The Big Beautiful Bill

There’s no handbook to owning a home. That’s why Jessica Duncan with Scenic Sotheby's International Realty goes beyond the transaction to share tips to improve the homeowner experience.

Each week, the seasoned Gulf Coast realtor shares sound advice for smarter decisions in the areas of home maintenance, avoiding scams, refinancing, buying, selling, investing, increase your home value, downsizing, estate planning, Florida insurance, money saving hacks & building wealth.

Her area of expertise is the Florida panhandle including Pensacola, Gulf Breeze,Milton, Pace and Navarre. No matter what season of homeownership you’re in, Jessica Duncan Just my opinion is adulting made simple.

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Transcript

Speaker 0:04

This is Jessica Duncans, just my opinion. And I'm Jessica. There's no handbook to owning a home. That's why I go beyond the transaction to share my tips, insights, and opinions for adulting made, simple. I am so excited today to have not only one of my very good friends, my impact sisters, but also my CPA Jan Pacenta in the studio today. This is amazing. I've been trying to get her on this podcast for so long. Thank you so much, Jan, for being here.

Speaker 2 0:33

Thank you so much for the warm introduction, Jessica.

Speaker 0:36

So a little bit about Jan and I'm gonna let her tell a little bit about herself as well. But not only is she my CPA, I think she's one of the best in town. Just so you know, before I ever hired her, I interviewed multiple CPAs, about eight, I think, and she was the one with all the right answers. So she's the one of course I chose for my businesses. you are a shareholder here locally and a partner at, what's the name of your firm? My firm is named Brown Thornton Pacenta. Where are you located

Speaker 2 0:59

at? I'm in downtown Pensacola. And you've been doing this for a long time now, about how many years? About 30 years. Specializing in businesses and individuals in multiple industries.

Speaker 1:10

Awesome. And you are always my go-to before I make any major move, any major purchase I call you. How is this gonna affect me? What do I need to do? Not only is she brilliant and grounded, she is really involved in this community. She gives back to this community, as you set on the Impact 100 board and we're our treasurer for, What, four, four years. Four years, yes. so I love that about you and I love how down to earth and real you are. So thank you so much for being on the show. Thank you. So today we are gonna be talking about the big beautiful Bill. There's been so much talk about it, so I'm so happy to clarify what it is, how you can use it. We're gonna talk about individuals, families, businesses, all the way to real estate investors. Go through it all. So no matter who you are, if you don't know what the big beautiful bill is. This is your show, if you know what it is, but don't know how it affects you. This is definitely your show. We're gonna dig in deep on the big beautiful bill today. Sound fun. that sounds great. Awesome. And before we kick off too much about the big beautiful Bill, I do want you to tell a little bit about yourself. Just tell us a little bit about you and a little bit of your personal

Speaker 2 2:12

life. I'm born and raised in Pensacola, Florida. I have a husband and two children. My daughter just recently moved back, which made me very happy. I've been involved in numerous community events. From, junior League Cultural Center Council on Aging Impact 100 as well as with my church.

Speaker 2:30

Awesome. You're just a good person overall. so what exactly is the big beautiful bill? Can you explain that for someone who has no idea what the big beautiful bill is? Please give us a brief synopsis'cause I know it's really big. Yeah.

Speaker 2 2:43

The Big Deal fee bill is an expansion of the 2017 Tax Act. This bill provides. Broader deductions and credits and incentives for both businesses and families. The most significant part of this bill is it increases take home pay for many Americans. For example, many families can have a tax reduction of 1000 to$2,000 in their annual tax bill. So

Speaker 3:08

this bill has gotten so much attention. Why, from a CPA perspective, why has this gotten so much more attention than all the other bills that have been passed? Why is this such a big topic of conversation?

Speaker 2 3:22

One thing people did not know is the 2017 tax bill that those incentives and credits were. Sunsetting in 2005. So this bought more incentives and credits for future. It also gives, reshapes pass through deductions and depreciation rules, and phase outs that touch every member of the community.

