KGCI: Real Estate on Air - The Big Beautiful Bill: Key Tax Traps and Features for Real Estate

Episode Date: October 28, 2025

Summary:This episode provides a detailed breakdown of the "One Big Beautiful Bill," a piece of legislation with significant tax implications for real estate agents and investors. The discussion focuses on the positive aspects, such as the permanent extension of the Qualified Business Income Deduction and 100% bonus depreciation, as well as potential "tax traps" and complex new rules. The host offers clear, practical advice on how agents can leverage the new tax benefits and avoid common pitfalls to maximize their financial position.

one of the biggest laws passed in my adult lifetime, one big beautiful bill, which I believe is what have only three tax cuts passed in my lifetime, just passed. Now, I'm discovering every day almost a new misunderstanding, a new detail, a new, and as a state playing, you might look at it as a tax trap. I'm really excited to have today,

Vishal Pedigara, who is a state playing attorney specializing in high net worth and ultra-hidden-net-worth individuals. as well as cross-border estate planning. And he kind of gave me some really good insights into the One Big Before Bill tax traps and wanted to share that with us. So, Fischer, what are two of the most common or missed tax traps you think from this bill

that it's created for people? Well, there's a couple that I've highlighted, and thanks, Bill, for having me on today. You know, I guess where we should start is what is the One Big Beautiful Bill, right? In a historical context, where we are right now is looking at the possibility, where we were looking at the possibility of Pumps Tax Cuts and Jobs Act expiring, right?

Because the byproduct of expiring, the rates would have gone up back to where they were prior to 2016. The estate limitations or the estate exclusion would have drastically come down. And there was a number of other issues that had to be addressed on an imminent basis. Is this a perfect piece of legislation? No, that's okay, but something had to be done. So the one big beautiful bill is basically a tax reform legislation that wanted to cement the Tax Cuts and Jobs Act rates and also make certain things permanent.

It's a little bit of a grab bag of special interests at the end of the day, but it's part of the sausage-making certificate. So just to summarize, some of these changes were in the law but set to expire, so this bill made those changes permit. Didn't change anything other than to prevent it a change going forward on some issues. That's the thing. Let's talk about permit, right? Because one big, beautiful bill was passed under what the Senate calls reconciliation. So for budgetary bills, fiscal bills, and that kind of thing, there's a faster process called.

reconciliation where only 51 votes are required in order to pass it. Here's the trade-off. That bill is only good for 10 years. So much like the Tax and Jobs Act, the one big beautiful bill has a 10-year lifespan, right? So in another 10 years, we're going to have to revisit some of these changes that were made, right? So obviously there's political inconsistency. We're good for 10 years, but what happens from that, right? Let's talk about some of the major people, right? The rates, the tax rates that were in the TCJA were extended, right? So our individual rates are now 10, 12, 22, 24, 32, 35, and it peaks out at 37, right?

The old bill peaked out at 39.6. The income thresholds are also now indexed for inflation, which means that over the course 10 years as inflation is kind of a problem right now. The rates are going to be indexed for inflation in order to accommodate that issue. So just to stop for a second because there's a lot here to unpack. I appreciate your detail. So we're not as sophisticated. So I appreciate bringing in an expert like you.

The top tax rates went from 36 to 3.9 and a half. They had been cut in the prior tax bill. And what this bill did was extend that 36% for the next 10 years. it didn't lower the taxes, it extended the cuts from the prior bill for another 10 years? For another 10 years, correct. Okay. And then second, the indexing is important because you have a standard deduction, but over time that standard reduction seems smaller as inflation comes up.

But going forward, these deductions are now indexed for inflation, so they're going to go up if inflation rises along with inflation and keep up and keep more current. Is that a good summary? Yes. Yes. So that kind of takes us to an interesting question on. these standard and itemized reductions, right? Some of them were made permanent.

However, there are some significant changes, right? One of them I wanted to talk about is the state and local tax reduction. Ostensibly, the maximum tax of the deduction was increased from $10,000 to $40,000. So again, just to identify, this is referred to often as salt, state and local taxes, and so you write off against your federal tax return, the taxes you pay, particularly in high tax states like New York, where you are in California, where I am, and local taxes, Sydney, New York has an income tax,

City of LA has an income tax. So you get to write off those taxes against your federal tax bill as an expense, but there's a limit to that, and that limit got raised by the most reasonable. Not as high as someone did, not as low as someone did, but did get raised, correct? Yes. It's slated to increase annually by,

by 1% until 2029. And now here's the rub. After 2029, that cap drops down again to 10,000. So it's not a permanent increase in salt reductions. It's only a four-year increase in the salt deduction cap, right? There's also an expanded deduction for modified adjustment of income for greater than half a million dollars, which means between zero and 500,000, 40%, or I'm sorry, up to 40,000 dollars is deductible.

