Are you curious how the new tax laws coming through President Biden’s Administration will affect your rental property investments in Jacksonville? Every administration change brings forth new tax laws, and you want to re-evaluate your investment strategy to maximize your returns.
But how do you figure out the right move for your rental property investments happening now and in the future? In today’s episode of the JWB Not Your Average Investor Show, we met with JWB’s #1 most trusted tax strategy expert, Bryan Reyes, to share everything he’s learned about the new tax laws.
In today’s episode, Bryan Reyes talked about:
- What the upcoming changes for taxes and retirement accounts are
- How these changes will affect rental property investors
- When is the right time to adjust your investing strategy for retirement
- The right way to evaluate future changes
Bryan lives and breathes this stuff! His clients count on him for his advice, which is why JWB brought Bryan’s tax law wisdom to our NYAI online community.
What do you hear about new tax laws and reform?
Bryan said he’s been listening to the information the Biden Administration started putting out at the beginning of his presidential term. Too many people panicked, and Bryan was confident that not everything proposed would pass legislation. Taxes are one of the largest expenses you will have in your life, but if you relax and wait for the chaos to settle, you don’t have to worry about your investments.
We are in an environment where tax reform discussions are up and down. Not all bills pass, and in Bryan’s experience, the evolution of taxes usually does not happen too quickly.
If a new tax law goes into effect this year, how long before it’s enforced?
Laws get passed, and they can change. Over the years Bryan has practiced, it is hard for the IRS tax system to shift the changes in a short time.
We have seen bifurcated deductions for equipment where there is a 100% write-off versus 50%. New tax laws are currently being proposed, but we’re not sure what will be passed. At this time, we don’t know what new tax laws will look like for 2022.
Will IRAs go away?
There are usually grace periods, and if a bill passes, they will backdate it, so there is a smoother transition.
What’s going on now with new tax laws?
There are two major bills. The bipartisan infrastructure bill was a reallocation of CARES Act money. There is not one item in there related to increased taxes. Instead, it took the money from the CARES Act, and it is going toward infrastructure.
The second bill is a non-bipartisan bill where the proposal is to increase the budget, and the Biden Administration needs to have a majority vote. However, it is uncertain if this bill will pass, so we need to take time. This second bill is where all the tax reform is, and that’s the one we’ll be paying close attention to as it goes through legislation.
Is depreciation helpful with taxes?
Yes, depreciation helps a lot, and Bryan is shocked that there is no talk of depreciation changes among our lawmakers. If you are part of this community, you will know that depreciation is the tax savings component for rental property investors. This means that it’s a big win for real estate investors.
Tax rate increases for high-earners could result in higher tax rates. If depreciation is the same and you will be in a higher tax bracket next year, you may want to defer those taxes. Talk to your CPA about more details and how it applies to your particular tax situation.
Are they changing the tax brackets down from $650K to $450K for married couples?
Bryan doesn’t know every single bracket personally. But if you are in the highest tax bracket, let the economics drive it. For example, plan when to use your deductions, like next year when it benefits you more. Again, talk to your CPA to discuss your unique tax situation.
What will happen with 1031 Exchanges?
There was talk about eliminating them, but the conversation died down a bit. 1031 Exchanges are specific to real estate. If you want to get that 1031 Exchange done before the changes happen, you may want to act quickly.
There is potential that it could go away, but it hasn’t happened yet. But if you are dedicated to doing a 1031 Exchange, you’ll want to take action very soon.
Can a 1031 Exchange be done by December 31, 2021?
Yes. If you want to finance that 1031 Exchange, you need to act right away since we are approaching the holidays and year-end. If, however, there is no financing, you don’t have to move as fast.
Will they equalize capital gains rates and ordinary income?
They are both going to increase, but Bryan cannot fathom them being equalized. He feels that’s a big number!
For rental property investors, it’s a big win. The incentive to hold onto your assets for the long term, like for a full market cycle, is still there. Be sure to watch this entire episode for full details on the conversation Bryan Reyes and Gregg Cohen have.
How can I learn more about 1031 Exchanges and rental property investments with JWB?
You can check our previous episode about the 1031 Exchange on podcast, watch on YouTube and read the article about it.