Speaker 3:42

Okay, so we're gonna dig into that a little deeper. But let's say this sort of in plain English terms, right? Yeah. So that's for those of us who, are used to paying quarterly taxes, we sort of understand what you just said, right? The American who doesn't pay quarterly taxes, they may not understand that, right? So basically there was some tax incentives that were going away, right? That's what you mean by sun setting, right? So they weren't gonna be there anymore, so they were expiring and taxes were gonna go

Speaker 2 4:06

up. An example of that is the standard deduction, which is now for married couples over$30,000. That was supposed to retroactively go back to the 2017 level, which was 15,000. So it

Speaker 4:18

doubled, I mean, that's huge for an average family. Yes. Yes. Yeah. Okay. So it was, there was some stuff that was gonna expire and then you talked a little bit about pass through. Yes. So we're gonna dig into that when we talk about business owners a little bit more. What is the most practical day-to-day impact that this bill has on someone's life? And I'm not talking about business owners or investors, just day-to-day. Human who doesn't own a business, doesn't pay taxes quarterly, isn't buying real estate. How does this bill affect them?

Speaker 2 4:47

This bill increases their take home pay. People will see higher in take home pages due to increase standard deductions and family credits, an extra 200 to$300 per month. Helping to ease the cost of groceries, utilities, or even allowing for occasional family outing.

Speaker 5:05

And the reason for that is'cause it went from 15 to 30, right? 15,000 to 30,000 as a standard deduction. Let's talk. Okay. Let's

Speaker 2 5:13

go back. Okay. Because, okay, stop. The, the$30,000 was part made part in 2017. Mm-hmm. It was supposed to expire in 2025 and go back to, 15. Mm-hmm. So it's just that that's not a new standard deduction. It's just a expansion of the standard deduction for more years.

Speaker 5:31

Is there something going on in this bill that's on top of that that's gonna make people bring two to$300 more a month? Yes. Expanded tax credits as well as bonus depreciation, et cetera. So not only did it expand the tax credits that were there to make sure we continue to at least bring home what we were bringing home. Right. There's more additional credits to help us bring home more money. Yes. And is that for only business owners? No. Is that only for the high income?

Speaker 2 5:56

For individuals, it increases the amount of student loan interest. People gonna die, which is great for, singles and couples starting out and they're trying to pay off their student loans over a period.

Speaker 6:07

So what do you think is the most, standout benefit when we're talking about families, employers, and freelancers? What do you think the biggest benefit to this bill is?

Speaker 2 6:15

Families will see the expanded childcare and dependent care deductions increase.

Speaker 6:20

That's great. So that means that childcare that they pay for, they're gonna get to write that off on their taxes and get more of their income back.

Speaker 2 6:27

Yes. And that is actually a credit, not a deduction. A credit actually saves you dollar for dollar for tax your taxes. Perfect. Yes. We like that. Right.

Speaker 6:40

Is there anything that has to do with medical expenses on this bill?

Speaker 2 6:43

Yes. this eases the medical deductions starting at seven, 7.5% of your adjusted gross income. It expands your childcare to an additional$3,000 per child, and it keeps student loan forgiveness, tax free.

Speaker 6:57

So childcare is a higher de a higher deduction. your medical expenses are a higher deduction, and student loans are a higher deduction, right? So that's not business owners, that's just the average family that they can take these deductions. Great stuff there. So let's dig into small business owners because, that is also what helps run this economy, right? And helps keep America going, or all these small businesses. So what did that do for them? What does, did this bill introduce just for small business

Speaker 2 7:25

owners, one of the most beneficial things for small business and the owners is a provision called Section 1 79. And that provision was supposed to. Reduced the amounts, et cetera. This bill permanently sets succession 1 79, deduction to two and a half million and restores a hundred percent. Bonus depreciation for equipment purposes. That means for a small business is if you purchase a piece of equipment for$200,000, you get a write off. Year one for that, which that increases cash flow for the businesses so they can purchase additional supplies, spend money on personnel to expand their business further.

Speaker 8:04

So if a business needed to buy some equipment, they now bought a$200,000 piece of equipment, they can now write that all off in the first year instead of paying that amount towards taxes, which then allows them more money to put back in their business, right? Whether they wanna expand it, hire more employees. It also helps create spending. Which helps us all at another small business. Right? Right. Um, so that definitely will help our small business owners. Now, as far as an LLC, an S corp or sole proprietor and those that don't own businesses, those are the different types of business structures that are most common. So when we look at those three types, is there anything different for them?

