Assets and Taxes - Financial Professionals Analyze Trump and Harris Tax Policies! | Episode #3

Episode Date: October 15, 2024

In this episode of 'Assets and Taxes' financial professionals, Kent Fitzpatrick AIFA®, GFS®, CBFA, and Peter Doherty MBA, CEXP, CFP®, analyze Donald Trump and Kamala Harris' tax policies in this video. Learn how their tax plans could impact your finances. DOWNLOAD OUR FREE FINANCIAL DATA GUIDE: https://mailchi.mp/assetstrategy/maximizing-social-security-guide BOOK A DISCOVERY CALL WITH US: https://assetstrategy.com/contact/#AS_Discovery_Call Contact Kent: [e-mail] Contact Peter: [e-mail] (0:00) Introduction (1:10) Podcast Start (2:13) Tax Cuts and Jobs Act Expirations (12:12) Individual Taxes (13:20) Capital Gains (15:34) Small Businesses (17:28) Corporate Taxes (18:39) Social Security (19:53) Housing (21:40) Tariffs (22:37) 1031 Exchange (24:50) Kamala Harris Pros and Cons (27:30) Donald Trump Pros and Cons (29:20) Conclusion #donaldtrump #kamalaharris #taxes

Assassination attempts, the dropout of a presumptive nominee, global tensions. This election cycle has not been for the faint of heart, but believe it or not, we are just weeks away from having some closure on which direction the country will be going for the next four years. Welcome back to Assets and Taxes. I'm Pete Daugherty, a financial consultant here at Asset Strategy. In today's episode, I sit down with Ken Fitzpatrick, Asset Strategy's Managing Director, for an episode that you won't want to miss. The policy proposals for each candidate could have far-reaching consequences across many aspects of your life, but as financial consultants, we narrow the focus of the discussion to the potential tax impacts on the back end of November. This episode is not meant to sway you to vote for one candidate or the other. We're simply discussing what each candidate is proposing and the impact that these proposals may have on you.

The best way to approach these potential changes is to start planning now. So don't hesitate, book a free 15 minute discovery call with us and we'll help you take advantage of the incentives that are in place today. So without further ado, here of Assets and Taxes. Thank you for joining us. With me today is the illustrious Peter Doherty, one of our advisors at Asset Strategy. Say hi, Pete. All right. Great to be here, Kent. So today's topic is going to be rapid fire. The rules of engagement here, we're going to try to be agnostic. We're not trying to endorse either candidate, but the topic is what each proposals

in terms of taxes are from each of the candidate. And as we're recording today, it's early October. We were just saying we're only a month away from the election, which is hard to believe. But we want to kind of summarize for our listeners what has each candidate on the campaign trail proposed for taxes. And I guess one reminder, we were just talking about, you know, thank God we have a balance of power because we have the executive branch, the legislative branch and the judicial branch. But really, they can say anything they want on the campaign trail. It doesn't mean it's going to happen. They don't know how they're going to pay for it. And there could be a stalemate. So none of this could happen, right? So I think what we're going to start with, Pete, is talk about the Tax Cuts and Jobs Act, which maybe we'll use the

acronym TCJA, because that is the law of the land today, and that is due to expire. So I think maybe that's a great place to start for our listeners to kind of level set what is the tax policies, what's the lay of the land, and then let's get into what each candidate is either silent on or proposing in some of these categories like child tax credits or income tax or corporate tax, things like that. So with that, Pete, start me off on a couple of highlight reels of the TCJA and what's going away. Yeah, I completely agree. I mean, we're coming at this from the standpoint of how do you plan for your financial future, right? You can have, this is a hotly contested debate on who's going

to win the election and everybody has their favorite candidate, I'm sure. But from our standpoint, this is more about how do you as an individual navigate these possibilities? And so the one that's at least probably the most likely is that the law that's currently in place stays in place. Right. So that's if it's a stalemate, that's what's going to happen. If it's a stalemate, if you get, you know, if you get a divided house or a, you know, that's, stalemate that's what's gonna happen if it's a stalemate if you get you know if you get a divided house or a you know that's you know what's what's unlikely have we seen a lot of action out of Congress the past couple years not too much right maybe that continues so the Sun's the tax cuts and jobs act is is sunsetting at the end of 2025 and when

that happens we expect individual tax brackets brackets to go up to their pre-2017 levels. So a top tax bracket of 39.6. Almost every tax bracket is going to see a slight increase in their rate throughout that. So you can think about the impact there. At every level, you're paying a little bit more tax. Now, the only thing that's interesting about that, what they did make permanent was the corporate rate. So the corporate rate, think of C-Corps, is at 21%. That's not phasing out. So that is law of the land. It doesn't revert back, possibly like the TCJA.

