read more posts by
John Murphy
President Biden is working on his tax plan to make changes to Donald Trump’s Tax Cuts and Jobs Act from 2017. The Biden administration has been very vocal about it’s plans to raise the tax rates on the upper end income earners as well as to raise the capital gains tax rate in general. But with regard to the capital gains tax rate, he has a special gift for married couples.
If you’re a high income individual with an adjusted gross income (AGI) over $1 million who is not married, your cap gains will go from 23.8% to 43.4%. If you are married and have an AGI of $1 million or higher, you will also see that increase. So the tax structure is set to disincentivize married couples. Not a shock coming from Biden. Be sure to read the article from Accounting Today on Biden’s Capital Gains Tax Plan.
This comes up a lot when I’m talking with real estate investors and building owners whether they be owners and investors in residential or commercial property. The information below is just a quick summary. It does not and should not be considered tax advise. I am a real estate and cost segregation professional and note a tax pro.
Many people buy rental property or buy a commercial building but they have another full time job. That income derived from that investment is considered passive of course. The IRS separates active income from passive income unless you happen to qualify as a full time real estate professional. Then all your income is considered active. Understanding how the IRS classifies and defines passive income and how that affect your tax return is important as an investor. Here’s the link to the IRS Publication 925 (2020), Passive Activity and At-Risk Rules. It has some excellent examples so you can see how you might be able to still take advantage of passive losses against your active income.
What many people tend to not realize is that there is a special $25,000 allowance. It reads as follows from the IRS site:
“Special $25,000 allowance. If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that’s disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing the passive activity loss. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
If you’re married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance can’t be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you can’t use the special allowance to reduce your nonpassive income or tax on nonpassive income.”
The $25,000 Allowance is subject to the Phase Our Rule of course…. again to quote the IRS:
“The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.”
If you’re a W-2 employee and own investment real estate, realize that you might qualify for some or all of this $25,000 allowance depending upon your income. Also realize that if you have not done a cost segregation study on your investment property / commercial building, you may want to take a look at that as it will generate additional depreciation expense for you to deduct against your income. It’s a strategy the big property investors utilize but many of the smaller investors and building owners are not aware of it. It’s also something that many CPAs just don’t address for whatever reason. But I can help you with that if you’d like to talk. The fees are quite reasonable compared to the tax savings you will see. Reach out if you’d like to talk about evaluating if cost segregation is right for you. As with all things with taxes, please be sure to consult your tax professional.
Here’s an additional article on how passive losses can benefit real estate investors.
For the third Sunday in-a-row there has been a medical freedom rally in downtown Greenville. Three weeks ago about 150 people gathered in Falls Park to express their concerns and raise questions about the vaccine mandates and possible Covid passports. The group grew to about 300-400 people the following Sunday as an event was sponsored by the Greenville County GOP. That same group gather yesterday albeit was a smaller crowd of maybe 200 people or so. These rally’s will continue for the next two Sundays. I’d encourage all to show up. We need more people!
My wife and I have attended these with our two teenage sons. It’s been great to meet new people who are willing to express and demonstrate their concern about some of the increasingly tyrranical moves made by government. So far in South Carolina we have not had to deal with the heavy hand of the Governor or the legislature in demanding vaccine mandates or Covid passports. I have not heard much yet as far as businesses requiring the vaccine for their employees. We have seen that both Prisma and Bon Secours will be requiring their employees to get vaxxed after President Biden announced his mandates last week.
As I have talked with others who work at big companies, the consensus right now seems to be that the employers are highly encouraging their employees to get vaxxed but they are not yet requiring it. Many seem to be waiting until they see the regulation come down from OSHA which it has not yet. It would be nice to see if at least one of these big companies would take on these mandates but pushing back against the Biden Administration and OSHA and sue to get these mandates withdrawn. I have not seen anything yet that would confirm any big company has done this. Now that said, floating around the internet the other day was information that perhaps General Dynamics may have withdrawn their vaccine requirement for their employees. Whether that is a permanent or temporary withdrawal, I do not know but will watch for more information. If this is true, this is in directly conflict with the orders from President Biden especially as they are a defense contractor with more than 100,000 employees. This would be a BIG DEAL.
