Massive new tax reform expected to be made law by 2018 is heaping a ton of pressure on many real estate investors. Pressure to restructure investments, and switch up their strategies. What’s at stake? Where are the safe havens, and tax saving vehicles now?
The Breaks at Stake
While the details of the sweeping tax overhaul are still being negotiated, there are some pretty significant tax breaks on the chopping block. This includes wiping out the ability to write off state and local income taxes on federal returns. That could be a major blow in high cost areas like NY. Homeowners are also anticipating a hard hit, with the expected repeal of property tax and mortgage interest deductions. This has the potential to add thousands, and tens of thousands or more to the annual tax bills of many home owners.
What’s Left?
The one main tax haven that is expected to be left untouched is retirement accounts. That is 401ks and IRAs. Individuals can still enjoy deferring taxes or even tax free gains through these accounts. Through self-directed 401ks and IRAs, as well as HSAs and ESAs, individuals and small business owners can actually plow quite a bit of money into investments, and lower their exposure to the long arms of the tax man.
What it Means
While real estate is still a sound investment, and far more attractive than stocks right now, it may be less beneficial for homeowners, and more advantageous for landlords and investors. Those who have a lot of money in stocks, a big mortgage, and high property taxes, could be in for a lot of pain in the next couple of years as declining portfolios collide with higher taxes. The average worker who just barely qualified for a home loan, and was sold on the tax benefits might be in for a big financial shock too. Others who have taken out mortgages just for the tax deduction may be quicker to pay those loans off. All of this could open up more investment opportunities, while shifting even more of the population to being long term renters. Investing through self-directed retirement accounts could compound the benefits of these opportunities even further by boosting the bottom line.
How are you future proofing your investment portfolio?
Investment Opportunities
Find out more about investing in secured debt and real estate, go to NNG Capital Fund
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