After half a million dollars, a lot of these deductions kind of drop back down. So folks who are very high earners at half a million or more, they're actually going to be, they're going to lose the ability to optimize the deductions simply by not being able to take them or worse, taking a lot less. There's an example floating around. There's an example floating around. Linkin-a-Lie Phaelor put it together. Somebody who makes $500,000 versus somebody who makes $600,000,

and the adjustment difference between the salt deductions associated between them resulted in $100,000 plus increase in their tax bill. Wow. basis, right? So it's, you know, going from 40,000 to 10,000 might seem minimally disappointing, but the tax bill that results from that loss of deductibility was fairly substantial because I believe that you not only have an increased marginal rate at that point, but you also have a lower deductibility threshold as well. And for those who are watching this, so sometimes when you say make a certain amount of money, we think about our salary, we think about,

what we normally get out of our business or maybe a salary from our business. But really, this also applies. I deal in probate and trust issues to kind of one-time income boosts as well. I'm in real estate. And so, for example, I'm selling a property this year, you know, on top of a good year income-wise, we're going to have a large additional income that raises my tax rate this year relative to other years. So which year these laws go into effect are really impacting me or can I defer it in the next year?

And so it's not only affecting people who earn every year of $500,000, it particularly hurts people who maybe generally make $300,000 or $400,000 and have a great year in a bonus. Well, how do you take that bonus? And if you go over $500,000 and you live in a high-tax state like California, New York, you might want to think about that and get with a state planner to make sure that you maximize because you might end up paying more net for that bonus and you do it the world. That's what we shall just laying out for us. Well, think about an attorney who works at a very large law firm, right?

This attorney might be making a base compensation of $400,000 and then they have a bonus coming in. The issue is that depending on the size of that bonus, right, that could put them over the edge here. And ultimately, the revenue the bonus is almost literally wiped out by the tax bill that results from it. And if the bonus is non-cash, the bonus is stock. or anything else. That's kind of income, right? Well, yeah, meaning you get the income in the stock, but now if you have to pay an extra $100,000 of cash taxes on it,

you sell the stock to get the cash. You kind of went backwards in some cases. So, again, this is why this is so important, is it's not just people who every year make a certain amount. I'll never forget. One year I had as a mortgage business, when we first started in the first four years, we live very modestly.

And my wife and I, We borrowed a lot of money and we were making money, but it was all in the business. And we didn't cash it out. About the fourth or fifth year, we took a very large profit bonus that really reflected the prior four years because now we had cash coming in, the business was doing well. That was the year that the Clinton administration passed the retroactive tax increase when it comes over $250,000 because that was rich. And I had been making about $200,000 a year, but I had put a lot into that one year.

So I took this bonus out and paid the penalty. and the higher rate on the bonus, I ended up losing about two thirds of my bonus that I had worked for, or the profit I worked for four years. So again, and I didn't have a good estate plan. I didn't think to go to a professional. And that's why it's not just people who make this year after year, it's also very important for people who have one-time gifts,

one-time inheritance is treated a little differently, perhaps, or one-time bonuses, one-time profit, pull-out, so that's what we're talking about here today. Right, so, you know, I guess the moral of the story is given this date of taxation, today if you had a liquidity event coming up and that liquidity event is something that may be taxable, I think that planning around that liquidity event in order to structure it appropriately and better manage the tax base and associated with it is probably the best thing.

Yes. A hundred percent. A couple of other things that popped up here is this one's a good one. The mortgage interest deduction was increased from half a million dollars per couple up to 750,000, right? You can also now take the deduction of the interest associated with your home equity. Just to clarify, the income on which one can take a mortgage deduction went up or the actual amount of the mortgage interest. The limit of the deduction, right? You can take up the $750,000 of mortgage interest and produce you.

