Displaying items by tag: taxes

(New York)

While some New Yorkers prepaid their property taxes last year in an effort to offset the decline of SALT deductions this year, others weren’t so proactive. Now that Washington has blocked states’ ability to work a loophole around classifying taxes as charitable giving, residents of high tax states may have a small window of opportunity—just 4 days—to avoid full taxes. The new regulations will take effect on August 27th, which means residents have until then to donate to the tax-charity funds which have been established.

FINSUM: Such last minute payments could be challenged after the fact, but considering the effective date of the new regulations, they seem like they would go through.

(New York)

When the Republican tax reform package came out last year, there were fears that the changes could cause weakness in the muni market. However, while those potential long-term challenges remain, the reality is that the tax changes have helped the muni market considerably. The reason why is that the lack of SALT deductions means that many more investors have a strong inventive to buy muni bonds. This has kept yields low and demand robust, as for a high income couple in states like New York, a local muni bond yielding 3% is equivalent to a taxable corporate bond yielding over 6%.

FINSUM: Given the way that the new tax package heavily incentivizes muni income, we expect demand and prices to remain robust.

(Washington)

There is a lot of excitement right now about the possibility of the new capital gains tax cut. The Treasury is looking into whether to effectively cut the capital gains tax rate by allowing investors to account for inflation when reporting their gains. The cut is estimated to amount to $100 bn over the next decade. However, the Treasury is uncertain if it has the authority to make the cuts on its own, a move it would undertake by simply redefining the meaning of “cost”.

FINSUM: So evidently the first Bush administration looked into this in the early 90s and decided that the Treasury did not have the legal authority to make this change on its own.

(Washington)

The Trump administration is exploring a new $100 bn tax cut for Americans. The plan, which is designed to potentially bypass Congress, will try to use the Treasury Department’s own power to enact the cut. The core idea of the cut is to allow investors to account for inflation when calculating capital gains. What that effectively means is that investors could walk up their basis in shares as time progresses, minimizing the taxable portion of their gains. The cuts are far from final, as Treasury head Mnuchin says he is not even sure if the Treasury has the authority to do so. Mnuchin commented on the cuts that “We are studying that internally, and we are also studying the economic costs and the impact on growth”.

FINSUM: This cut makes logical sense to us, but there is already backlash in the media that this is a major gift only to America’s wealthy.

(New York)

Ever since the Republican tax package was passed, along with its limitation on SALT deductions, there has been a lot of speculation that there might be a mass exodus of wealthy northeasterners to no-tax states like Florida. However, in practice that does not seem to be materializing. Financial advisors in New York and California say many clients are considering relocating, but in reality few are. A quote from Bloomberg explains why: “Wealth managers and tax lawyers say many of their (New York) clients are staying put after hearing about the scrupulous records they would have to keep to show they’ve really uprooted their lives and severed ties with their former states … and that it’s not as easy as just spending a few more days a month in a Florida vacation home”.

FINSUM: It is a very big lifestyle change to uproot one’s life in your 50s and 60s and move thousands of miles away purely for financial reasons. We suspect that there will only be a trickle here rather than a flood.