Absolutely. Well, I'll give you another one, the standard deduction. So a lot of people used to itemize. When they raised the standard deduction, it didn't make it worth trying to itemize your medical expenses and what you were paying for, your state and local taxes or SALT, which is another item that we'll be reverting because right now, under TCJA, it's a $10,000 cap for SALT. But they also raised that standard deduction to $27,700, I believe, for 2024. That's going to revert to less than half, around $12,000 for couples. So that's another one to think about. Perfect.

I mean, when you look at it, it's estimated that $3.4 trillion in tax cuts will be expiring at the end of 2025. So it's an enormous impact. There's definitely going to be some winners out of that. Some people will have some situations where maybe they even pay less. Some of these, maybe New York, California, people who have lots of itemized deductions might be able to get to avoid some of the tax impact. So maybe the expiration of itemized deductions might be able to get to avoid some of the tax impact. So maybe the expiration of itemized deduction would help the middle class or upper income earners because they could take a much larger deduction without those caps. Sure. I mean, at this point, right, perfect example. If you own a home, you can only deduct up to a million dollars in debt of interest.

So what about child tax credits? What's changing there? Sure. Tax credit looks like it was expanded to $2,000 per child. And under current law, it would go down to $1,000 the way it was before. Okay. And how about another one, estate taxes? What's the current rate and what would it revert back to?

Current rate is $13.6 million per person. That's the exemption level. That's the exemption level. Yeah,. Twice that if you're married. Twice that if you're married. And then it's estimated there'll be roughly half. It goes to $5 million, but indexed to inflation. So it looks like that's going to be around $7 million when everything's said and done in 2026. Okay. This is another one I think that our small business owners, you know, sole proprietors, S-corp folks will miss because this is QBI or qualified business income where certain businesses, a lot of service businesses like attorneys, accountants, engineers, financial advisors

don't get this QBI, but most other businesses and industries do, where they get a 20% deduction right off the top. And again, that will no longer be available after the sunset at the end of 2025. So that's a bit. Absolutely massive. We love working with business owners here, and that's going to be a big hit to anybody who's organized under, you know, as an LLC partnership or an S-corp. So, well, and I think, you know, we talked about this before, you know, as we're filming this, the national debt level is roughly around $35 trillion. We talk about this with clients a lot about whether they use Roth accounts or pre-tax

accounts. I think everyone realizes that taxes are going to go up because we can't sustain spending more than we take in and that national debt levels are continuing to grow and grow and grow. So there's going to be changes. This is what is the law of the land today, but it will revert back to all the prior policies. Well, maybe one more, right? Because there's a few things on the exploration. Oh, yeah. Good point. Good point. Speaking on the business owner behalf, right? Because there's a few things on the exploration, right? Oh, yeah. Good point. Good point. Speaking on the business owner behalf, right? QOZs and bonus depreciation, a couple of

really great incentives that generate some economic activity on the back end of Tax Cuts and Jobs Act. I'm glad you brought that up. Those are excellent. Want to expand a little bit just for our audience what a QOZ is or Qualified Opportunity Zone? QOZs have been a big part of our planning process. It's an excellent incentive to invest in kind of the frontier of real estate communities. It's been primarily real estate. It doesn't have to be for real estate, but a lot of the benefits did accrue to real estate. But when you think about the challenges that our country is facing right now in terms of limited supply on housing, it might be helpful to have some incentives to go and invest in things like building housing. And Kent, when it first came out, you remember how powerful those benefits were.

