Table Of Contents
In this episode, Brandon and Thomas talk about the legislative changes that are occurring right now, specifically with the Build Back Better Act.
This episode is sponsored by Landlord Studio and Tax Smart Investors.
Full Transcript:
This podcast has been transcribed using AI, please excuse spelling, grammatical, and other errors.
Thomas Castelli 0:00
You're now listening to the real estate CPA podcast.
Brandon Hall 0:05
Your source for all things real estate, accounting and tax. Here we reveal our secrets that can save you 1000s in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business, and how they steer clear of Uncle Sam.
Thomas Castelli 0:30
Hey, everyone, thanks for tuning into this episode of The Real Estate CPA podcast. We're back with a nother episode. Yes, I know another episode on legislative changes that are occurring right now as we speak in Congress,
Brandon Hall 0:43
then we're probably gonna have another one next week to provide another update. That will probably be like five minutes in length or something. But we just wanna keep everybody up to date. And if you're watching on YouTube, I'm just gonna apologize in advance for us only being on audio not video today. I'm in the middle of cleaning out the closet that is upstairs off my office and we're hanging shelves. So Tom can attest to this, but like behind me, it looks like I live in a hoarder house right now.
Thomas Castelli 1:09
Yeah, it does. And I tell you, I seen a lot worse things you know, when we walked walking units in some apartment buildings, but it's it's there. I mean, it's it's,
Brandon Hall 1:18
yeah, got all sorts of stuff back there got kids toys shelving survey, like paper work surveys, and just boxes and boxes of stuff that I don't even know what's in them. So that's what happens though, when you buy bigger houses, right? I mean, this is an upgrade house for us that we bought last year. Yeah. Cuz we had we had a kid. And then now we have another kid. And I feel like the walls are just caving in me. When you start getting kids, it's like, it's like, oh my gosh, we need a bunch bigger house. I told my wife like, I'm pretty sure I need about 1000 square feet per person in our family. We're gonna go have like two more kids, we might as well as upgraded to 6000 square foot house, which I got to work a lot harder for me to be able to afford one of those.
Thomas Castelli 1:59
Yeah, you know, you know, George Carlin always said the famous comedian is, you know, people need to buy more space just to put their stuff. It just Oh, yeah, just about putting your stuff places. That's what it is.
Brandon Hall 2:10
It is it is actually crazy. I mean, when we moved in to this house, we had like a couch and like two chairs and a TV for the downstairs. And pretty much all closets were empty. We didn't have anything. But over time, you're totally right, you just started accumulating junk. So I've got all these boxes by me, I don't even know what's in them. And I'm not really even interested to find out what's in them. So I'm just gonna hang the shelves and put them up there and call it a day and move on with my life. You know, that's what's so funny about it. It's just like you buy these larger houses and you just find ways to fill them up with junk. So well, let's get back to legislation jelly yet. So get give give everybody a quick update. We're recording this on Saturday, November 6 2021. And just want to give you that date, because we're going to talk about like, yesterday and next week and just give you a baseline of when we recorded this and what we're actually talking about. So yesterday, Friday night, the infrastructure bill was passed by the House. That is the bipartisan bill that has been worked on for a while or been sitting in the house for a while that that bill was held hostage by progressive Democrats who wanted to pass both bills, both the infrastructure and the budget reconciliation bill. In the budget reconciliation bill is the build back better act. That's the big one. So the progressive Democrats said, Hey, we're gonna tank the build back better bill, if you don't pass that with the infrastructure bills, we got to pass them at the same time in, honestly, probably a good legislative strategy for them, because they they want to make sure that their progressive agenda is going to be passed. Right. So the moderates wanted the the moderate Democrats wanted the infrastructure bill to pass because they wanted the bipartisan win for President Biden. And the progressives, they also want a win for President Biden, but they want to make sure that their social policies get passed. And so in theory, now, what can happen is that so the infrastructure bill passed last night, the budget reconciliation bill did not it got postponed again. And so in theory, what can happen now is one moderate Democrat, because they'll have veto power could vote no. Whenever the build back better act comes up for vote again, which is expected by November 15 2021. So middle this month. So in theory, the moderate could vote no. And now you have no act at all. But the infrastructure bill has already passed. It's already on the President's desk to be signed into law. So there's no leverage. So, you know, relatively, I guess, smart, also painful
