get long term capital gains treatment, just not the managers who have their carried interest. Under old law, alimony used to be deductible. The spouse that paid alimony got a deduction and the receiving spouse had to include that in income. Now the law flips that so that alimony and other spousal maintenance payments are non deductible to the payor, but they're also not includable for the person receiving it. So it is much better for the person that's receiving the spousal payments than under old law.

Yep, got it.

Okay, let me just throw one more thing in here for 529 plans. Those are the education plans that are on a tax deferred basis. Now you can take up to $10,000 out of your 529 for private school. So that that's kind of a big deal for some people in certain areas that you'll be able to pay for private school with tax deferred money. But there's a couple other things in here and if your listeners are interested that encourage them to contact their cpa. Just before we wrap up, Jason, let me just kind of run through some things that people thought might have changed, but in the end did not change. Just so we kind of COVID those off. So there's still a big tax credit for electric vehicles. All the existing credits and deductions for higher education remain the same. Student loan interest remains deductible. Educator expenses, those were on the chopping block, but they remain deductible in the bill. Some people were talking about changing the requirements to have your home gain excluded from income. That which would have made it harder for you to claim an exclusion of income from the gain on the sale of your primary home did not make it into the bill. One of the things that I know a lot of my clients were concerned about is one of the bills that was originally passed required you to, when you sold securities that you had a lot of, you had to use first in, first out fifo.

I remember that.

But that to use any of the permissible methods, first in, first out lifo, average cost basis or specific identification. So lots in here. Jason, thanks for having me. I encourage people to chat with their advisor, their, you know, always free to look us up and give us a ring as well. Happy to chat with people about how it might affect them.

Ryan, I just, first of all, I want to thank you for coming on so quickly. Folks. Let me tell you, very few CPAs are studied up on this enough and ready to talk about it so quickly. I mean, this is hot off the presses here. Okay, so this interview was pretty casual. I'm so happy that Ryan will be speaking at our upcoming Meet the Masters of Income Property event in San Diego in La Jolla. You'll be able to meet him there in person. He'll be speaking and sharing some of his thoughts after he's had a little time to have these coalesce and target them specifically as strategies for real estate investors, mainly so that'll be the major thrust of his talk. So I'm really looking forward to that, Ryan. But, you know, thank you for coming on so, so soon. I mean, this thing is just hot off the presses. I'm sure you're sleepy because you've been reading all this stuff and, and studying it and you've been on every call, you know, inside your industry, doing it. Give out your website and tell people where they can find you.

Yeah. Www.indigospire.com and it's mostly indigospire.com because shell house is really hard to spell.

Absolutely.

Yeah. Check us out at www.indigospire.

You can make appointments to chat with us straight on that website.

Fantastic. Ryan Shellhouse, thanks for joining us.

Thank you, Jason. Have a great day.

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