Speaker 2 8:39

No, the same, limits and the increase. Section 1 79 and bonus appreciated applies to everybody. One of the other tax credits that these businesses. Had over the last five years was they get a deduction called the QBI deduction, which is a deduction that based on your equipment purchase of the sales, et cetera, this 20% deduction was set to expire in 2025. This bill made it permanent.

Speaker 9:06

So it made those permanent and you get that bonus where you can take it all off in that first year. Um, so definitely helping our businesses out there. So what's something that most small business owners are gonna forget about or overlook and not think that this is something I, I need to tell my CPA about? One of the new credits

Speaker 2 9:24

out there that is very well almost overlooked is called the Research and Development Credit, and it expanded this, for example, in your business, if you have a custom software. program written, you can actually deduct that upfront instead of carrying the cost over five to 10 years.

Speaker 9:41

Oh, wow. So I can do some research and development. Maybe create, Create my own software to manage something or process to manage something, and I would be able to deduct that cost in the first year. Yes. Instead of spreading it out like I used to be able to. Correct. Okay, so we've talked about the individual. We've talked about the small businesses. Now let's talk about my favorite thing, the impact on real estate, right? Um, since you know I am a real estate agent, this is what I love, and I'm a big proponent. If we go to work to make a living, which means we pay our bills, but we buy real estate to build wealth, and they're two total different things. And I'm not just talking about investors, but even a homeowner. You buy a home versus renting a home to build wealth, that's what gets us further down the line to be able to, you know, trade that equity in on the next house and eventually have that house that's paid for. Right. So when it comes to real estate, how could this bill directly affect housing, afford affordability in the real estate market so we can get more of those people to start building wealth?

Speaker 2 10:37

This bill is great because it expands the, it boosts the depreciation deductions up to 80% bonus depreciation, and it also includes. Special, rules and incentives for if you, if you do real estate transactions in an opportunity zone. So an opportunity zone is some where you're disadvantaged and you're trying to build first time home buyers and et cetera, and you can get extra benefits by doing that, while at the same time you're providing housing for the members of the community that need it so bad.

Speaker 11:08

So for if you are a builder or developer in the area, which I know a lot of people get frustrated with our builders and developers in this area. Yes. Every time I list a big parcel, they're like, don't sell it to a builder. Like I get to choose who buys it. Yeah, exactly. But they, you know, they get frustrated that the builders and the developers are, you know, taking the land and, but this actually incentivizes them. To build more affordable

Speaker 2 11:31

housing. Exactly. And that's part of the, that was the Enter enterprise zones are trying to build more affordable housing and they're targeting tax credits for the builders and developers so that we have more affordable homes.

Speaker 11:44

Yeah. So reward those builders for building affordable homes and re revitalizing the area around them. Mm-hmm. What are some of the, do you know some of the areas in Pensacola? I know there are some in the downtown area, I don't know all the layouts, but I have been a part of a couple of different projects in downtown that they, the people who bought the houses had to qualify within a certain income bracket. They couldn't make over a certain amount. Right? Correct. Um, and sometimes there's deed restrictions on those that even going forward, the people that buy those homes must have an income under a certain amount to keep that as affordable housing. Right. Is there anything a homeowner should consider from this bill?

Speaker 2 12:21

homeowners get the increased. it used to be there was a limit of 750 or 500,000 on a mortgage for deduct the mortgage interest. Mm-hmm. That is increased to 750,000, which is Oh, good. More for the people that have the higher homes. Another thing is the salt deduction, which it, it doesn't affect this, it affects this area, but not as much as other. Basically, the salt deduction is real estate taxes, sales taxes. Property taxes and state income tax, the limit used to be$10,000. So if we're lucky, our property taxes are lower but if you have three or four property properties that are, just investment or whatever, you can now deduct up to$20,000 for property taxes.

Speaker 13:05

And even people who don't necessarily live in Florida, because in Florida we don't have income tax. And we have pretty low property taxes, although people here don't think they are compared to many states for like a quarter of them. Right, right. if we have listeners all over the country, so here that's not as huge of a deal. more northern states that have huge tax bills and huge income tax bills, that's really gonna benefit them and. It's just driving several for people

Speaker 2 13:29

to Florida. Several. I have several clients in the Northeast and they're between property taxes, sales taxes, and state income tax. They can be 20 to 30 or$40,000. Wow.