How can you keep your taxes clean for the IRS audits?
It would help if you hire a property manager like JWB, showing proof of income and expenses. If you manage your rental properties yourself, you may be audited if your numbers are not detailed well enough. Additionally, you should partner with a CPA who will help you navigate the new tax laws and advise you on managing your rental property investments.
Is there a movement to remove the incentive of creating an S-Corp?
Yes. If you have an S-Corp, you can take distributions, and you are not taxed on those. For example, a doctor with a W2 versus an S-Corp can make a $400K taxable income difference. If this changes, this could affect many people who own their businesses and are taking advantage of tax breaks.
What will happen to IRAs?
What was on the table was keeping Bryan awake at night. There were proposed rule changes, and fortunately, they took those IRA changes off the table in the last tax law deal.
There may, however, be a situation penalizing high earners of $10M and Roth IRA conversions. If you made a lot of money last year and you reinvested it in real estate investments. You could convert that from a traditional IRA to a Roth IRA. Those could be powerful, and if you can get that amount of money on a Roth IRA, that’s protected tax-free money.
Could an IRA set up a Solo 401K?
The Roth IRA provisions have largely been stripped out. But Bryan highly suggests reviewing all of your assets and looking at how they’re managed. Bryan has seen 1 IRA audit in 20 years, but he expects more enforcement of audits for IRAs.
What are the wins for real estate investors working with JWB?
Though changes are taking place with tax reform, the investors working with JWB should be in good shape.
There is a lot of wealth in the United States held in tax-deferred accounts. That creates a wealth transfer. The lawmakers want to capture more tax-deferred money when possible. With that said, real estate investing is a great asset class and a strong strategy for people who want to grow their wealth.
How does one find a competent tax law specialist?
Start a conversation with a CPA and find out what types of tax issues they like to work on. You know who you work well with, and if you interview several CPAs, you’ll see which tax team truly understands you and your business. Trust your gut when looking for partners to handle your taxes.
- Are they responsive to your calls?
- Do they take the time to understand your business?
- Have they demonstrated they are experts in their field?
These are the questions you should ask yourself when seeking a CPA or tax specialist. If you ask JWB for a referral, of course, we highly recommend Bryan Reyes and his team.
How do the tax laws affect people living in different states?
If you live in California, you will have a different tax structure from those living in Florida. California has a state income tax, while Florida does not. This is why we see many people moving away from states that have an income tax to other states without one.
How far ahead can you plan for tax law changes?
We encourage you to plan, but not too far into the future. For example, when you are planning out ten years from now, there are many variables. You can do high-level theory type planning, but to try to put what you think the tax brackets will be in 10 years, you’re shooting in the dark.
What advice does Bryan Reyes have for the Not Your Average Investor Community?
Taxes are important, yes, but he stated he’s a family man before he’s an accountant and a business partner. Focus on what means the most to you, and don’t worry too much about new tax laws. The economy will work itself out, but you should focus on living your best life.
How Do I Find Out More About Investing In Turnkey Rentals With JWB?
Contact the JWB team to begin the discussion. If you want to invest in Jacksonville real estate, now is a great time to jump in. Go to www.ChatWithJWB.com and find out how we can help you reach your financial goals through turnkey single-family rental homes.
If you want to become part of the JWB online community, join us in the JWB Facebook Group at https://www.facebook.com/CashFlowProperties.
You can also go to www.JWBInventory.com to see what properties are currently available. We encourage you to contact the JWB team for a consultation to determine how our turnkey rental properties can deliver positive passive cash flow.
We invite you to watch this episode of the Not Your Average Investor Show in its entirety because Bryan Reyes shared some high-level concepts about the new tax laws and what that means for rental property investment. Fortunately, the Jacksonville real estate market continues to be an excellent opportunity for real estate investors, regardless of which tax reforms pass into law.
Learn more about the incredible opportunities with JWB and contact us today at www.ChatWithJWB.com. The Jacksonville real estate market is in a period of sustained growth, and JWB has a proven formula for helping investors enhance their wealth with turnkey single-family rental homes.
To Your Success,
Gregg Cohen