It was even more beneficial than what it eventually became. But can you run that down? Yeah, I mean, basically the concept, it was built out of a think tank was how do we help employ more people in low-income communities and take either blighted properties or properties that aren't on the sale of my crypto or my business or whatever it was, put it in a qualified opportunity fund, which is typically investing in either properties or businesses in these designated communities, where I got to defer the tax for up to, well, now through 2026, I got to get a reduction of 15%, which then phased to 10% then to zero. But then the real benefit is if I hold it in that qualified opportunity fund for a full 10 years, I pay no further capital gains. So unfortunately, you know, there was talk about extending that because it's been a raving success.

You know, it was bipartisan. It wasn't, you know, Republican or Democratic. Both sides really like this. Absolutely. We've seen it personally with our clients investing in this. These have been used for all sorts of energy creation in oil and gas, but also solar. So if you like the green energy stuff that, you know, QOZs

were benefiting those as well. Housing creation, right? There's a shortage of housing. So yeah, all theseZs were benefiting those as well. Housing creation, right? There's a shortage of housing. So it went to really some pretty good uses. Well, and I know this just got started and then obviously COVID hit. So some of the projects got extended a little bit because of supply and labor and whatnot. But a lot of those properties where we need more housing stock in this country, that's a problem, are coming online. So it really has been an effective piece of tax legislation. Absolutely. And then bonus

depreciation, quickly. Again, another one of those incentives that allows effectively, in the beginning it was 100%, right? So if you made a capital expenditure in real estate, or if you bought a truck, or if you bought some sort of piece of equipment for your business, this was a temporary grant, essentially, or incentive where you could write off 100% of that expense in year one. Usually it has to go. And the big advantage of that over just the straight. So what you're describing, bonus depreci depreciation is 162 of the code. The deduction for business expense is 179.

The difference is the bonus depreciation you're pointing out was unlimited. And originally, it was 100% bonus depreciation on certain types of assets, like you said, like in investment real estate. But then starting in 2023, it lowered to 80%. This year, 2024, it's 60%. And it's going to basically phase out. So the attention has now been kind of pivoting to the 179 deduction, which is capped at a little over, you know, 1.1 million currently. So that's going to be a big effect to the small business owner in terms of how, if they need to buy equipment or improvements, what tax incentives are going to be remaining after that. When you think about wanting to bring back a lot of that industrial base,

I think both parties are talking about that. That bonus depreciation is huge in getting anything that's capital intensive done in making the economics of that work. That was a good summary of what is current law, Tax Cuts and Jobs Act, what is scheduled to phase away, what the law of the land is. Let's talk about what's the rhetoric on the campaign trail. Again, this is to try to get elected. We don't know if any of this will come to roost or not, but let's talk about what each candidate has proposed.

So let's start with Trump. What is his individual tax rates? What is he looking to do or change? Trump's policies mostly on the income tax side of the House is looking to extend the Tax Cuts and Jobs Act. So not much change there. But the interesting side maybe for this is on more what Kamala Harris has proposed. Her income tax on the personal level looks consistent with the expiration of the Tax Cuts and Jobs Act. So the tax brackets are going to move more consistent with that. So that top bracket now, 37, going back to the 39.6? Going back to the 39.6 and everything underneath that kind of shifting upward as well. Now, there are some other goodies to kind of incentivize some of the more moderate,

low-income folks, expanding the child's tax credit. So even going above what it currently is. Let's maybe focus on capital gains for each of the candidates, too. So what's Trump's policy or what's he proposing for capital gains treatment? Yeah, I thought that was really interesting. So again, continuation of the same, and he's actually looking to bring back the Opportunity Zone provision, right? That would be, you know, I think from our standpoint, we like that. But, you know, on long-term capital gains, this is interesting. Kamala Harris talking about moving that to 28%. Which some are applauding because I think Biden was originally talking about 33 percent. Or in the ordinary income tax,

sometimes people were talking about. So that might be, you know, a source of comfort for some who are fearing the worst. But that also impacts anything like a qualified dividend that comes out from, you know, a C corporation. So, you. So that would hit anybody who's dividend investing. I know the most controversial part of her proposal, and this is really earmarked for someone making tens or hundreds of millions of dollars, would be to tax unrealized capital gains. And I don't think this even has wings because I don't know how you would enforce this. And I think you're going to meet with a lot of... I don't know how much would enforce this. And I think you're going to meet with a lot of, uh, I don't know how much to put, how much weight to put into that one, because it