Speaker 13:40

That's a lot. And they're now able to deduct that as well.$20,000 of it. So now we've talked about homeowners, we've talked about the businesses a little. We've talked about individuals. Let's talk about investors and landlords. Okay? Which I get even more excited. So how does this affect investors and landlords?

Speaker 2 14:01

This bill on top of the increased depreciation boost and section 1 79, you can appreciate there's a 20%. Repair, depreciation allowed. And you also, as I stated earlier, the QBI, the qualified business, if you've got an investor that is active in their real estate business, they can deduct up to 20% of their net income. Now there's limits. It's based on sales, net income, payroll, and the value of the property.

Speaker 14:29

Does that also include bonus

Speaker 2 14:30

depreciation or Yes. Bonus appreciation on certain things. for example, your, your bu your building land is not depreciated ever. Mm-hmm. And that's a common mistake that a lot of people make if they just take the full cost, which that will under IRS audit, the IRS will, you know, dock you for that. And, but when you buy a building, What happens is it's a building, so this the, bonus depreciation you can get or a cost segregation study, and that will break out the building into fixtures, et cetera, those fixtures, et cetera. We could be a seven year depreciation. The new flooring could be 10 years, et cetera. And so bonus depreciation, you can write up the cost of those assets, not the total cost of the building.

Speaker 15:16

And that's a huge, huge point that a lot of people miss. If this is something that interests you, don't worry. We're gonna do an entire episode on bonus depreciation'cause we can dig so deep in this. But that's, that is something that a lot of people miss when they see a hundred percent depreciation. They think. Okay, I buy a$700,000 condo that I'm gonna Airbnb, I can write that 700,000 off. That's not necessarily the truth, right? No, no. So it is the, you have to have a cost segregation study study and you have to break down. There's the cost of the portion of the land you use on a condo. While you don't own a hundred percent of the land, you own a portion. and then also, you know, it's the cabinets and the screws and the everything in the house. How long is that gonna last? Expected to last, and you're able to write a percentage of that cost. Cost

Speaker 2 16:03

segregations are here for good. and the nice thing about it is if you buy the$700,000 condo, they usually cost segregations, break down about 20 to 30%. Mm-hmm. Are the components that you can write off for bonus are quicker depreciation. So

Speaker 16:17

that$700,000 condo that first year, somewhere around 30% possibly Correct. You would be able to write off the first year. Correct. And that's where we'll dig into that bonus depreciation on the next episode because that's a, a huge tax advantage for many high paying W2 employees, correct. All right, so let's clear up some confusion, right? There's always a lot of gossip, a lot of talk. What is the biggest confusion about the big beautiful Bill? The

Speaker 2 16:43

biggest confusion is for the, is it's for the ultra wealthy, and that's not correct. As we discussed the child tax credits, the childre credits as long as increased, salted property taxes, et cetera. This benefits everybody, low families. middle income people and wealthy individuals,

Speaker 17:02

don't get me wrong, it does give people with multiple homes, some tax credits. Right. It does give investors and builders some tax credits. Mm-hmm. So they're not. They're not, getting the shaft on this at all. But there is a lot more to all income levels.

Speaker 2 17:16

Right. And when they Congress and the president did this bill, they wanted to provide broad base tax relief for all incomes levels. And this bill did it.

Speaker 17:24

So I know you're on social media. Do a little Facebook, Instagram, right? I don't know how involved you are in TikTok, but what are you seeing that they're totally getting it wrong? I'm sure you saw the little post all about it,

Speaker 2 17:36

right? TikTok says this is free income and another we're gonna get into later. But when you buy a property, there's a difference whether you're a real estate investor or not. To be a real estate investor, you have to actually work more than 750 hours in your property. Or 50% of your full-time job, TikTok is not telling you that. So there's actually income limitations if you're passive, if the real estate is considered passive income, you can only write up$25,000 of that property in the current year, and that is subject to a phase out over 150. If you make over 150,000. TikTok eliminates this. They also provides targeted support and it, and it requires. Careful estate planning rather than offering a universal approach.

