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Final 199A Regulations

The IRS released final regulations on 199A. The Kiplinger Tax Letter said it best: “Final regulations provide limited guidance, but IRS gives a safe harbor.”

In this post we will discuss the safe harbor as it relates to “trade or business” with special emphasis on application with rental properties. The safe harbor doesn’t apply to all taxpayers and the trade or business designation is still possible without meeting the safe harbor parameters.

The final regulations run 248 pages. I will follow this post with a detailed post on 199A tiers with several decision trees. Due to the length and complexity of the regulations we are forced to remain focused on one aspect of 199A. Taxpayers with a sole proprietorship, partnership, S corporation or investment property may wish to seek the services of a competent tax professional until more clarification is reached through more regulations or from the Tax Court.

Links are provided at the end of this post to the entire 248 pages of regulations released and Notice 2019-07 (only 10 pages!) dealing with the trade or business safe harbor for real estate issues for your further research.

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Create Your Own Basic Income

I don’t know who first came up with the idea of a universal basic income. My earliest exposure to the concept was from Sinclair Lewis’ 1935 novel It can’t Happen Here. There is no doubt the idea was around much longer.

It’s an age old story. Mechanization and technology will destroy all the jobs. Computers and machines will do everything so people will be left with nothing to do but wander around the cities and countryside with dazed stares.

The solution is to provide a basic income to everyone so income inequality is reduced. The cause is noble; the solution fraught with problems. If you have freedom, you have inequality; if you have equality, you have no freedom. The real question is: how much inequality will society tolerate?

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Peer Street Review

Building wealth is simple when you understand the rules. Spending less than you earn provides seed capital for investments. Index funds provide the opportunity for superior growth with reduced risk due to diversification across the broad economic spectrum.

Once you have the basics it becomes clear you need additional cash management tools to serve your financial needs. Short-term cash for emergencies or living expenses are best held as bank deposits or in high-yield accounts like Capital One 360 or Discover Savings.

With long-term investments set in index funds and short-term needs covered by liquid money market type products it’s time to fill in the remaining gap. And there are some reasonable alternatives paying a respectable rate of return.

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2017 Tax Bill: Small Business is Punished for Raising Wages

Normally I don’t like to comment on a tax bill before it becomes law, hence the reason I’ve only commented once on the current bill as it wound its way through the halls and committees of Congress. Now that the bill is sitting on the President’s desk awaiting his signature I’m comfortable opening a dialog on some of the issues I see the regular press has missed.

Since the beginning I’ve called this a Swiss cheese tax bill because it has so many holes in it I can drive a truck through with my eyes closed without a worry I’ll hit a wall. I suspect many of these holes will be closed in time. Until then, fuel up the truck fellas. We’re going for a ride.

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Real Estate versus Index Funds

As you work toward financial independence the question pops into your head: Which investment is best to get me there?  Index funds usually, or at least should, top the list. Real estate is not far behind. People wrongly believe real estate is a better investment vehicle than a broad basket of stocks.

The first fallacy I hear when I inform clients of this misnomer is a list of all the people who made it big in real estate. The current U.S. President, they argue, made his money in real estate. Except he didn’t. He made most of his money licensing his name to real estate others own. When the President was in the real estate business big he also went through a wrenching bankruptcy.

Then, of course, I hear about the Carlton Sheets, the late night infomercial guy selling courses on how to make it big in real estate without any money down or work! If you bought one of those courses I have a beautiful tower in Paris I’d like to offer you for an unbelievable price if you act now. (By the way, Carlton makes his real money selling courses, not in real estate.)

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How a Broke Farmer Became a Millionaire

1978: It was hot and dry the summer of 1978 in northeast Wisconsin and I hated it. My fourteenth birthday was around the corner and I was recently out of the hospital from heart surgery. The doctor said I needed to sit still as I healed over the next six months and my grandmother did her best to enforce the rule. I was having none of it. I wanted to run, bike and play.

It was the best of times as long as you ignored the building storm clouds on the horizon. Inflation was a problem, but interest rates hadn’t risen enough yet to reflect the new reality. The government encouraged borrowing by farmers through Land Banks.

We were dumb farmers and dumb farmers were soon to learn they had no place in the new world order. Yes, farm prices were high due to inflation while interest rates were lower. Unfortunately, these situations don’t last for long.

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Applying Cost Segregation on a Tax Return

A few weeks ago I wrote about the massive tax benefits to investment property owners and business owners who also own commercial real estate using a cost segregation study. Some of you took me up on the offer and now are up for a significant tax reduction. Then the problems started. I didn’t anticipate the large number of tax professionals who didn’t know how to handle cost segregation studies on a tax return.

Before you call your tax preparer bad names, know most tax professionals rarely, if ever, see a cost segregation study in their office. When the rules changed a few years back I doubt 1 in 100 accountants handled their client tax returns correctly as it pertained to the repair regs and tangible property rules. The good news is the changes only required certain actions in the first year of accounting method changes. The bad news is that most tax professionals don’t know how to handle a cost segregation study on the actual tax return when a client comes in with one. Not to worry. Your favorite accountant will spill the beans on how to get it done right.  No picking on your accountant either. This is advanced tax planning and tax law can be miles from tax application at times.

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Organize Your Life to Maximize Net Worth and Minimize Taxes

There are several ways to convince someone to speak at your event. Stephen Baughier used the most sure-fire method ever. Stephen noticed I wrote a blog post back in August listing some people I would like to meet someday. He checked two people on the list and found JD Roth open to attending. He then called me and said, “Hey, Keith. I saw on your blog you wanted to meet JD Roth. Well, he is speaking at Camp Mustache SE in January. We would love to have you speak as well and you can meet a man you admire.” How could I say no?

Picking a topic of discussion is something I allow the event organizer to decide. If they have no preference I choose something currently exciting to me. In this instance Stephen thought something about organizing your stuff in preparation for meeting your accountant/tax guy would be a good choice.

I grimaced. My organizational skills are not legend. However, I do keep a tight fist on in financial organization.

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