Is Hyperinflation On The Horizon?

[yelped]

What would you consider a smaller player?

Even someone who wouldn't hit the proposed limits. People will be discouraged going down this path period, and that will lead to less investment all around. This exclusion works out for pretty much everyone and should be expanded to more industries in which it would bring the same benefits it does here, not curtailed.

[Lurker]

Even someone who wouldn't hit the proposed limits. People will be discouraged going down this path period, and that will lead to less investment all around. This exclusion works out for pretty much everyone and should be expanded to more industries in which it would bring the same benefits it does here, not curtailed.

Why would paying taxes on over $1M of gains discourage people from going into the real estate business any more than it discourages anyone to go into any business?

The reality is, real estate is a tax haven for the wealthiest people. The tax benefits have inflated the prices well beyond the value of the assets alone. This creates a barrier for entry for many people, keeping the wealth and benefits almost exclusively within the top 10% of earners in this country. Furthermore, it has well outlived its originally intended purpose, which was to motivate people to buy without worrying about paying over 50% (and up to 77%) in taxes. Now, it may very well have economic benefits. If the trade off is worth it in the big picture, expand it to all investments. Not only will that make the RE point of entry more accessible to more people as the demand from the wealthy drops off, but other markets should experience great growth from the influx of like-kind investments. Keeping it as is just doesn't make sense to me.

[ExGingi]

Why would paying taxes on over $1M of gains discourage people from going into the real estate business any more than it discourages anyone to go into any business?

The reality is, real estate is a tax haven for the wealthiest people. The tax benefits have inflated the prices well beyond the value of the assets alone. This creates a barrier for entry for many people, keeping the wealth and benefits almost exclusively within the top 10% of earners in this country. Furthermore, it has well outlived its originally intended purpose, which was to motivate people to buy without worrying about paying over 50% (and up to 77%) in taxes. Now, it may very well have economic benefits. If the trade off is worth it in the big picture, expand it to all investments. Not only will that make the RE point of entry more accessible to more people as the demand from the wealthy drops off, but other markets should experience great growth from the influx of like-kind investments. Keeping it as is just doesn't make sense to me.

Maybe it's time for a tax overhaul and simplification, where tax rates are lower but are imposed across the board at the transaction level.

[avromie7]

Maybe it's time for a tax overhaul and simplification, where tax rates are lower but are imposed across the board at the transaction level.

The problem is this will never happen.

[ExGingi]

The problem is this will never happen.

A consumption tax (VAT or otherwise) is inevitable, it will happen. Hopefully on favorable terms with a complete overhaul and not just another source of revenue.

[Lurker]

The problem is this will never happen.

100%. But keeping 1031 as-is is not a solution or helpful in any way.

[aygart]

A consumption tax (VAT or otherwise) is inevitable, it will happen. Hopefully on favorable terms with a complete overhaul and not just another source of revenue.

lol

[yos9694]

Maybe it's time for a tax overhaul and simplification, where tax rates are lower but are imposed across the board at the transaction level.

Sing it. Fair tax with UBI would solve so many problems, and the collection mechanism is already there because states already have sales tax. The real roadblock is that tax simplification would put so many industries out of business - from tax preparers to IRS employees, lawyers, and courts, etc

But income tax is a joke because if you have enough money you can make sure none of it is considered "income". Every day we see that corporations and wealthy individuals pay little or no income tax.

[AsherO]

This is a very solid point, IMO. What logical reason is there not to tax all like-kind reinvestments the same? Either we want to encourage growth on all levels, or we want everyone to pay taxes on everything they make. Singling out one sector, especially one which may have a relatively high bar of entry, doesn't make sense to me.

Not so fast. While RE can be an investment, as the name denotes it is a real, tangible, and usable asset. Many people who enjoy gains in RE value also have use of those properties, and they rely on that use. When they replace one property with another (do to relocation, or exchanging for a different similarly-valued-but-more-suitable property), why should they have to pay a significant tax along the way?