legislative strategy, but the infrastructure bill did pass. So that's going to fund all of the infrastructure in the country. This morning, Saturday morning, there was a procedural vote on the build back better act in that procedural vote was essentially just like a prom. The way that I understand it, at least and I might be misunderstanding is Don't quote me on this. But it's a it's a promise to basically vote yay for this act whenever it comes up for vote middle of this month. Now why would they vote on it next week? Well, next week Congress has recess. So they're not they're not in session next weeks, there will be no voting no votes next week. Additionally, the moderate Democrats want a study performed to ensure that this act will not add to the deficit. So the procedural vote this morning was basically saying if that study comes back and says this act will not add to the deficit, then moderate Democrats will vote yes. And that has made everybody happy. So what's currently in the build back better act, we believe is relatively final. And we believe that there will be a vote on that by mid November by 1115. And there could still be changes, of course, there could still be minor changes, but we believe that most of the provisions in the bill at this point are final. So we went back through the last week. If you haven't listened to last week's episode, please go and listen to last week's episode, we went through some of the tax provisions that were going to impact real estate investors. This week, we're going to go through with some interesting things that we've pulled out during our review of the build back better act. And then we're also going to talk about two relatively significant tax changes that you need to be aware of going into 2022. So there were two major, I recall a major tax changes from our episode last week. And we'll talk about those today too. And before we jump into this, I do want to mention that we will be running webinars on the build back better act, the first webinar that we're going to run will probably be a week or so after this act gets passed, passed, meaning the house in the Senate vote yay. And then it gets sent to the President's desk. So at that point, we will have final legislative texts, our team will go through it, tear it apart, and we will put together a presentation. And the first webinar will happen about a week or so after that Act passes, we will invite all of our clients at the real estate CPA to that webinar, as well as any Plus and Pro Plan subscribers at tax smart investors.com. So tax smart investors.com is kind of our educational platform, it's a way for you to get access to our team without fully committing to you know, a four or $5,000 spend annually with our firm. It allows you to get access to an insider Facebook group, which is really cool. It's a smaller group, pretty intimate look and feel you can ask questions, and our team is in there answering those questions. We do monthly workshops monthly live q&a is which actually coming up. And if you upgrade to the pro plan, you can email us, you can do one on one phone calls with us things like that. So it's a lot cheaper than being a full fledged client of ours. And it's kind of for folks that you know, need good advice. But like their tax preparer, they like the relationship. So they come to us for advice, ask us questions, and then they get to take that back to their own tax prepare, that's tax smart investors calm, that's exactly why we've developed that we want to help every single landlord out there, but not every single landlord can afford to spend four to $5,000 a year on advisory and tax preparation fees. So we're gonna hold a webinar for Plus and Pro Plan subscribers at tax smart investors calm and the real estate CPA clients. And that'll be about a week after this bill becomes law. After the President signs it, we will then hold a second webinar, most likely two or so weeks after the first webinar. So that'll probably put us at the maybe very end of November or beginning one or two weeks to December. And that will be open to anybody. So if you're listening to this and you want access to that webinar, or you don't want to miss it, make sure that you join our newsletter, make sure that you join our free Facebook group, tax smart real estate investors and you can find that at facebook.com/groups/tax smart investors. Go join that group, join our newsletter, you'll be on the list to get sent an email to be invited to this big webinar and it'll be a big webinar, I'm sure there'll be like 1000 or so people on it. So we'll have that one probably it'll actually probably be like the first of December for timing works out. So first week or two of December, just want to let you know that those are coming up. And and at that point, we'll have a very well built out so that you can understand exactly what you need to do are webinars we try to really build them out to be really educational and hard hitting for you.