Speaker 18:23

So is there any one rumor you wanna clear up about it?

Speaker 2 18:26

I debunk the unlimited salt deductions we talked about earlier, the state and local thing. It is not unlimited, it is$20,000. So TikTok makes it seem, if you buy properties all over and you have, you know,$60,000 of property tax and state income tax, you can deduct it all. That is not correct.

Speaker 18:44

Alright, so let's talk about those high income earners.'cause we do have clients of those as well and we're proud of them and the businesses they've started and what they've achieved. So how does this bill affect those multiple income households?

Speaker 2 18:57

What it does, it does phase outs for people with multiple incomes and it safeguards the QBI and, and itemized deductions under a million dollars. And it's a smoother paying for a two career family.

Speaker 19:10

In English, please, for those of us who don't know all of those terms, can you break that down a little bit easier? Some of those

Speaker 2 19:17

phase outs for, for example, your Roth conversions, your, itemized, deduct mortgage interest limitations, charitable contribution limit, it has higher phase out phase outs for those.

Speaker 19:29

So if you're itemizing, you're gonna be able to take more of the deductions right than you could in the past. Yes.

Speaker 2 19:35

Yes. And if your house is more than 750,000, If your house is 750,000 or less, you can deduct more of the mortgage interest. Perfect. I.

Speaker 19:44

So besides bonus depreciation And using real estate as an investment strategy, which we'll talk more on the next episode about, but what about those high income earners specifically? So over a million dollars, we know we can do bonus depreciation with them and really use real estate there as a strategy. Okay. So let's just pause for a second and explain the difference between a Roth. In a traditional IRA because they're very different. But traditional IRA, I'm gonna be taxed when I receive the income out of the IRA on a Roth, I'm gonna receive the income tax free.

Speaker 2 20:16

Correct? Correct. And what makes it nice for a Roth conversion? Let's say you have a traditional IRA at age 40, that is worth a hundred thousand dollars. A good tax planning thing is to convert that into Roth. You do pay the tax, the taxes on the value of that Roth at 37%. But what happens with that a hundred thousand dollars IRA. Once you convert it to Roth, it can grow to 500,000, 700,000, whatever for the years. For how many years you own it. Then when you tax it, take it out, it's tax free. So eliminates income taxes to the seniors when they're enjoying their retirement.

Speaker 20:56

And you mentioned a backdoor. Yes. So, um, with the Roth IRA, one of the disadvantages for multifamily income is, you know, if you make over a certain amount of money, you can no longer contribute to an IRA. But there's a back door way to do that. Yes, there's a back. Can you explain that?

Speaker 2 21:11

Backdoor way. You do a Roth convert, you do a Roth IRA and the income limitations for Roth IRAs in traditional have increased. Oh good. That was part of this tax bill. And so you do a non-deductible IRA, which is has higher income limitations that you can do, and then you convert that non-deductible IRA into an. Roth IRA the next year. You pay the taxes on the value of that conversion now, but once you retire at age 65 to 70, you can take that money in your Roth IRA out and there's no taxes on this. So it saves taxes for seniors and it's a great planning, purposes.

Speaker 21:52

Yeah, so I can put money in a traditional IRA this year. Wait a year, then take that money and roll it over to an, uh, Roth IRA. Right. And now when I receive the income in my retirement years, I'm not being taxed on it. Correct. Correct. That is a great, uh, planning for retirement and a definitely a great tactic to use. So let's talk about the long-term financial lens. What do you see happening five to 10 years from now? What is gonna be the impact of this big, beautiful bill?

Speaker 2 22:23

partly the estate plan. The estate limit is now 15,000. Looking five to 10 years out, this bill will spark growth and income. So more business will be investing in these long-term assets, the capital assets, and getting current year depre, current year tax deductions.

Speaker 22:43

so more businesses are gonna spend more money Correct. Which creates more jobs Yes. And gets more taxes

Speaker 2 22:47

and those with deductions and Roth. Moves, that helps you compound your

Speaker 22:53

wealth so I can put more money into my retirement and not have to pay taxes on it in the future. Correct. I'm just converting everything into basic terms. Right. Correct. Jan is so smart and her knowledge is so deep here. That sometimes she forgets that. We don't know as much as she does. Right. so what is something that in this bill that people won't feel immediately, but they are gonna feel the effects of it?

