tax deductions and the new federal tax bills

Mark524
Level 3
Volcano, HI

tax deductions and the new federal tax bills

Hoping someone had a bit more info than I have been able to find! With the new senate and house bills, I’ve heard that we will no longer be able to deduct our expenses for our vacation rental business. We are a sole proprietorship (like I’m assuming most of us are), therefore a pass through business.

thoughts?

14 Replies 14
Clare0
Level 10
Templeton, CA

@Mark524. Interesting observation!  I guess I haven't really paid too much attention since the package hasn't been finalized.  I'm not a sole proprietor strictly speaking, just reporting rental income.  But, in the meantime, I'm saving all my expense receipts!

Edwin57
Level 10
New York, United States

With the way things are going they them self don't know you know what I mean 

@Mark524, first of all, no one knows exactly what will be in the tax bill should it finally become law (not a sure thing).

I did just read an article outlining what currently is in the Senate and House versions of the bill.

I didn't see anything relating to business deductions. (I am assuming you are talking about changing how business deductions work for pass-through tax entities).

It would be extremely unusual to change how normal business spending works. They would have to change the definition of what an valid business expense is.

What specifically did you hear?

 

See my response to Rene & Zac 🙂

Rene-and-Zac0
Level 10
La Quinta, CA

I agree with @Matthew285, the coming economic revolution is between the have and have nots. Business and enterprise are just two ways to create wealth. The future will benefit those that produce wealth and those that have historically consumed wealth, will suffer.  The creation of wealth will be rewarded with lower taxes and consuming of wealth that others created will be curbed. This tax move is jus5 the first step. Next comes social security and Medicaid. They have openly said that social benefits must be cut. As an individual tax payer and in my tax bracket, my taxes will go down. As a business owner, I look forward to the firehose of economic opportunities. It’s projected to be a three trillion dollar stimulus of foreign investment. The money is coming home, open your purses. 

‘You know it’s hard out here for a Host’

I wish I could be so optomistic about the intentions of our current economic situation. Not to get political, but it seems that much of what is happening favors the big guys, and not those of us in the bottom or middle. In Hawaii we are already having issues with big hotels wanting to close Airbnbs, and it's hard for me, personally, to believing that lobbiest in Washington or locally are looking out for MY welfare as a small business. Most of the breaks are going to the richest of the rich, and I'm afraid that will never be me!

If the removal of deductions *is* an issue, the time to speak out is before it becomes finalized. After the fact we are only victims.

 

But that said, here is what I saw that concerned me. I am quoting this exactly how it was presented on our Hawaii Big Island Facebook group (caps and all 🙂 😞

 

"As someone who has been helping prepare income tax returns for indivudal business persons since 1994, I just want to mention a few key points for anyone out there who may be unimformed about the new tax reform that has passed the house. This is NOT a political post, just information. Under the new plan, the tax burden will shift more heavily to the middle class, PARTICULARLY the individual business owner. How? All business expenses are, in effect, removed. No longer will items such as business cards, advertising, continuing eduction, travel expenses, business-related mileage, business phone, subscription service, accounting software, legal software, home office, tools, uniforms, and office supplies, be deductible. For example: Currently an independent contractor carpenter who makes $30,000 and has $5000 in business expenses pays tax on $25,000. Under the new law he would pay tax on teh full $30,000. That would increase his tax burden by about $1000. There are many features of the new tax bill that are unfair to the middle class, but I feel this one is particularly hurtful to families and will destroy many small businesses. I have called my senators on this matter, and urge anyone with a voice out there to make yourself heard on this matter. If you don't feel so moved, at least MAKE AS MANY BUSINESS PURCASES AS YOU CAN BEFORE DECEMBER 31, 2017."

 

I do know that removing the insurance mandate is in the Senate version, which will almost definitely cause health care to skyrocket for those of us who purchase on the ACA (due to more healthy people not signing up). We are also losing the state tax deduction which greatly impacts those of us in states with income tax  -- basically we will be taxed by the state and then taxed by the feds on that same full amount. 😞

 

 

Mark26
Level 10
Melbourne Beach, FL

The tax reform bill hasn't even been finalized yet, but the wild speculation is rampant.   I don't have any specifics, and can't offer an opinion on a law that doesn't exist yet, but if you read something on Facebook, it must be true. Because, it was on Facebook. and Facebook is on the Internet. And you'll never find false information there, no matter how hard you look.

@Mark524 Aloha! We are also Big island property owners. We have a small lot in Hawaiian Beaches down in Puna across from the park. I agree about the hotel unions, they wan5 to crush short term rentals. Harry Kim is in the process of a full on attack. Our old friend lived up your way in Glenwood years ago, she’s passed away now though. Pam Lamont was her name. 

@Mark524, @Mark26, @Rene-and-Zac0, the content of that Facebook posting is addressed is this Snopes article:

https://www.snopes.com/tax-bill-small-business-deductions/

 

Apparently the current bill does NOT target small business deductions made by the owners of businesses (like AirBnB hosts).

Rather, they are curtailing Unreimbursed expenses attributable to the trade or business of being an employee, which under current law are deductible to the extent the expenses exceed two percent of adjusted gross income. Those items would not be deductible under the current proposal.

 

Short take: AirBnB owners: no change.

Employees: will lose deductibility of unreimbursed expenses.

That is extremely helpful - thank you 😄

 

@Rene-and-Zac0: Nice to meet other island hosts! This is a great business for our area - both tourists and hosts. Hopefully we can keep it that way!

@Matthew285 When I see them close the ‘Ireland loophole’ for corporate headquarters outside of the US, I will know the revolution has begun. That single loophole allows giant business to skate by basically tax free. It’s disgusting what these big businesses do and how they steal billions of dollars from the american people. The yard sale is over, that buzz sound is the largest economic engine ever created and I’m telling you that engine is a dual carb Chevy 454 engine that’s about to tear into the tires. To say I’m ‘giddy’ is an understated observation. I can’t wait one more second for the flood gates to open. Alarge chunk of the wealth we created is coming back home and it’s about time. A three trillion dollar stimulus package that is anchored in construction and infrastructure. Shania Twain has a new song out that fits this situation to a Tee, “Things about to get good’. 

Oh yay, another round of trickle-down economics. I remember how well the last two worked out.

Charlie159
Level 2
St Paul, MN

I am a new host and have been wondering about the tax deductions allowed under a small business and whether AIRbnb rentals qualify as such.  I would like to hear more about how that worked for anyone in previous years and if any of it has changed recently. Thank you.

Your Airbnb can be treated as a rental property, with depriciation for the property value and contents, deduction for property tax, insurance, utilities, cable etc, if it's part of your residence then figure out the % etc.

 

I don't see anything that changes tax treatment for rental property. The great leader is in the real estate biz...