seems like, you know, that seems firmly in the camp of when Biden was campaigning and he threw out some ideas that never really caught wings. And I feel like that's probably one of them, but. So, so let's, let's, uh, dive into, you would start mentioning the child tax credit. So I know Trump wants to go from, you know,000 to $2,000, which is what the policy is under Tax Cuts and Jobs Act. What was the details on Harris? Because I know she kind of had it tiered depending upon age and how much of a credit each family would get.

Sure, yeah. Kind of interesting because it's that first year where it's really kind of juiced up to $6,000 for newborns. But then as diapers are expensive, man, diapers, they're expensive. You know, the labor delivery is pretty expensive too. So, you know, I, in some, in some cases I get that. And then it's going to phase down. It'll be moving down to $3,000 for minors that are over five years old. Okay. All right. And then, so the idea is really for working families is really what the emphasis is. Yeah, absolutely.

All right. So let's move on to our favorite topic, which is the small business owner. So Harris has proposed a new tax deduction for new businesses. So currently, there's a $5,000 startup cost deduction for new businesses. She's proposing to 10X that. So it's going to be $50,000. So I think the only issue that I guess I would describe here is that there's 70 million small business owners out there now. They won't get any benefits.

So I encourage the new business startup, and it's quite a jump from where it is today, but it's really not going to help existing business owners. That's right. I mean, I love giving, you know, trying to ease the friction of somebody who's trying to start a new business. But it is sort of, you know, it's like could be a very small group of people. And it feels like you're kind of choosing the winners here, right? So which one? Yeah. So what is Trump doing for the small business community?

Well, Trump's looking to continue QBI, which is the biggest one, right? I think that benefits every business owner who ends up getting into the profitable stage. It helps pay for all the other taxes that we have, self-employment taxes, employment taxes for your employees, benefit costs, right? So it's really been helpful to business owners to redirect those funds back into the business. And that's something that might be going away. We don't see anywhere else where that continues. Yeah. And I'd say, you know, we already just described the other two points, which would be the bonus depreciation and certainly opportunity zones would also benefit those small business owners. Absolutely. So so if you're planning, you know, that's your if you're an S-Corp or a partnership and you've got to you've got to look at that and say, we got to pay more taxes in a couple of years. Yeah. Yeah.

Yeah. All right. So let's move on to corporate tax rates. So I know you suggested that Harris is talking about 28 percent. And Trump is talking about keeping it at the 20 percent or, let's see, bringing it down to 20 percent. So from off from the 21%. But I know he's also talking about an additional 15% for companies that are manufacturing their product in the United States. So it's kind of buy American, build America.

And we'll talk about some of the tariffs he's talking about proposing for imports outside of that. So it's really a focus on, you know, the American corporation, not the foreign corporation. Absolutely. So the 20 percent, I don't know why it has to be 20 instead of 21, but, you know, that's the proposal. And so but the 15 percent is interesting because it's, again, building on that theme of build America, bring back the industrial base. OK, let's put tariffs on the external manufacturing and incentivize things that companies that make real things here in the United States. So 15 percent would be for a manufacturer in the United States.

Kind of interesting. All right. So the next one is taxes on Social Security. So i know trump has proposed eliminating tax on social security um again you know i think the uh expression is you know they they take the money out of our pocket they do a poor job investing it and then they want to tax us again when they they pay it out so i think there would would be some interest in that. But again, we'll probably say this later on, but these are all proposals, but how do you pay for this? It has to come from somewhere. Harris, I don't believe, has had any stance on Social Security?

As far as we can tell, yeah, we haven't seen that. We haven't seen that. So, but, you know, I think we've seen something on the, on the side of, I think where this lines up is, is sort of in the, the standpoint of, you know, tips, right. Where they kind of mimicked each other there. These are kind of the. Because they're both in agreement on, on tips, right? It's like you're kind of going down the street like, hey, here's, you know, how about you have some free Social Security, free tips? Yeah, yeah. All right. We'll see on that. All right. So let's move on to first-time homebuyers. And, you know, again, we mentioned before we have a shortage of housing stock in this country.