That's a good size mortgage. The other one here is there's theoretically easier access to deducting medical expenses, but I think much of that was kind of eliminated with the removal of miscellaneous deduptions. Not all of them are gone, but there are certainly enough of miscellaneous deductions that have been stripped away that for a lot of households might be relevant. For instance, the deductibility of legal expenses, medical bills, and that kind of thing are now restricted, right? And I think obviously the biggest news that we have from the one beautiful bill

is the increase in the estate tax from $15 million through $15 million at the individual level, $30 million for a married couple, and that is also indexed for inflation. but there's a big gaping hole when people do planning oftentimes the biggest thing I hear is that there's an acute need or want of something that is relatively permanent right I'm spending a lot of money today

to plan for the unknown now and in the future right right I have to come back in 10 years if this changes right so that's kind of the downside of passing a tax bill with reconciliation is that in 10 years you've got to look at the planning and make sure it still

works right so make sure make yourself enough time to make changes if necessary right you can't plan on December 10 years from now you really need to plan on June or July so if there's some changes be made you have some time to execute those changes yeah I would say it in you have two or three months of execution time maybe one to two of everyone kind of like just stops everything. But like you know, some of these projects are time sensitive and they're also time intensive. So having enough meantime

in order to plan for some uncertainty. Obviously, in 2000, what is it now, 34 is probably when this issue would come up again. And it would certainly be an election year issue as well. There's going to be a lot of talk about it in the legal sphere and everything else.

So it'll certainly be a subject matter that will be addressed. So, okay, so we talked about the salt, we talked about the standard deduction. Talk about, I think it's a bit of a misnomer, no tax on tips, but that's capped at a certain dollar amount, no tax on overtime, again that's capped to some amount. No taxed. It's not only taxed, but it's also limited to like the first year. Uh-huh.

So it's a gimmie, but it's a gimmick at the end of the day. Right. So it's, you know, it sounds good. And I think it speaks to a certain segment of the workforce that appreciates it that it's not permanent. Right. It's not even 10 years long. Right. Right. So that limitation is kind of like, you know, when you look at it, it's there's not much substance there. And, you know, frankly, this bill goes up against, um, goes, um, goes, against the requirement to balance the budget, right? So initially this bill in its original form would have created a trillion plus dollar hole, right? And I think that some of these limitations

are being placed on the things that are desirable to many of the population are just can't have been restricted so much in order to ensure that the deficit reduction element of it comes through. Yeah, I mean, the other part, like Social Security, you know, it's interesting that, unfortunately, my wife had, you know, cancer, and was battling it for two years, and so we had extra expenses, and, you know, she retired. Thank God she's recovered, and she's, you know, cancer-free.

But at the time, I thought, well, you know, I'm 65, I could take the Social Security earlier now and kind of help bridge us. You know, it's not a lot of money, but it'd be nice to help you. bridge things we have extra expenses looks to income earlier and I applied and Social Security said oh no you're you're rich you make too much money it was like whoa I'm rich like I can only imagine and I think the same is true now with the tax laws that it was announced that there's no taxed Social Security well that's true up to a certain income amount but again if you make more than certain income amount then you're going to be taxed on portions of your

Social Security and so I think again a lot of this is you know there's a lot of politics here and I'm not pointing fingers saying who's right or who's wrong or who's good or who's bad. I'm saying it's that you have to really dig in the details and that's why you need a professional who can go through this and apply it to your case, not to the general case, right? Because we're not all voting on the bill. We're now filing our tax returns or making our decisions on our retirement plan. Now it's now it's time to execute in compliance with the law. And, you know, the issue here is that there's a lot of interpretation left to be desired. There are regulations that have to be even promulgated associated with this.

So interpretation is going to be fast. It's going to be hard. And ultimately, our compliance may be strained because of how we may interpret something versus how the IRS does. Well, almost always it sounds like I have, I do probate and trust real estate by I end up working with, you know, states, some large ultra network, high network estates. And I was surprised when the accountant kind of leading on the tax issues, you know, required an appraisal. I said, well, you know, first off, we're keeping a lot of these assets.

The ones we're selling, we'll have an appraisal from the buyer, so we'll know what those values were. But in California, we also do a day of death certificate, day of death appraisal on the whole asset. And the account said, no, you really need to have a formal, you know, certified appraisal for the IRS. I said, well, I understand. California requires the probate referee, we call him in California, a certified, it's not really an appraisal, it's similar. And I said, why? I said, well, because the IRS is going to challenge it. They challenge every estate over, you know, a certain amount of my, I think, he said, $10 million. They're just going to challenge it, so you have to prove it.

