25 ms·

You don't get to keep the whole $2M. That's the point.

mbesto 9y ago
Uh what? If I have a house and I sell it for $2M cash and then I buy a house for $1.6M, I now have $400k in cash and $1.6M in assets.
- romwell 9y ago
  Because of the expenses (moving, taxes, fees, etc) amount to $400K, you've just spent a lot of effort to replace a more expensive property with cheaper and smaller one for no gain. Real-life numbers will differ, but that's roughly the point.
  - mbesto 9y ago
    Right. See my point here about asset transfer fees and the idea of "gain" or "loss" to wealth: https://news.ycombinator.com/item?id=15708206 https://news.ycombinator.com/item?id=15708206 But there is a gain, you just turned an illiquid asset into a liquid asset. The fact that this exchange is even possible is why you are even able to say "its worth $2M" in the first place. If you couldn't turn an illiquid asset into a liquid asset it would be worth nothing, so you neither "gain" nor "lose". Would you rather have that scenario? Lastly - if you see personal value in purchasing a smaller house, wouldn't you expect service providers (agents, movers, etc) to charge you for that value?
- bzbarsky 9y ago
  If you sell a house for $2M cash and have to pay capital gains taxes, and then buy a house for $1.6M, you do not have $400k in cash afterward.
  - mbesto 9y ago
    If you sell it after 2 years and it's your principal residence you do actually have $400k in cash... https://ttlc.intuit.com/questions/3229450-sold-primary-house-in-2015-for-1-5m-basis-500k-gains-1m-purchased-new-primary-house-2015-can-i-roll-the-gains-into-the-new-house-1-6m-and-pay-no-capital-gains https://ttlc.intuit.com/questions/3229450-sold-primary-house...
    - bzbarsky 9y ago
      No, you do not. If you buy a house for $1M, sell for $2M, you pay taxes on $500k. Those taxes are ~34% if you're in California, so you pay about $150k in taxes. You buy a house for $1.6M, you have $250k left, not $400k.
      - mbesto 9y ago
        This is not correct according to the 2 CA tax accountants I just spoke in the last 2 weeks. I literally am researching this exact situation right now. https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701 Where's your source?
        bzbarsky 9y ago
        I'm looking at the exact same source you are. What part of what I said is not correct, exactly? The capital gains are $1 million. $500k of it is excluded (assuming you're married filing jointly). The rest gets taxed. If you think that's incorrect, what do _you_ think happens with taxes when selling a home for $2 million that was bought for $1 million?
        mbesto 9y ago
        > I said = 2017 - Sell house for $2M > I said = 2017 - Buy new house for $1M > you said = But it might be (for the "buy new house") $1.6 million, not $1 million, in your example... > I said = so they can still afford it. > you said = You don't get to keep the whole $2M. That's the point. So, let's do this again. 1. Sell house for $2M 2. Buy house for $1.6M as you suggested 3. Congrats you now have $1.6M in illiquid assets and $400k in liquid assets (cash) Note - I recognize that my original example was buy at $1M and sell for $2M, where you are correct you're not taxed on the first $500k and the remaining $500k is taxed at capital gains. I also recognize that this whole scenario is purely illustrative and doesn't take into acount all of the transation fees.

Uh what? If I have a house and I sell it for $2M cash and then I buy a house for $1.6M, I now have $400k in cash and $1.6M in assets.

romwell 9y ago
Because of the expenses (moving, taxes, fees, etc) amount to $400K, you've just spent a lot of effort to replace a more expensive property with cheaper and smaller one for no gain. Real-life numbers will differ, but that's roughly the point.
- mbesto 9y ago
  Right. See my point here about asset transfer fees and the idea of "gain" or "loss" to wealth: https://news.ycombinator.com/item?id=15708206 https://news.ycombinator.com/item?id=15708206 But there is a gain, you just turned an illiquid asset into a liquid asset. The fact that this exchange is even possible is why you are even able to say "its worth $2M" in the first place. If you couldn't turn an illiquid asset into a liquid asset it would be worth nothing, so you neither "gain" nor "lose". Would you rather have that scenario? Lastly - if you see personal value in purchasing a smaller house, wouldn't you expect service providers (agents, movers, etc) to charge you for that value?
bzbarsky 9y ago
If you sell a house for $2M cash and have to pay capital gains taxes, and then buy a house for $1.6M, you do not have $400k in cash afterward.
- mbesto 9y ago
  If you sell it after 2 years and it's your principal residence you do actually have $400k in cash... https://ttlc.intuit.com/questions/3229450-sold-primary-house-in-2015-for-1-5m-basis-500k-gains-1m-purchased-new-primary-house-2015-can-i-roll-the-gains-into-the-new-house-1-6m-and-pay-no-capital-gains https://ttlc.intuit.com/questions/3229450-sold-primary-house...
  - bzbarsky 9y ago
    No, you do not. If you buy a house for $1M, sell for $2M, you pay taxes on $500k. Those taxes are ~34% if you're in California, so you pay about $150k in taxes. You buy a house for $1.6M, you have $250k left, not $400k.
    - mbesto 9y ago
      This is not correct according to the 2 CA tax accountants I just spoke in the last 2 weeks. I literally am researching this exact situation right now. https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701 Where's your source?
      - bzbarsky 9y ago
        I'm looking at the exact same source you are. What part of what I said is not correct, exactly? The capital gains are $1 million. $500k of it is excluded (assuming you're married filing jointly). The rest gets taxed. If you think that's incorrect, what do _you_ think happens with taxes when selling a home for $2 million that was bought for $1 million?
        mbesto 9y ago
        > I said = 2017 - Sell house for $2M > I said = 2017 - Buy new house for $1M > you said = But it might be (for the "buy new house") $1.6 million, not $1 million, in your example... > I said = so they can still afford it. > you said = You don't get to keep the whole $2M. That's the point. So, let's do this again. 1. Sell house for $2M 2. Buy house for $1.6M as you suggested 3. Congrats you now have $1.6M in illiquid assets and $400k in liquid assets (cash) Note - I recognize that my original example was buy at $1M and sell for $2M, where you are correct you're not taxed on the first $500k and the remaining $500k is taxed at capital gains. I also recognize that this whole scenario is purely illustrative and doesn't take into acount all of the transation fees.