[ExGingi]

Not so fast. While RE can be an investment, as the name denotes it is a real, tangible, and usable asset. Many people who enjoy gains in RE value also have use of those properties, and they rely on that use. When they replace one property with another (do to relocation, or exchanging for a different similarly-valued-but-more-suitable property), why should they have to pay a significant tax along the way?

https://www.irs.gov/taxtopics/tc701

That's different from a 1031.

Should the other "closing costs" also be deferred because it's an exchange?

[Abey]

Sing it. Fair tax with UBI would solve so many problems, and the collection mechanism is already there because states already have sales tax. The real roadblock is that tax simplification would put so many industries out of business - from tax preparers to IRS employees, lawyers, and courts, etc

But income tax is a joke because if you have enough money you can make sure none of it is considered "income". Every day we see that corporations and wealthy individuals pay little or no income tax.

+1000 Tax code overhaul and simplification should be a bipartisan effort instead progressives are looking for social influence with tax the rich schematics. If our tax code would actually be enforces most of the problems would be solved. And is actually one of the things I agreed with Ted Cruz while he was running, it was a major policy stance of his

[Lurker]

Not so fast. While RE can be an investment, as the name denotes it is a real, tangible, and usable asset. Many people who enjoy gains in RE value also have use of those properties, and they rely on that use. When they replace one property with another (do to relocation, or exchanging for a different similarly-valued-but-more-suitable property), why should they have to pay a significant tax along the way?

Personal use is a different animal than investment. IINM, as long as you live in a house for 2 years, you don't pay any taxes on gains. I don't think anyone has an issue with that.

[ExGingi]

+1000 Tax code overhaul and simplification should be a bipartisan effort instead progressives are looking for social influence with tax the rich schematics. If our tax code would actually be enforces most of the problems would be solved. And is actually one of the things I agreed with Ted Cruz while he was running, it was a major policy stance of his

Except.... That the tax code is one of the largest sources of power for politicians. It allows them to cater to special interests, put certain industries in favor and others out of favor. If COVID-19 is the politician's Opium, the tax code is there Carb Addiction. Good luck on getting rid of that.

[ExGingi]

Personal use is a different animal than investment. IINM, as long as you live in a house for 2 years, you don't pay any taxes on gains. I don't think anyone has an issue with that.

https://www.irs.gov/taxtopics/tc701

That's different from a 1031.

Should the other "closing costs" also be deferred because it's an exchange?

$250K of gains for single filers, $500K of gains for Married Filers (amounts haven't been indexed or adjusted in many years, maybe they should).

[yelped]

Personal use is a different animal than investment. IINM, as long as you live in a house for 2 years, you don't pay any taxes on gains. I don't think anyone has an issue with that.

But you do get hit with depreciation recapture tax even if you have lived there for 2 years and did not claim any depreciation for those years (technically you can be hit by this tax if you were eligible for deducting depreciation, even if you never did so and didn't benefit from it). This can be a very significant sum.

[Lurker]

But you do get hit with depreciation recapture tax even if you have lived there for 2 years and did not claim any depreciation for those years (technically you can be hit by this tax if you were eligible for deducting depreciation, even if you never did so and didn't benefit from it). This can be a very significant sum.

Still a different animal and not really relevant to either 1031 or hyperinflation.

[yos9694]

Except.... That the tax code is one of the largest sources of power for politicians. It allows them to cater to special interests, put certain industries in favor and others out of favor. If COVID-19 is the politician's Opium, the tax code is there Carb Addiction. Good luck on getting rid of that.

Yes exactly. That's why I'd sooner expect a revolution than any meaningful tax on the upper class

[Lurker]

Yes exactly. That's why I'd sooner expect a revolution than any meaningful tax on the upper class

Which is also why this is germane to the OP. As long as the top earners accumulate most of the wealth, and the government is more focused on pacifying the masses with handouts instead of overhauling the system to enable real change, inflation (and hyperinflation) is a risk.

[yelped]

isn't the point of this loophole to allow individual homeowners to move whiteout a hit? (I.e. sell an appreciated house, to buy another in the same appreciated market)?

Not at all. Most personal homes won't qualify for 1031 exchanges, iirc.

[Lurker]

isn't the point of this loophole to allow individual homeowners to move whiteout a hit? (I.e. sell an appreciated house, to buy another in the same appreciated market)?

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx