4 ms·

You could always rent the home so someone else could occupy it. Presumably you would've paid off the $100k home by now, and then you could get a second mortgage

You could always rent the home so someone else could occupy it. Presumably you would've paid off the $100k home by now, and then you could get a second mortgage on a new property, or rent and break even (given the income from renting the first property).

CydeWeys 9y ago
Why should people owning investment properties be given huge tax breaks that wouldn't apply to someone buying the same home in the present day in order to live in it? Basing property taxes on the current value of the property makes sense, and is how it is done essentially everywhere else in the world. Basing property taxes on what the property cost the last time it was sold, even if that was decades ago and is some tiny fraction of the current value, is very unusual, and has all sorts of negative repercussions.
- Y7ZCQtNo39 9y ago
  I'm not disagreeing. I was attempting to show how you might make the housing market less rigid. Even if the numbers of units for sale is low, you could at least get people to rent them. A larger rental supply would help meet the demand in California and keep prices for renters and buyers lower. I completely agree, though, that Prop 13 isn't helping the situation. But politically, we might as well accept that it won't go away. Your best bet is to save up enough to afford a down payment, and hope that property appreciates and you too can also reap Prop. 13's benefits down the road when you're older. And if you're house is worth 10x as much then, you won't lose it for being on a fixed income, like most retired people are. ...I'd still prefer not having Prop. 13. The more fruitful discussion is how to best navigate a world where it continues to exist. Voters will never approve its repeal; if politicians try to do something about it, they will get thrown out the next election cycle.
- sjg007 9y ago
  There is an active debate with people lobbying Congress to remove the second mortgage deduction. Current value makes sense but California introduced Prop-13 and rent control around the same time to basically allow senior citizens to stay in their homes/rentals. Problems with prop-13 include the fact that commercial buildings are not excluded. California also has Prop-58 and another one where the parent or grandparent can transfer the house to a child/grandchild without an FMV appraisal as well. I believe it works like this.. Say a $50k house is paid off by the parent, then the gift tax on that can be paid by a home equity loan on it's current $1m valuation. I'm not sure if the gift tax though is calculated on the $50k or the $1m. Or if it is calculated at all. It may depend on if the parent/grandparent is still alive. You may be able to specify the value as the last real property value or the FMV (to cut future capital gains). Either way you just pay the taxes on it. But I think you can exclude a certain amount up to $500k if married. But you could rent it out as well and use it as collateral on another mortgage. It could also be that these houses will continue to be passed down the generations.
  - khuey 9y ago
    It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the inheritors get a house with a $500/yr property tax bill (1% of 50k) instead of a $10000/yr property tax bill. (1% of 1M) Meanwhile all their neighbors who had to buy their homes recently are paying that $10k/yr. The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.
    - sjg007 9y ago
      Yes I know that it's property tax. Sorry if that wasn't clear. I thought I had it covered by FMV appraisal.
deleted 9y ago
[deleted]

CydeWeys 9y ago

Why should people owning investment properties be given huge tax breaks that wouldn't apply to someone buying the same home in the present day in order to live in it? Basing property taxes on the current value of the property makes sense, and is how it is done essentially everywhere else in the world. Basing property taxes on what the property cost the last time it was sold, even if that was decades ago and is some tiny fraction of the current value, is very unusual, and has all sorts of negative repercussions.

Y7ZCQtNo39 9y ago
I'm not disagreeing. I was attempting to show how you might make the housing market less rigid. Even if the numbers of units for sale is low, you could at least get people to rent them. A larger rental supply would help meet the demand in California and keep prices for renters and buyers lower. I completely agree, though, that Prop 13 isn't helping the situation. But politically, we might as well accept that it won't go away. Your best bet is to save up enough to afford a down payment, and hope that property appreciates and you too can also reap Prop. 13's benefits down the road when you're older. And if you're house is worth 10x as much then, you won't lose it for being on a fixed income, like most retired people are. ...I'd still prefer not having Prop. 13. The more fruitful discussion is how to best navigate a world where it continues to exist. Voters will never approve its repeal; if politicians try to do something about it, they will get thrown out the next election cycle.
sjg007 9y ago
There is an active debate with people lobbying Congress to remove the second mortgage deduction. Current value makes sense but California introduced Prop-13 and rent control around the same time to basically allow senior citizens to stay in their homes/rentals. Problems with prop-13 include the fact that commercial buildings are not excluded. California also has Prop-58 and another one where the parent or grandparent can transfer the house to a child/grandchild without an FMV appraisal as well. I believe it works like this.. Say a $50k house is paid off by the parent, then the gift tax on that can be paid by a home equity loan on it's current $1m valuation. I'm not sure if the gift tax though is calculated on the $50k or the $1m. Or if it is calculated at all. It may depend on if the parent/grandparent is still alive. You may be able to specify the value as the last real property value or the FMV (to cut future capital gains). Either way you just pay the taxes on it. But I think you can exclude a certain amount up to $500k if married. But you could rent it out as well and use it as collateral on another mortgage. It could also be that these houses will continue to be passed down the generations.
- khuey 9y ago
  It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the inheritors get a house with a $500/yr property tax bill (1% of 50k) instead of a $10000/yr property tax bill. (1% of 1M) Meanwhile all their neighbors who had to buy their homes recently are paying that $10k/yr. The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.
  - sjg007 9y ago
    Yes I know that it's property tax. Sorry if that wasn't clear. I thought I had it covered by FMV appraisal.

deleted 9y ago

[deleted]