Thomas Castelli 9:35
While we all know minimizing taxes are important to growing your portfolio before we jump right in. Another important aspect of growing your portfolio is making sure you have the right accounting system in place. And while there are plenty of general business accounting software options out there, they're not designed for landlords managing rental properties and can feel clunky and overly complex. Landlord studio on the other hand, is designed specifically for Do It Yourself landlords, they offer a full suite of tools designed to help them landlords save time with their income and expense tracking, as well as property management tasks like rent collection, rental listings, lease management and tenant screening. One thing I found particularly impressive what's its ability connect bank accounts to view and reconcile transactions from inside the software. And by using landlords studios mobile app, you can digitize your receipts and the software automatically lifts and imports the receipts details. Landlords studio is also a great way to stay tax compliant, particularly as they offer a number of different financial reports including Schedule II, where rental properties reported on your form 1040. You can learn more about landlord studio by heading to WW dot landlord studio.com/cpa. Again, that's landlords to do.com/cpa. We'll drop that link in the show notes below. But for now, we'll jump right into today's episode.
Brandon Hall 10:45
So Tom, walk us through walk us through the what we're going to talk about what we what we found in this. That's interesting first, and then we'll talk about this two significant tax changes at the end of this podcast. But Tom, tell us the first thing that we found interesting new qualified plug in electric vehicle credit.
Thomas Castelli 11:02
Yeah, so they're actually adding a refundable, basically a refundable tax credit if you're going to purchase a new electric vehicle, so kind of to kind of break down what that looks like that credits going to be $4,000 plus an additional $3,000 for vehicles placed into service before January 1 2027. For vehicles that have a battery capacity, no less than 40,000 kilowatts and a gasoline tank with the capacity not to exceed the greater of 2.5 gallons and for electric vehicles a battery capacity of less than 50 kilowatts thereafter. So I'm not an engineer, I don't know exactly what that means. So you're gonna have to check with the vehicle manufacturer or the the dealership to make sure that the vehicle that you're purchasing meets those requirements if you're going to try to get this tax credit, but it's a very clear signal that going forward, they want to incentivize electric vehicles, I'm sure we'll talk about that a little bit more as we go along.
Brandon Hall 11:56
So I want to make two corrections real quick. So you said it's a $4,000 credit, plus an additional $3,500. I think you said 3000. But it's $4,000 plus an additional $3,500. That additional $3,500 is for vehicles placed into service before January 1 2027. So I believe that that will drop off after January 1 2027. And then you said a 40,000 kilowatt it's a battery capacity of no less than 40 kilowatt hours. And I don't know what that means either. But I imagine that when you walk onto like Tesla's lot, they're going to display that information to you. So. So that's what you want to watch out for. But anyway, sorry, continue to tell it, tell them what the extra juice is here.
Thomas Castelli 12:39
Alright, so the amount of the credit for the qualified vehicle is going to be increased by another $4,500 If the final assembly of that vehicle is manufacturing facility within the United States. And there's some other stipulations there. But that's kind of the core of it. Now, the amount of the credit allowed for electric vehicles increased by $500, if the vehicle model is powered by battery cells, which are also manufactured within the United States. And so we're
Brandon Hall 13:07
talking here about a $4,000 Credit Plus $3,500 credit just on any electric vehicle, right, so a $7,500 credits on any electric vehicle that you purchase before January 1 2027. There are purchase price limitations that we're going to talk about in a second. So don't get too excited about going out there and buying that Tesla Model X because that when I read that line, I was like I'm buying a Tesla Model X, but then I was like, Okay, maybe can't, but $4,000 plus 3500. So $7,500 tax credit for buying an electric vehicle before January 1 2027. But what Tom just said too, is that if the final assembly of the vehicle is at a facility in the United States, then you get to increase the credit by another $4,500 Now we're at a $12,000 tax credit. And also, if your battery cells for the vehicle were manufactured in the United States, you get an extra $500 credit so now we're talking about a $12,500 tax credit, if you buy a vehicle that was manufactured in the United States, if it's an electric vehicle, and if you buy it before January 1 2027 That is like pretty freakin significant. That's huge. So go buy electric vehicles, I guess the amount of the credit is limited to 50% of the purchase price. So if you buy a $20,000 vehicle the max credit you'll be able to claim is $10,000. And then Tom's about to explain what a what a qualified vehicle actually means here.