So it's a supply and demand issue. There's plenty of demand. There's just not enough supply. What are Harris's proposals for those first time homebuyers? So Harris's plan says $25,000 in down payment assistance for first time homebuyers. So this kind of, actually an additional $10,000 tax credit as well.

This kind of reminds me of the days when there were zero down payments, right? When it's getting to that point of, are you kind of funding the down payment for the purchaser essentially in that case? Well, the issue I have with this is we're in an environment where we have high interest rates and they're in the process of

coming down. We have low inventory. Don't you think that this is going to actually just spur more demand because now you're going to incentivizing people? So housing prices may inflate by another 25 grand, right? To offset this down payment assistance plan. So I think we need something from either candidate that's going to help increase supply. I mean, I applaud helping first-time homebuyers, but not if it's going to be just creating more demand for an already thin supply that we have. Right. Our real estate partners are telling us that they're seeing too many buyers competing over the same property. And so it's, you know, it seems like it is more of a supply problem, at least for now. So this is more of a demand side solution.

Yeah. So, and I don't think Trump has anything for first time home buyers. No, he doesn't. Yeah. All right. So you started talking about tariffs and foreign trade. So one thing I'll add is on Trump, he's been talking about imposing a universal tariff on all U.S. imports of 20 percent. So this is maybe the part where how do we pay for some of these wish list items on the tax side? And then specifically, he's been talking about raising what's called Section 301 tariffs on China to 60 percent. So he's putting it to China. But that's one of his increased tariffs. And again, I don't know that Trump, I'm sorry, Harris has anything specific regarding tariffs. But again, I think the other thing we talked

about before was reducing the corporate tax rate from Trump to 15% if that is manufactured domestically. So that's part of his policy. So we have one of the other big items that I saw was on the 1031 space. And we're big on 1031 here at Asset Strategy. So what are the impacts on each side of the aisle here? Yeah, well, maybe for our audience, I'll first explain what a 1031 is. It's just really the section of the code. No different. 401k is actually the section of the code that relates to 401k. 1031 allows you to take investment property in exchange for like-kind property, investment property for other investment property, and defer any capital gains for that exchange.

So you've got to meet certain timing and rules and parameters. Currently, there's no cap on that. So if I bought a house 20 years ago for $300,000 and I'm investment property and I'm selling it for $800,000 and I've fully depreciated, I would expose myself to quite a large capital gain. Because it's not my primary residence, I can't use my personal exemption with myself or my spouse.

But what I can do is I can use a 1031 exchange to basically, when I make that sale, reinvest it in another property. So the view from each candidate is, from what we know, the Harris campaign has been talking about capping that at $500,000, where Trump wants to continue with the current policy where there is no cap. Our view on this is that this is actually stimulative to the economy, because I think without it, you're going to have a lot of people that would just buy and hold. Because again, if I die with an investment asset like that, I get a step up in basis, but that may not be the best thing for the economy because if I sell my multifamily to you, what's going to happen? You're going to go in and do your

own improvements and fix ups and that's employing, you know, handy people and going to Home Depot and buying materials to fix it up where if I'm just sitting on it, that's not going to happen. So our view is 1031 is stimulative. We don't want to see a cap on that. Yeah, I think it's kind of consistent and we can move into maybe, you know, the summary of each candidate's kind of their strategy, their how they're viewing this, and maybe try to steel man each argument, right? Yeah, yeah. So maybe I'll start with Harris. I'll kind of summarize maybe the pros and cons, and you can do the same with Trump. Yeah. So I think the pros are, you know, the first time home buyer with, you know, down payment assistance with a

tax credit. You know, I shared our view that, you know, that's great for the first time home buyer, but it may create more pent up, you know, more demand just because of that credit adjusting. Certainly, the child tax credit is significant, you know, to support, you know, families with children, you know, going from the current $2,000, which is scheduled to drop back down to $1,000, all the way up to potentially $6,000 if you meet the income caps the proposal to 10x the startup deductions for new businesses fantastic you know currently at five thousand she's proposing fifty thousand we'd like to see more done for existing small small business owners but that's certainly stimulative and then certainly you know focus on home homeownership and we really need more supply.