So you might as well just do it now while it's watered up in writing and have those activities in place. And so it's just interesting that, you know, whether he's right or wrong, you have to have a plan, you got to execute the plan, you need a quarterback to call the play. But my point is... States like California, New York, and other various jurisdictions be good. We being one of them, I can think of it through others. They each have their own set of state law. They don't necessarily comport with what the federal rules and regulations are.

Right. Right. I know that Pennsylvania has in the book that the laws and regulations to the federal government likewise apply at the local level, but not every state does that. Right. So there is a requirement that we must actually plan and predict because the state's interpretation of the treatment of certain income amounts

and that kind of thing may vary from federal. Right. So where you might have a savings on the federal side, you could actually end up with an increase in taxes on the state side. Right. And long-wise, the state may have different requirements from the federal government. So you have to have a advisor.

CPA, lawyer, et cetera, who can handle the difference in differentiation. And then you can even layer in another which would be local laws in California. A big part of our life is property tax reassessments, right? And so if it's something, we tightened exclusions to just parent to child. There used to be almost any relative could pass a property and avoid property tax reassessments. And you say, well, what's the big deal? But the houses have been held in families now for generations that were bought for $30,000, in 1950, they're worth $5 million today, and the difference in assessment is 1% is going

to be like $50,000 a year, yeah, $5,000 a year difference on the assessment alone. So is it worth giving an appraisal? Well, yeah, if you can avoid a reassessment. But you might save money on your taxes and lose a reassessment option, or you might, you know, avoid reassessment, but trigger some sort of a tax consequence. And so you really need somebody who takes a holistic look at the whole thing, which is where I step out and say the count it, how can it help you? I'll get you the data, but I'm not hearing to make those decisions. Right, right.

You know, that's interesting. Situations like that, when you have a heavily appreciated asset like the home that was bought for $30,000 and now is worth $5 million. One of the things I would recommend is somebody who is using that home as a legacy asset that want to pass a number of children, et cetera, that they would want to consider using a grantor trust or something to that effect and for holding their property, right? So there's a couple of things, right? You have a, one of the things that we want to do, especially for elder planning, is something to be the effect of like our Medicaid Asset Protection Trust, right?

The issue becomes if planning like that occurs, we have to be cognizant to the fact that if, you know, the client or a patient passes away, right, are we going to sacrifice the air step up and basis, right, for today's planning, or how do we preserve the air step up and basis in order to affect a Medicaid-ass protection trust or elder costs, right? So, you know, financial planning and tax planning, you know, really operate together because, you know, insurance policies would be purchased, and likewise, some things that maybe, that we might deal are expensive today are going to save a heck of a lot of money down the line. Yeah. Having some liquidity I think is so important. I'm the real estate guy, so

oftentimes they don't have any liquidity, they have to sell the real estate and that's where I come in, but the reality is an insurance policy or a portion of the assets held in liquid that you can deal with the taxes and avoid being forced in decisions, I think, can save a lot of money to a state's that has be part of it. And I think the way you just described to me, it's like I watch it like it's a whack-a-mole, right? You have the tax issue, then you have the assessment issue, then you have the liquidity issue, then you have the state tax issue, and what's the best outcome for all of that?

And I think, again, the right answer always is individual, and it requires, particularly to talk about a lot of money, requires really planning head time, understanding the whole picture and making a plan. And then in this case, adjusting it as a loss change, but they change in, you know, federally this year, last year we realized state law changes in California in particular and so you had to stand top of these things and evaluate them as those changes come to apply so you know I just want to

indicate that our firm there's a lot of a planning firms that kind of like intake large amount of clients and then just kind of run through a document preparation software and pump out standard document right given the unique circumstances of all of our clients right one of the things that we pride ourselves on is that we are bespoke planners, right? We're a boutique firm, but we're also bespoke planners. Every document that we produce, every plan that we create, is individually tailored to the needs of the client, right? And the client's fan.

Right, we have meetings with the clients, several of them in order to identify these needs. We have planning meetings to identify the plan we've created. And then, you know, we literally spend a career four hours running through the documents with the clients to ensure that they understand what their rights and responsibilities are. Yeah, really critical. And then hopefully make sure that we have a plan and make sure we execute the plan. And I'm currently working on a state that's got $40 million in assets and he met with an estate planner, wrote a big check, but I'll work in never signed the documents. We have a beautiful binder with some great docs.