Join us for our next Medical Freedom Rallies on Sunday, September 26th and October 3rd from 3-5pm at the Peace Center in downtown Greenville, SC.
A key measure of how home builders are feeling about their market was released today. The National Association of Home Builders / Wells Fargo Housing Market Index saw a rise of one point month over month to 76. This is down from the peak of 90 during the craziness of Covid. It’s come down in part due to the challenges many builders had faced with materials and labor costs going up. While lumber and building materials have come down in price, labor remains a challenge for the industry. Here’s another good look at the latest data from the Calculated Risk Blog.
Well it’s that time of year again when the Farmer’s Almanac comes out with their predictions about the upcoming winter and I don’t think most of us are going to like it.
Here in South Carolina it appears we are about split between cold/wet and cold/dry. They are forecasting the northern half of the state to be cold/dry…I’ll take that…better than cold/wet. Here’s their extended forecast for this winter.
This is being celebrated all over the South Carolina news this afternoon. I even saw the San Francisco Chronicle of all things had a story about South Carolina achieving this milestone. I suspect they don’t think too highly of us here in the South :)… South Carolina achieves 50% vaccination rate of eligible adults – FINALLY!
It has taken an ENORMOUS effort to push this to 50%. The last 5% or so has taken an extraordinary effort in terms of get out the vax information to people so they will get the shot. The advertising on the radio, TV and social media has been relentless. If you visit SC DHEC’s Facebook page, they must post between 8-10 times per day different stories about Covid and the vaccine. How in the world are they going to get to 70, 80, 90% vaccination rates? Ain’t gonna happen. The only way we get close to 70% I believe is going to require forced vaccinations. I may be new here to South Carolina, but I’m thinking the folks here aren’t going to take too kindly to forced anything…let alone vaccinations. Should be fun!
Richland County, Columbia, SC and the University of South Carolina Gamecocks go ALL IN on the Masks!
Real estate…what’s the phrase? Location, location, location? The Upstate of South Carolina is the most conservative and Republican part of the state of South Carolina. But one would be mistaken if they just assumed that all of South Carolina was inhabited by neanderthal conservatives like you might find in the Greenville, Anderson, Pickens, Laurens, Spartanburg area. Quite the contrary. Exhibit A – Columbia, SC.
Columbia, SC sits in the center geographically of South Carolina and is home of our South Carolina State Capitol. The city is within Richland County. I’m not going to go in to all the nonsense about the City of Columbia and their constant push for mask mandates but the latest coming out of the midlands area is that Richand County just voted in a mask mandate for the next 60 days effective today. It’s a $25 fine if you’re not wearing one….I don’t know if that is $25 per day or per incident that you get caught without wearing one. On top of that, the University of South Carolina Gamecocks also now require a mask mandate for their football games if you can believe that. (The funny thing is they note in that news article that I just linked that the City of Columbia is responsible for enforcing the mandate…will the City deputize many at the stadium to issue citations?) BTW, the fines apparently are different. It’s $100 in the City of Columbia and only $25 in Richland County. At the UofSC football game, they note that the City of Columbia is in charge so it might cost you $100. Note the mask mandate is for the next 30 days for football and I’m sure it will be renewed as they all were every 30-60 days in 2020 across much of the country. Will the people comply? Will they continue to put up with this? Imagine the joy of sitting outside in the hot sun for 3-4 hours watching a football game outside with a mask on. Dumb.
If you’ve been watching any college football this season, you’ve seen images of packed stadiums with 70-80,000 people sitting right next to one another having a great time! You would expect based upon media hysteria 24×7 that there would be massive Covid-19 / Delta outbreaks, thousands and thousands would be seriously ill with many in the hospital on their death beds…and by now, surely many would be dead as a result of their obession with college football. However, we have yet to hear any stories regarding this college football related Covid outbreak. Hmm.
If you’re finding my blog and you are offended about my attitude about the mask and these outrageous mask mandates, please just move on. Anyone implementing a mask mandate today in 2021 neither belongs in elected office nor should they hold their current job/position at their companies or schools that are implementing this ridiculous overreach.
No more mask mandates!