So I think she has proposed some ideas on that, but I think we need to hear that from both candidates. I would say the cons from what she's proposed is the higher capital gains tax rate at 28%, and certainly the unrealized taxing. You know, again, this is for the ultra- rich, but I don't know how you enforce that. And I think it's I think it's going beyond the scope of, you know, even if I'm a small farmer and I've got a farm and it's appreciated in value, you know, that could potentially be taxed would force me to sell the family farm. So I'm not sure I have a good grasp on that. The mechanics of that just seem a little dicey already, right? Yeah. Again, the corporate tax increase as well, how does that get paid for? Is that

stimulative to the economy? So I think those are probably kind of the pros and cons I took from what she's proposing. What do you have from Trump in terms of pros or cons? Yeah, I mean, I think it's – I'll just add a footnote on the Harris stuff. I think, you know, obviously there's more pain in those proposals. There's higher taxes. You know, I think some people would question whether – you know, is it necessary? Do we need to have that pain in order to bridge the gap and the deficit?

And so maybe some of these are decent proposals, but, you know, I think that generally looks at, you know, shifting the quarterbacking from the private sector to the public sector, right? So a lot of these tax dollars are flowing out of the private investors' hands, out of business people into the central government where they can maybe direct economic activity there. So Trump's plan is a continuation of what we've seen, which we've seen work very well in a lot of cases, encouraging investment in the private sector, in things like real

estate, in businesses of all kinds. And so if you're looking to see, make a steel man case for Trump's policies, you'd say this is a plan that brings domestic, brings home manufacturing from abroad because it's putting up tariffs and disincentives for purchasing from abroad. It's creating incentives to build and manufacture here in the United States by bringing in bonus depreciation, OZs, lower corporate taxes, lower personal taxes. The QBI you mentioned before. The QBI.

So there's lots of incentives for the private sector to do the work on behalf of the government. So what about the cons of what he's proposed? The cons are, you know, all of this, all of these incentives cost a lot of money. And we're in a situation where we're seeing the, you know, deficit expand to quite a large level. Some say might be a dangerous level to the monetary situation, you know, to the strength of the U.S. dollar. Well, take, for example, if he did tax tariffs on imported goods, well, that could still hit you and I as the consumer because what's going to happen? You know, we want to buy a Toyota car that's being imported from Japan and it's going to be, you know, increased by 20 percent tariff.

Well, what's going to happen? They're going to adjust the pricing. Right. Absolutely. And it's going to take some time regardless for these supply chains to shift, right? So you put that tariff up and it may not be day one where, you know, where, you know, he's go, oh my God, we can't, we can't make this work economically with a 40, 60% tariff. It takes them a little while to shift that manufacturing facility somewhere else. Yeah. So, I mean, what I would maybe wrap up with a comment is that neither candidate has talked about fiddling with 401ks or Roths. Right.

And again, the advantage to the Roth is a little bit of pain today where you have to pay tax for the contribution, but it grows tax-free and it comes out tax-free provided you hold it in there for five years and after age 59 and a half. So I think the takeaway is none of us know what the future holds. Neither of these candidates have the pen. This is all done at the legislative branch. Right. So if the House and Senate can't come to an agreement and they're divided, all of this is for naught.

Absolutely. I think from our standpoint, we're planners, right? We're looking at the incentives and we're saying, what can we do today to improve our lives in the future? So there's still all these things. There's plenty of incentives that are still out there today. So today, plan. Come in, talk to us.

We'll show you how you can protect yourself for some of these future changes if they come to fruition. Absolutely. Well, Pete, I want to thank you for this conversation. Hopefully it was a benefit to our listeners. As always, if you'd like to discuss your situation, reach out to us, set up a discovery call. Also, we have a number of free guides related to this conversation. Please click in the links below. And then also, I would encourage you to click for our key financial data, which actually has a summary of all the current tax laws as they sit today. Who knows where it's going to go in the future? But thanks for listening. Thanks for watching. We'll see you next time.