Thomas Castelli 14:33
So basically some some key highlights of what qualifies for this tax credit is one of the first thing is the original use of the vehicle must commence with you the taxpayer. So that means you have to buy the vehicle. Brand new, it's not a used vehicle. Secondly, it has to be acquired from the qualified manufacturer and not held for resale. So that means you can't go out and flip cars and acquire a car and basically take advantage of this rule. The vehicle must also have a gross vehicle weight rating of less than 14,000 pounds. And lastly, you know, a key highlight here is going to be it must not be depreciable property. So that means that these are vehicles, these This credit is for personal use vehicles and not for vehicles that you would use within your business. Then there's some other requirements or some caps on the purchase price of these vehicles. And the credit will not be given on vans that are over $80,000 SUVs that are over $1,000 pickup trucks that are over $1,000. And for any other vehicle, so that means traditional cars, passenger cars. Could be $5,000.
Brandon Hall 15:37
Yeah, so So you can't go and buy the vehicle off the lot. Like you can't buy a Tesla Model X, right? Because the Model X is cost like 120. What are the model wise costs?
Thomas Castelli 15:48
Let's take a look. Let's take a look. So the model Y currently costs around currently has an MSRP of $56,990. So it's just above slightly above that just
Brandon Hall 16:02
so you're really well what does an S cost? By the way, I saw a tweet the other day, now that we're talking about this. I saw a tweet the other day that I thought was hilarious. So somebody tweeted at Elon Musk and said, Hey, you have a Tesla Model S 3x y and if you write out a Model S three, like if you write this out or type this out, it's the letter s the number three, the letter X and the letter Y and it's still sexy. And they said, they said did you do this intentionally an Elon Musk, like tweeted back at them? He's like, it's been in the works for years. Guys, so funny anyway, what is the what does an S cost
Thomas Castelli 16:45
so an S cost nearly 95,000. So I think Tesla Model three, though, however, I think this is the one one of the most common ones, at least I see. And that's just about 44,000. So that's okay, that would fit into this into this description.
Brandon Hall 17:01
So there you go, folks. So you can buy a Tesla Model three, and you can get a $12,500 tax credit. And this is different than the other tax credit that like expires like this is a brand new tax credit that they're bringing onto the market to try to incentivize people to buy electric vehicles. But the purchase prices are capped at $80,000 for vans, trucks and SUVs, and $55,000 for other vehicles. So another important thing to understand is if you're getting really excited here, you might want to temper the the excitement because this tax credit does get phased out if you're earning too much money. So if you if your income exceeds $500,000, it starts to get phased out $200 For every $1,000, your incomes above $500,000. If you're single, it's the same thing $200 for every $1,000, your incomes above 250k. So for our married individual married filing joint folks, what that essentially comes down to like, the way that you can figure this out, is you just do $12,500 divided by 200 bucks, because that's the phase out. And if you do 12,500 divided by 200 bucks, what was that I actually just did this, but let's do this again. $12,500 divided by 200 bucks, that's 62.5. So basically, there are 62.5 instances of $200 that make up $12,500. That make sense. 62.5 times $1,000, that's $62,500. And so you just add that to your 500 bucks or to your 250,000 bucks. So if you're married filing joint, the credit is totally phased out $562,500 It's how it works. So, so you're earning more than 500k may not be as beneficial, but definitely something to look into. And be aware of going into tax season going forward. Because and I believe when does it start December? After December? 31 2021? Yeah, so going into 2022. So nothing this year? Nothing, nothing for 2021 here, all right. What if it's not a new vehicle? What if I don't want to go buy the new vehicle get crossed with that initial depreciation? I want to buy a used vehicle. What about that?
