Comments for Capital Gains on Homes Are Tax Exempt (see correction) at http://www.cepr.net , comment 1 to 9 out of 9 comments http://www.cepr.net Tue, 21 May 2013 18:32:47 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20646 If I invest in a dotcom startup, which has some ideas they are working on, I am risking money. Maybe only 1/20 of my investments of this kind payoff. Now a particular one has a great invention...it soars as the future rents from this invention are capitalized. I get the rents from that particular one, have lost money on 19 other investments (were those negative rents?). Now if I sell the stock in an IPO to really capture the rents, I get em. Not the person who buys the stock. There are no rents to the new buyer, no rent-yields. Similarly, if I buy a condo in NY and "rent it" to somebody else and get a net income of near zero, the rent I receive is not a "rent", that was capitalized by the seller. Bottom line: current holders of assets do not necessarily capture rents. Rents such as they are may have been captured long ago by original sellers. If TX raises my annual tax to 6%, for example, my property value will likely fall by 1/2 or so. In that case they will have taken the entire rent from me, though it certainly was not something I had captured. - pete Wed, 12 Dec 2012 04:53:55 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20640 [b]pete[/b] wrote, [quote]Currently in TX we pay 3% per year in wealth (oops property) tax, so the city/county/state does capture a good deal of any rent annually.[/quote] IIRC, TX has higher property taxes than a lot of places. And that's partly why it was less affected by the housing bubble. Which is a good thing. [quote]...housing prices barely keep up with inflation...[/quote] Certainly not true of land prices. If it were, land would be worth nothing as a fraction of GDP, since real GDP growth is positive. [quote]...depreciation... inflation...[/quote] Uh, I [i]did[/i] say "ideally". [quote]Finally, of course, the initial value of the house should capture the rent, not the capital gains. Real capital gains would reflect changes in the environment or something.[/quote] You clearly have no understanding of the economics of land rent. "The environment" is precisely what creates land rent. If a house undergoes a true capital gain (meaning, net of improvements like an addition added), then that gain is entirely composed of capitalized land rents. [quote]Otherwise, its like, well, Apple has rents from patents, and its capital gains should reflect that. That means its a good stock to buy?[/quote] That rents can justly and efficiently be taxed at a very high rate is not invalidated by the possibility that investing in rent-yielding assets might not always be wise, anymore than a failing antebellum plantation comprised a counterargument to the claim that slavery is evil. - liberal Wed, 12 Dec 2012 00:07:58 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20635 I would not be surprised if a large (but insignificant in context) number of people were doing this. It's stupid, of course, but so are people. I have a relative who has paid thousands of dollars in fees to shield her assets from the inheritance tax despite having only a few hundred thousand in assets, far below the exemption even if tax law reverts fully to pre-Bush. Still the story is that there are a bunch of middle class homeowners who are making major financial decisions based on gross misunderstandings of the tax system, or that there are a bunch of rich people who like to claim they are middle class selling off expensive real estate which has has major gains. - Jeff Fisher Tue, 11 Dec 2012 07:53:59 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20633 Currently in TX we pay 3% per year in wealth (oops property) tax, so the city/county/state does capture a good deal of any rent annually. In addition, housing prices barely keep up with inflation, and there is generally no accounting for depreciation (like I have replaced two HVAC units). So "capital gains" for individuals is a silly notion, hence the huge deduction. For investment, of course, all of the expenses are written off as costs outof the income from rent, so the only issue is inflation. Finally, of course, the initial value of the house should capture the rent, not the capital gains. Real capital gains would reflect changes in the environment or something. Otherwise, its like, well, Apple has rents from patents, and its capital gains should reflect that. That means its a good stock to buy? Not necessarily, of course. The rents go to the IPO, or holders of the stock when the company comes up with new cool inventions, not to buyers of the stock after the inventions. - pete Tue, 11 Dec 2012 05:42:08 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20632 Yup,the [i]Post[/i] was clearly not talking about selling principal residences. They're entirely right that the usual year-end loss harvesting is reversed this year. At least in Boston, though, there is very little real estate coming onto the market, it's moving fast, and prices are picking up. - Downpuppy Tue, 11 Dec 2012 05:11:36 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20631 Given that capital gains on houses are entirely made up of capitalized land rents, [i]ideally[/i] they should be taxed at a rate of 100%. - liberal Tue, 11 Dec 2012 05:02:13 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20630 The piece is pretty clear; "Americans are moving to sell investment homes...", but as usual it has isolated anecdotes rather than anything which would tell us about a real effect. Have home prices been significantly affected by this supposed rush by speculators to sell? How many speculators actually bought before the prices first went above current levels? Those who actually own stocks directly will very likely consider selling - and maybe rebuying immediately, a good thing for brokers. As I mentioned before, this could result in a spike in tax revenue. But stock mutual funds have to account for capital gains at the end of the year anyway. - skeptonomist Tue, 11 Dec 2012 04:37:00 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20629 I know it's the Post, but really -- "Americans are moving to sell investment homes . . . ." "The capital gains will affect anyone with investments . . . “It’s not going to affect many homeowners, since they will likely have a portion of their gain free from tax. But it can and will affect people with investment and rental properties." "Nick Chaconas, a real estate agent at Llewellyn Realtors, said he has been approached by two people in the past 90 days who are eager to sell their investment properties before the capital gains rate jumps." "Joan Caton Cromwell, a real estate agent at McEnearney Associates, said she suspects that the high number of fixer-upper homes listed for sale in the past two months reflects the rush to unload investment properties before year’s end." How many times must the reporter/editor repeat "investment property" in one 1200 word article before you'll give them a break? - Ellen1910 Tue, 11 Dec 2012 04:20:51 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/capital-gains-on-homes-are-tax-exempt#comment-20627 It's the Post and they do not know that it is possible to purchase a house for under 500K. As for the part about only the amount over 500K being subject to the higher rate, what's new? They do the same thing when discussing inheritance taxes and income tax brackets. Used to think that news sources were leaving out this information because they assumed readers/viewers understood how these things worked. Now I believe they leave it out because they assume readers or viewers are ignorant of such basic information. - Kat Tue, 11 Dec 2012 03:38:25 +0100