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A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capita
by Taniwha 6y ago
A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capital gain intended to encourage some forms of investment (long term rather than stock/house flipping for example)
- lotsofpulp 6y agoYou can flip houses all day long and not pay any tax as long as you buy another piece of real estate within 6 months. https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t...
- throwaway3699 6y agoThis is A Good Thing and by design. Isn't encouraging investment the whole point?
- triceratops 6y agoThis particular loophole seems like it was meant to shield homeowners who are moving house. Not for encouraging investment.
- jmvoodoo 6y agoIt only applies to investment property. If you own your home the first 250-500k of capital gains is exempt depending on your filing status. 1031 exchanges are a decent amount of work and have some additional requirements (it's not really for house flipping). They are also a tax deferral strategy. The tax eventually comes due.
- lotsofpulp 6y ago> They are also a tax deferral strategy. Carved out only for real estate investors. I don’t see why it shouldn’t either apply to everyone, or no one.
- toast0 6y ago1031 is not for properties the owner lives in. For owner occupied properties, there is a $250k per taxpayer exemption on gain if requirements are met. As I understand it, it's possible to use both rules on the same property, but it takes many years and specific facts.
- genericone 6y agoInvestment or Speculation?
- thelean12 6y agoFlipping houses usually means buying a house -> making improvements to the house -> selling it for a profit. I wouldn't call that "speculation". Speculation in this case could just be buying a house and trying to sell it for a profit later without improving the property.
- throwawayboise 6y agoOr building a house without a buyer already under contract, and trying to sell it for a profit.
- jppope 6y agoYes, BUT... that money is reinvested... you are allowed a 1 time deduction for your primary residence to downsize... otherwise you are always going to pay the tax when you eventually try to realize gains.
- lotsofpulp 6y agoWhy does it only apply to real estate? It’s clearly a handout to real estate investors.
- jppope 6y agoThe US tax policy is beneficial towards real estate in general- you can debate the reasons why but some things that are commonly brought up: 1) real estate is relatively illiquid, which encourages long term investment 2) real estate is culturally significant as it differentiates us against the British 3) real estate is the primary source of gaining wealth for the middle class in the US 4) real estate ownership encourages community involvement TOTALLY debatable, but Real Estate is 100% given preferential treatment so far as investments go
- lotsofpulp 6y agoIs it really debatable why a historically rich, politically influential class would have favorable tax laws?
- AnimalMuppet 6y agoIt's debatable whether the reasons that class put forth for policies they preferred are valid for society as a whole.
- colinmhayes 6y agoI'd say you've got it opposite. By default capital gains are taxed at the capital gains rate, but if you don't hold the assets long enough you get the short term capital gains rate which is normal income tax.
- Taniwha 6y agoMostly I was trying to explain US tax law to non-USAians ... but in general you need to lock in your investment in a way that the IRS can tell that you meet the long term holding requirements (often your broker will do that for you in your 1099 these days if you're dealing in shares)
- bjtitus 6y agoExactly, this is backed up by individual income stats on short term and long term capital gains: https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita... It routinely shows >7x long term vs. short term capital gains.