Speaker 2 23:20

the, the long-term growth, the, the long-term economy.'cause people, businesses are providing more, Opportunities, more real estate, new businesses are gonna open up. So you'll have new businesses opening up, whereas more housing, affordable housing in areas,

Speaker 23:34

and that's all stuff that takes time. You're not gonna feel it tomorrow. Right? But it takes time. So how should people adjust their long-term financial goals based on this bill?

Speaker 2 23:43

what it, what you should start do is you start prioritizing and we talked about, there's called a thing called Roth ladder. So you wanna do, if your IRA is 600,000, you wanna do a certain amount each year to convert it.'cause you don't wanna pay all the taxes in the first year doing that and optimizing your benefit business entities with the expanded opportunity for business depreciation.

Speaker 24:05

And I got a simple one.

Speaker 2 24:06

Just call Jan. Correct? Correct.

Speaker 24:09

Just call Jan and she will absolutely help you figure out what you need to do. Like she does me, and I'm telling you, I really don't even make a major purchase without calling her. She can attest to that, that

Speaker 2 24:19

before you do anything, I can't tell you how many times people have come in at the end of the year and said, this is what I've done. And it's something that if we had done planning, we could have saved them additional taxes. So

Speaker 24:30

you actually appreciate that I call you and text you so much. I appreciate,

Speaker 2 24:33

I appreciate, I want the emails, calls. Letting me know what's going on in my client's life.

Speaker 24:39

So let's have a little fun with this big beautiful bill. So from Pour meia, margarita to pop the champagne. Yeah. How excited are CPAs about this? Bill?

Speaker 2 24:46

CPAs are very excited because this is a growth center. This is for growth for the markets, growth for businesses, growth for real estate investors, and a simplified approach. for years we've had this income limit here, income limit there, and it's been confusing. This is a simpler bill. Perfect.

Speaker 25:05

So I hear, and I don't know if it's a rumor and I don't know if it's true, so I need you to clarify, is there a yacht clause in here? Is there something to do with yachts?

Speaker 2 25:13

There's not a formal, but you can take section 1 79. As long as the business, the yacht, et cetera, has more than 50% commercial use.

Speaker 25:24

So if I use it to show people property on the water, yes. Maybe one day I'll get that yacht. Maybe one day.

Speaker 2 25:30

one of the things in this, as we talked about. With the real estate professionals and, and the yacht calls, you need to document and you need to have a log. If you're gonna have a yacht calls, you need to have a log that this is personal and this is business'cause that will come up on your audit and if you want, you get audit, you need to make sure you've got stuff to absolutely back it up.

Speaker 25:49

Don't lie about it. Are there any other quirks or surprising cool little things that you wanna share that you found that you were like, wow, that's sort of funny?

Speaker 2 25:58

There's an interesting one. Cryptocurrency mining is, you can get energy credits for that. it's legitimizing what started as a, risky business into legitimate tax efficient ventures.

Speaker 26:11

Thank you so much, Jan, for breaking down the big beautiful bill. And we are gonna do another episode where we're gonna dig deep in just a minute so they'll air at a later date. So if you loved hearing Jan, then definitely stay tuned to the next one. Tell us a little bit though about how people can reach you, and who your ideal client is.

Speaker 2 26:30

My ideal client is individuals and businesses, small businesses. My niche. We've, we deal with small businesses, and real estate investors, physicians, et cetera.

Speaker 26:41

Well, we'll put her info in the show notes, so if you wanna reach out to her, please feel free to, we would love for you to connect with her. Obviously, I value her immensely and send her everyone I talk to. Thank you so much for joining us today. Remember, it's just my opinion. If you like what you heard today and you wanna know more, make sure you like, subscribe, follow wherever you're listening to us, so you never miss an episode if you have a question. Don't hesitate, DM me, text me, call me, email me. I would love to get your question answered on the show and I may just invite you to be on the show. Also, if you have an idea for a show you want us to talk about, send it to me. I love your ideas and I love to answer your questions. Thanks for joining today, and remember, this is Jessica Duncan and it's just my opinion for adult. Made simple.