I'm sure he's one of the world's great estate plans ever created, but the fact that's not signed makes it virtually worthless, I think. I mean, you can talk about the intentions of the will part, but he had a separate will, so technically even the will is of limited to no value from a legal point of view. So it's just so frustrating. I would argue that an unexecuted set of documents is the worst thing that would happen, right? particularly within a state that has dumb assets

because that's going to create conflict down the line and that's usually the one thing that at a decision client wants to go over it. It's just that all can be used for his conflict, right? All can be is, oh, he said he was going to, you know, leave me this and but didn't get effectuated. Why did it not? Maybe it's second thoughts.

Maybe he changed his mind. Maybe that second thought was why he, you know, we don't know people complex, why they never signed something. We could say they're busy, we could say they're lazy, but there's also the human element, which is do you really want to disinherit your children or your ex-wife or whatever the story is? And like you say, to me, the unexecuted plan is just cannon fodder in a probate case objection. I just see it all the time.

Okay. So obviously you have a, you were bespoke. I think being a California, we would say custom approach to your business, which really requires a 101. Obviously, people would reach out to you individually. I put up on the screen, your phone number, and email. What's the process to look like? Give me an idea for somebody who's looking to get into... Let me kind of tell you about something here.

I noticed that you're saying New York, the state planning attorney. We're based in New York, but we work with clients who are literally everywhere. I've got clients in California. I've got clients in Texas, New York, Pennsylvania, New Jersey. I got one client in Wyoming, actually. But even more important, I have clients who are overseas who are planning for U.S. beneficiaries, right? So obviously I work with folks who are typically $5 million plus, but I have no problem working for people who are up-and-coming, right? A young physician family, a young, you know, professional family who is clearly going to be set for the future, right?

But, you know, the process is I'll have an initial meeting with a client. We'll talk about their goals. We'll talk about their wants, their needs. We'll talk about their aspects and any idios intricacies associated with those aspects. Right. We go back. We develop a plan. We review documents.

We review financial statements. We review prior tax records. And then we'll create a roadmap, literally a roadmap of PowerPoint. deck that identifies and articulates and turns it into a visual the asset layout that they have today, the asset layout that they want to have, and we'll put together a literal plan on how to do it and articulate and identify every document from an assignment of interest, assignment of property all the way to the trust documents and wills, right? We'll articulate all that.

We'll discuss the plan with the client. I want the client to understand what it is we're doing. And then when they say, okay, that sounds great, let's do it. Then we will execute, we'll draft all the documents, we'll have a review of the initial draft, we'll make the edits as necessary, and then we'll have a, quote-unquote, closing. We'll meet with you and we'll sign. Very typically, if my client is not in New York, I will have local counsel at my expense come to the execution.

If they want me there, I'll certainly be there, but local council will handle the signatures. And then we'll prepare any filings as necessary. We'll put together the binders, and you'll get a binder as well as an electronic copy of all your documents. And then we'll follow up with you at least on a yearly basis to make for everything's working.

And if you need anything else, we're there too. Well, I know it's very personalized. and I was referred to you by, you know, one of my best clients who's a licensed producer here in California, who reduced me to you, and also does work outside of California. I think it's very common. New York businesses, I think, have to be able to be more national and, in many cases, international. It's not as common in other markets, probably in Los Angeles some, but so I appreciate you correcting that. So again, Vishal Pettigara, and then to contact, phone number on the screen, 215, 527, 436.

and his email as well for Michelle. Pettigara at Pettigara loggroup.com. Of course, if somehow you need this and you miss it, feel free to reach out to me, email, text or phone call. I'll be glad to pass on the info. He also is on LinkedIn and has a profile there, very handsome picture.

And more importantly, yeah, well, you know, you think of his customer sometimes, but I think it's enough. You know, again, you can find him on LinkedIn or again, the phone number email we have here. If I can help, put you guys together, also feel free to reach out to me. I'd be more glad to make that connection. Michelle, thank you so much for explaining to us some of the tax traps of the one big, beautiful,

Bill, as well as important. So if we're doing planning overall, I really appreciate your time today. All right. I appreciate you having me on. Thank you very much, Bill. I'll speak to you soon. Thank you. Thank you so much.

And for the rest of you, this is probate weekly. We get together every week and talk about issues both probate and avoiding probate, which is estate planning. Oftentimes, though, we try to state plan and avoid probate. in probate court litigating these issues. So I do interview attorneys to cover these issues all the time. You can continue the conversation on our Facebook group. Probate Weekly is on Facebook. If you need a referral for a real estate agent or an attorney, other states, you have questions, questions in other states, feel free to put them there. We have a pretty

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