Thomas Castelli 19:14
There's good news. So if you want to buy a used vehicle, there is a credit that's going to be capped at the lesser of $4,000 or 50% of the sales price for used vehicles. Now the sales price of these used vehicles cannot exceed $25,000 and must be a vehicle model in a year that's at least two years earlier than the data sale suddenly meet. That basically means you need to buy a car that is around three years old qualify for this credit. And this does also phase out. It does phase out buyers with up to $75,000 or 150,000. If you're married filing joint with adjusted gross incomes can claim the full amount of the credit but the credit does phase out $200 For every $1,000 in adjusted gross income that is in excess of that limitation. So this one does phase out as well. But it still gives hope for people hoping to acquire some used electric vehicles
Brandon Hall 20:07
now. And the eligibility requirements are the exact same in this section that we just described. So non depreciable property less than 14,000 pounds, you can't be flipping it right. So you can't just buy a whole bunch of Tesla's and think that you can just farm the tax credits and sell the vehicles and a couple months, it doesn't work like that, you will get nailed, but also goes into effect at 2022. And the important thing here is, again, non depreciable vehicles, so you can't use these vehicles in your business or you can't, you can't be depreciating them within your business, you might be able to use the mileage credit, I'm not really sure, or the mileage deduction, I'm not really sure how that's gonna work, though. But if you're going to buy a business vehicle, there is a credit for qualified commercial electric vehicles. And that's equal to 30% of the cost of such vehicle, or 15% of the cost. In the case of hybrid vehicles. Original use has to commence with the taxpayer cannot be powered by an internal combustion engine. So also starting in 2022. Pretty cool additional provision for any business owners out there that want to get electric vehicles for their fleet.
Thomas Castelli 21:15
So there's also credits for certain new electric bicycles. There's a 30% refundable tax credit for electric bicycles, if it's placed into service before January 1 2026. So the credit can be up to $900. And basically, there's another phase out on this one, too, that phase out starts at $75,000, of modified adjusted gross income, also known as Maggi Magi, or it's going to be 112,500 for heads of household or 150,000. If you're married filing joint. So electric bicycle is defined as a bicycle with that has fully operable pedals and a saddle for seat for the rider and an electric motor of less than 750 watts. I'm sure that's to limit some sort of motorcycles. And to focus more on bicycles.
Brandon Hall 22:02
There's an additional limitation that says that the battery cannot provide assistance to the bicyclist if the bicycle is moving in excess of 20 miles per hour. Or when the rider is pedaling, the battery cannot provide assistance. If the bicycle is moving in excess of 28 miles per hour, I presume that this is something related to like not buying a high powered moped, and being able to claim this this tax credit. So they're trying to draw a distinction between what is a bicycle, and what is a moped, I guess, or a battery powered scooter, or moped. And they're doing it with this, this miles per hour limitation. So I don't know how much that helps. But the final limitation on this is that the acquisition of the bicycle cannot exceed $4,000. So $900, total credit, up to $900 total credit, but the acquisition of the bicycle cannot exceed $4,000. So the other interesting thing, well, I guess not super interesting, but just something that we wanted to point out that this act is going to provide a one year extension of the increase in the Child Tax Credit as it was enacted in the American rescue plan. And it's going to continue the advance payments through 2022. For the child tax credit, so again, additional stimulus money that we're trying to get out there to help us recover from the pandemic, the child tax credit in 2022 is $3,000 per child, or and, and $3,600. For any child under the age of six. However, there is a phase out, it does phase out for households with income above 150k for joint filers, and $75,000 for single filers. So relatively low thresholds for the Child Tax Credit phase out, but not much changing. They're just really an extension of what we already kind of have going on.
Thomas Castelli 23:54
All right. And here's the big one. Here's exciting one for a lot of people out there who want to write the big one. Yeah, this is one of the big ones, right. And a lot of people where I live in New York are actually impacted by this. So the increases, basically, they're going to increase the salt limits the salt cap, so everybody knows in the tax cuts and Jobs Act, they put a cap on the state local income taxes, and as well as property taxes of $10,000. This impacted a lot of people in high income states like New York, California, Illinois, New Jersey, and they're going to increase it from 10,000 to $72,500. And it's going to be made effective beginning in taxable years after 2020. So that's going to be retroactive for 2021. And that's a big deal for a lot of people in these high income states. And they're going to extend that through 2031.
Brandon Hall 24:43
That's a huge deal. It's a federal deduction of your state and local income taxes and property taxes was capped at 10,000. Now it's 72. Five, this is a Schedule A deduction so we we actually had a lot of our clients that were negatively impacted by this. And they, they were actually a lot of them that went from itemizing their deductions every year itemizing on Schedule A to not, because this cap of 10,000, and then you can find out their mortgage interest. And it's like less than the standard deduction for a lot of people. But we're gonna see, we're gonna see it kind of flip the other way now. So all those folks should be cheering and high fiving right now, you know, it was it was interesting to when the when the 2017 tax cuts and Jobs Act came out, and limited the state and local income taxes down to down that $10,000 cap. And we tried our best to let our client base know, but but CPAs, across the country became the bad guys. When people got those tax returns, they were like, Why do I owe so much money compared to last year?
