The presentation discusses the implications of the recent tax reforms for home builders and homeowners, emphasizing a corporate tax rate cut and various deductions that can benefit small businesses. Key changes include a reduction in mortgage interest deductions and the introduction of limitations on state and local tax deductions, along with alterations to how capital gains are treated. It highlights the shift in tax burdens and potential future regulatory guidance needed to clarify these tax law changes.

1. Build Homes,
Not Your Tax Bills!
Presented by:
Kevin Harris
August 9, 2018

4. AGENDA
• National Association of Home Builders
(NAHB)
• Home Builders
• Home Owners
• Choice of Entity
• What’s to Come
• Q&A

5. NAHB COMMENTS
• Supported the final tax bill
• Will help middle-class families
• Maintain the nation’s commitment to
affordable housing
• Ensure that small businesses are treated
fairly relative to large corporations
• Spur economic growth and increase
competitiveness

6. PROJECTED TAX DEFICIT
Source: KPMG International, Tax Reform – KPMG Report on New Tax Law, February 2018

7. HOME BUILDERS
• Corporate tax rate reduction from 35% to
21%
• 199A deduction on pass-through entities
– Deduction of 20% of the individual’s qualified business income
(QBI)
– Limited to the greater of 50% of wages or the sum of 25% of
wages and 2.5% of the unadjusted basis of all qualified property
– Limitation does not apply if income is less than $315K for MFJ
and phaseouts apply if between $315K-$415K
– Specified service trade or businesses excluded such as health,
law, accounting, etc.
– 20% deduction is not allowed in computing adjusted gross
income (AGI)

8. 199A EXAMPLE
DESCRIPTION
LLC 1
(MFJ)
LLC 2
(MFJ)
LLC 3
(MFJ)
Ordinary Income $500,000 $300,000 $355,000
Interest Income 10,000 10,000 10,000
Taxable Income 510,000 310,000 365,000
QBI 500,000 300,000 355,000
W-2 Wages 100,000 100,000 100,000
Qualified Property 200,000 200,000 200,000
20% of QBI 100,000 60,000 71,000
50% of Wages 50,000 50,000 50,000
25% of Wages +
2.5% of Qualified
Property
30,000 30,000 30,000
199A Deduction $50,000 $60,000 $60,500

9. HOME BUILDERS (cont.)
• Bonus depreciation deduction of 100%
– Applies to new and used assets
– Effective 9/28/17 through 2022, and then phases down over the
next 5 years
• Repeals the Section 199 Domestic Production Activities
Deduction (DPAD)
• Net operating losses (NOL)
– Eliminates carryback but carryforward is indefinite
– Limits the carryforward to 80% of taxable income
– Applies to losses arising in 2018 and beyond

10. HOME BUILDERS (cont.)
• Excess business losses
• Limits overall losses in excess of $500K for MFJ
• Calculated after passive activity and at-risk limitations
• Carried forward as NOL subject to 80% limitation
• Entertainment expenses
– No deduction allowed for any activity considered
entertainment, amusement, or recreation, including
membership dues for any club
• Meals
– 50% deduction still allowed for most meals, including de
minimis food and beverage that used to be 100%
deductible

11. HOME BUILDERS (cont.)
• Interest expense limitation
– Only applies to taxpayers with gross receipts in excess of $25
million (tested annually)
– Deduction limited to the sum of business interest income and
30% of Adjusted Taxable Income, which does not include:
• Interest expense and interest income
• Net operating loss
• 20% deduction for certain pass-through income
• Depreciation (through 2021)
• Amortization (through 2021)
• Depletion (through 2021)
– Disallowed interest is carried forward indefinitely
– Carryforward treatment different for corporations/partnerships/S
corporations

12. HOME BUILDERS (cont.)
• Like-kind exchanges are limited to
exchanges of real property
• UNICAP threshold increased to $25M of
gross receipts from $10M
• Cash method of accounting
– Threshold increased to $25M of gross receipts instead
of $5M (average of the past 3 years)

13. TOP BUSINESS TAX INCREASE AND
TAX CUTS
Source: KPMG International, Tax Reform – KPMG Report on New Tax Law, February 2018

14. HOME OWNERS
• Overall lower brackets and tax rates
• Standard deduction increased to $24,000 for MFJ and
$12,000 for single filers
– Greatly reduces incentive of home ownership
– Estimated that less than 10% of filers will claim mortgage
interest and/or property tax deductions by itemizing
• Mortgage interest deduction reduced from $1M to
$750K
– Second home deduction still allowed
– Current loans of $1M grandfathered in
– House bill capped loans at $500K and disallowed second home
deduction
• Deduction for state and local income taxes, property
taxes, and sales taxes limited to $10,000
– This deduction was eliminated in first draft of bill

15. HOME OWNERS (cont.)
• Capital gains exclusion of $250K/$500K Single/MFJ
retained if personal residence for 2 of last 5 years
– Senate bill was 5 out of 8 years and phased out after
$500K
• Home equity loan interest deduction was eliminated
• Repeal personal exemption - $4,050 / person
• Child tax credit increased from $1,000 to $2,000 and
phase-out AGI levels increased from $110K to $400K
• AMT exemption and phase-out thresholds increased
• Exclusion for estate tax doubled from $5M to $10M

16. TOP INDIVIDUAL TAX INCREASE
AND TAX CUTS (cont.)
Source: KPMG International, Tax Reform – KPMG Report on New Tax Law, February 2018

17. CHOICE OF ENTITY
With a 21% tax rate, should I change my
entity to a C corporation?
OLD LAW NEW LAW
DESCRIPTION C CORP S CORP DESCRIPTION C CORP S CORP
Taxable income $1,000,000 $1,000,000 Taxable Income $1,000,000 $1,000,000
35% corporate tax 350,000 - 21% corporate tax 210,000 -
Remainder to distribute 650,000 1,000,000 Remainder to distribute 790,000 1,000,000
Individual ordinary income - 1,000,000 Individual ordinary income - 1,000,000
Dividend income 650,000 - Dividend income 790,000 -
20% 199A deduction - - 20% 199A deduction - (200,000)
39.6% ordinary income tax - 396,000 37% ordinary income tax - 296,000
20% dividend tax 130,000 - 20% dividend tax 158,000 -
Total tax liability $480,000 $396,000 Total tax liability $368,000 $296,000
Effective tax rate 48.0% 39.6% Effective tax rate 36.8% 29.6%

18. WHAT’S TO COME?
• IRS / U.S. Treasury instructed to issue
many regulations
• Many uncertainties in how to interpret the
bill
• A “technical corrections” bill is possible
• Political differences to passing a
corrections bill
• Sunset provisions through 2025

20. CONTACT INFORMATION
Kevin Harris
Goldin Peiser & Peiser, LLP
214-635-2473
KHarris@GPPcpa.com