Last night we heard a proposal to raise the capital-gains tax. Can we cut to the chase and dive into reforming the tax code instead?
I don’t want to get into the politics of it, let’s leave that for other bloggers. Everyone can agree that some sort of tax reform is wanted and needed – and hopefully somebody will pull it off someday.
Realtors hear about it all the time, especially from the long-time owners of rental properties. The thought of paying a huge tax bill makes them immediately dismiss the idea of selling, because they know if their leave it to their heirs, the stepped-up basis will apply.
We shouldn’t have a tax code that influences real estate decisions. Tax reform should include a neutral stance on when you sell real estate – it should be taxed the same, whether you are dead or alive.
What about the MID, the mortgage-interest deduction? Let’s get rid of that too, and create a pure marketplace where people buy homes to live in, and raise a family, and not because they get a tax break.
If you have any other reason to buy a house – investment, etc. – then great, but tax benefits shouldn’t be one of those motivators, because they won’t apply to all citizens.
‘Oh Jim, now you’re asking for it. The NAR is going to punch your ticket and throw you out of the club for that kind of crazy talk.’
Yeah? The National Association of Realtors needs to play a bigger game. The millions they spend on lobbying could help champion tax reform, instead of sounding like a broken record on the MID.
Here are two articles discussing the topic:
1. This guys says that something has to give:
2. This guy points out how small the MID benefit really is:
http://www.latimes.com/business/hiltzik/la-fi-mh-capital-gains-20150119-column.html
The tax code is one big Cluster-Fahrvergnügen. But I’ll bite.
I’ve always laughed at the MID as a significant motivator for people. I always though of it on par with buy one get one free dinner entrée (lesser value and must also purchase 2 drinks and dessert with that, plus tax and mandatory 20% gratuity). Oh, and with that pesky AMT, I have a sneaky suspicion most in CA for many years got a big nothing burger for that deduction.
Heirs get stepped up basis because the estate pays its tax based on the FMV of the property at dod, not the original cost basis. So you gross up the value of the property, pay the estate tax and the kids get the property at the ‘new’ value going forward. The government gets its cut. Now, if you want to argue for a higher or lower estate tax exemption (currently around $5 mil?), that is a separate but related topic I suppose. The current scheme is aimed at allowing family businesses and farms to change hands generation to generation without the government tax apparatus causing forced liquidation to pay the tax, I believe.
yet every time the MID gets discussed, we can count on NAR declaring that the sky will fall if MID is eliminated.
http://www.realtor.org/topics/mortgage-interest-deduction
The mortgage interest deduction (MID) is a remarkably effective tool that facilitates homeownership. NAR opposes any changes that would limit or undermine current law.
Follow the money, I.E. follow the lobbyists. The current tax code will not be getting a significant face-lift in any of our lifetimes. Perhaps if every individual could declare themselves their own corporation, then we’re talking tax breaks!
I have 5 longterm nice rental houses I WANT TO UNLOAD and get the money BUT the tax is so high, the govt will take at least half so screw it.
Yes, I agree we need to eliminate the MID.
Capital gains tax is actually a tax on inflation….the government hits you twice, first they devalue the dollar in your pocket by creating/printing more of them then they tax you on the devaluation when you sell an asset like real estate which keeps its true value (in beer tokens not U.S, dollars) over time.
they should double the MID. pay 10K in interest? expense 20K. Would be a boon for housing and the economy at large.
How to *pay* for it? read this (really read it! it could change your life): http://goo.gl/SAe3UF (first page is blank)
We don’t need a boon or more government support – we need more houses for sale. How about a push on banks to foreclose on all the deadbeats around town?