Thomas Castelli 25:46
Yeah, because I mean, it's, it's, it could be a significant amount of money. If you have if you live in a state with high property taxes or high state taxes. I mean, it's just, it just becomes it becomes an issue. And you know, a lot of states like California and other states have started doing their own workarounds to try to get around this where you, you donate money to, like certain funds and stuff. And they'll give you a state tax credit for all these weird things that that are coming out of the woodwork. But hopefully a lot of those things won't be necessary now, as this is a significant increase.
Brandon Hall 26:15
Yeah, it was just, it was just funny, because I remember having conversations with people that were mad about their tax bill. And I was like, Dude, I, it's not I can't do anything about it. If I didn't change, make this legislative change. I'm just reporting on it. But now, now we get to be the heroes.
Unknown Speaker 26:33
Now, we'll just say, Hey, I just saved you all this money. We'll forget the legislative change. We'll just tell everybody that we've saved everybody so much money. There you go.
Thomas Castelli 26:40
Yeah, yeah, you know, you know, it's tough to be in a position of a CPA, sometimes when there's negative tax changes, because everybody looks don't shoot the messenger, everybody looks at the CPAs the bad person, we're just looking at the rules and and helping you abide by them, and also looking for ways you can maximize them to your advantage. And sometimes sometimes certain rules, it just stinks for lack of a better term, and there's nothing you do about it. So please, if we ever have to deliver negative news to you just know that it's not intentional. It's Congress writes these things in the wee hours of the night or in the morning, and they sign that into law. And it's really not the CPA, who has really any impact over that, unfortunately.
Brandon Hall 27:18
Yeah, I mean, we found when we were prepping for this episode, we found a typo. They meant to say 2021. And then so they said 2031 on one of the provisions, which is kind of funny, that's a pretty significant typo. So they are indeed writing these things in the wee hours of the morning. And then who knows what they're what's what's actually going to make it into the legislative text at the end of the day.
Thomas Castelli 27:40
Yeah. And I'm really curious to know if anybody's actually running any models to kind of project out the potential implications of this in the future, or if they're just winging it, and then signing into law and hoping that it doesn't go negative. Because I mean, like, like Brian said, we found a typo in there. 2031. And if that got signed into law without being fixed, you can have a technical correction and all these different things. So just something to think about something to think about.
Brandon Hall 28:05
Now, one thing before I do the last big one, that I wanted to point out one thing that I don't think we pointed this one out last episode, so I highlighted it this time, it hasn't changed since last since our last episode, but it's something important for all of our tech workers out in California. There's a limitation now on section 1202 gains. So section 1202 stock is qualified Small Business stock, it allows you to 100% exclude up to $10 million of gain if you have qualified Small Business stock. But what they're going to be doing now is they're going to amend that $100,000 to only be $50,000 If your AGI exceeds 400k. So small, small adjustment, but now if you've got a $10 million gain, you can only exclude 50% of it rather than 100% of it if you're earning more than $400,000. So, the the third, the second big one, then I'll let Tom close us out with one additional Ira change. But the second big one that we wanted to bring to you is the tax treatment of rollovers to Roth IRAs and accounts so this was added to the bill I believe Thursday of last week. Under current law. Contributions to Roth IRAs have income limitations. For example, the income phase out range for single taxpayers making contributions to Roth IRAs for 2021 is 125 to 140k. So the single taxpayers with income above 140k In this example, are generally not permitted to make Roth IRA contributions. However, in 2010, similar income limitations for Roth IRA conversions were repealed, which allowed anyone to contribute to a Roth IRA through a conversion irrespective of the still enforced income limitations for Roth IRA contributions. As an example, if a person exceeded the income limitation that I just mentioned. For contributions to Roth IRAs, we've got 150k w two, that's exceeding the limitation for a single taxpayer, that taxpayer can still make a non deductible contribution to a traditional IRA. So non deductible contribution, meaning they're going to pay tax on that, and then they're going to contribute it to a traditional IRA. And then shortly thereafter, they convert the non deductible contribution from the traditional IRA into a Roth IRA. This is called a backdoor Roth IRA conversion. So in order to close this so called backdoor Roth IRA strategy, and a similar one for retirement plans, basically the mega backdoor Roth IRA strategy. This limitation prohibits all employees after tax contributions and qualified plans and after tax IRA contributions from being converted to a Roth, regardless of income level effective for distributions transfers and contributions made after December 31 2021. So you can no longer if this passes, the backdoor Roth IRA strategy in the mega backdoor Roth IRA strategy will no longer be able to be used after December 31st 2021. In addition, the bill eliminates Roth conversions for both IRAs and employer sponsored plans for single taxpayers with taxable income over 400k. And married taxpayers filing jointly with taxable income over $450,000. And this applies also December 31 2021.
Thomas Castelli 31:29
So basically, you know, break this down a little bit more. The first part of this is saying that if you make after tax contributions to a traditional IRA, so you are phased out of making pre tax contributions to a traditional IRA after a certain threshold. So if you're above those contributions, if you're above the pre tax contribution limits for the traditional IRAs, and you make these after tax contributions, you will no longer be able to roll those over into Roth IRAs. So very unfortunate news. Very sad to see that go. But then the second part is basically saying that if you're, if you're single, and you're earning taxable income over 400,000, or if you're married, filing joint, I think I'm over $150,000, you can't do Roth IRA contributions at all, even on the pre tax amounts that you may be put into a traditional IRA or employer sponsored plan like a 401k. So they're significantly clamping down and limiting your ability to do Roth IRAs, especially if you're high income earner, which is it just said it was a very good strategy. And I'm really disappointed to see it go this way, for sure. And there's another change to IRAs, they're basically going to further limit contributions to a Roth or traditional IRA for taxable year if the contributions would cause the total value of the individual's IRA and defined contribution accounts as of the end of the prior taxable year to exceed $10 million. So I think this rule is put into place basically, you heard some of these, these Ira billionaires, people who've turned their IRAs, you know, basically put a low amount of money into IRAs use their financing savvy, to build these massive IRA accounts with hundreds of millions of dollars in it. Some really rich people have done that. So it looks like they are trying to put an end to that. And these contributions would only apply to single taxpayers who have taxable income over 400,000 or married taxpayers over $450,000. So they are targeting some high income earners here. Another limitation, you know, just sad to see that go to as well.
Brandon Hall 33:31
Yes, I guess you won't be able to contribute to your IRA anymore.
Thomas Castelli 33:34
Yeah, no, bummer. I don't know. I don't know how I'm gonna save for a time with all my all my buildings. And if you guys listen to the last episode, you guys know, billionaire. So very unfortunate, very influential.
Brandon Hall 33:44
tom toms been sweating the wealth tax for billionaires, and now he's got this Ira tax got to worry about I don't know how you do it, man. I'm gonna keep showing up every day. Thank you.
Thomas Castelli 33:52
Yeah. And now I can't even get a tax credit for this for Tesla to buy the model three, man. I can't even I can't even I can't even hoard them either. I can't even hoard them either. Geez, what am I what are billions good for I mean, you know, you said to pay all this money in taxes, man cheese.
Brandon Hall 34:10
Alright, folks, well, that that concludes today's episode with NEC next Tuesday, we will provide you with an update on legislation. And we'll probably over the next couple episodes. That's what we'll be focused on. It's just legislation updates. But remember, if you want to be part of the VIP, that early access webinar that will hold probably week, three or four of November, you need the need to be real estate CPA client or you need to just go to tax bar investors.com And subscribe to the plus or Pro Plan. And if you don't want to do that, and you don't mind waiting until probably second third week of December. Then just go join our Facebook group online. The free Facebook group facebook.com/groups/tax smart investors. That's our free group. We've got about 40 I think 700 or so real estate investors in there. We'd love to have you as part of that, that community so thank you so much. You're listening today. We'll see you next week. Thanks for listening to today's show. If you enjoyed the show, please find us on iTunes and leave us a review. You can also email us at contact at the real estate CPA comm with any feedback or topic suggestions. We are always taking on new clients and with the new tax laws in play. You really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs. To become a client navigate to our client page at the real estate CPA calm and fill out a webform with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.
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