6 ms·

Why is real estate always exempt from this stuff? Is there a good reason or is the special interest just large?

bestcoder69 5y ago
Non-pessimistic answer: it’s largely the only place the middle class parks its wealth. Besides that it would be stuff like 401k and Roth IRA which would also be exempt already. Pessimistic answer: it’s for developers and landlords
- majormajor 5y ago
  Yes, if you included real estate at the 250K number, you'd hit a much broader target than you would for stocks. But eliminating real estate entirely is a huge break for rent-seeking large landlords and developers. Probably should've simply chosen a higher dollar threshold for real estate.
  - giantg2 5y ago
    They probably don't want the tax inflating real estate prices. Those rental owners will just pass the cost on to renters.
    - gnopgnip 5y ago
      The tax applying to real estate would drive down real estate prices, making investing in stocks and other alternatives more profitable.
      - giantg2 5y ago
        That might work if this were a property tax. That would only for prices though, and that annual tax would still be passed in to renters. The real estate tax they are talking about here applies to the net gain when you sell a property. People price things for what value they want to get out of them (and what the buyer is willing to pay). If you have a 7% tax on profit from a home sale (or appartment building) theybwill be priced higher to make up for it. That cost will be put on the renter in the form of slightly higher rent to cover the owners mortgage or target return.
        gnopgnip 5y ago
        Whether or not a tax or other cost is passed on to others depends on multiple factors that contribute to price elasticity. For the rental market, for a cost that is incurred on sale and only applies to the most wealthy/active participants this is mostly going to be paid by the seller/owner
        giantg2 5y ago
        How so? It's just going to get rolled into the mortgage and passed on in cost of rent. Even if it's not mortgage, the people (companies) rich enough to do that will increase the price to meet their target return. I don't see the price elasticity being a limiting factor. Your looking at $70 a month more on a $1k rent or $140 on a $2k rent, maybe even less if they plan it keep the property for a long time. People are choosing more on location and quality. Not to mention all properties, given sufficient time, will be subject to the tax and there will be no competition with existing untaxed properties to keep prices low, assuming there's any pressure to keep the price low in the first place.
  - vineyardmike 5y ago
    What “rent seeking large landlord” is paying person taxes from selling expensive properties? Wouldn’t this have a bigger impact on regular people selling their homes not being caught paying the tax?
- deleted 5y ago
  [deleted]
bombcar 5y ago
There's a fairness argument that can be made (but probably should only apply to primary residences only) - you buy a house for $100k in Seattle 10 years ago - now you want to move to another neighborhood into an identical house, but both are now worth upwards of $500k - you'd have to come up with the tax difference on the "profit" even though all you're doing is moving between nearly identical properties. Also stock sales are more easily "structured" to avoid this tax (sell half this year, half next year) whereas a house has to be sold as a "whole".
- lordnacho 5y ago
  Can't be hard to invent an exemption for that case. When you buy the new house, the tax is deferred, in proportion to the cost. So if you trade down you pay and you will have the money. If you buy a more expensive place there's nothing to pay, but you have a balance. When you die, you pay the balance or your heirs inherit it.
- medvezhenok 5y ago
  That's exactly what the 1031 exchange is for
  - gnopgnip 5y ago
    That only applies to investments
- LanceH 5y ago
  Also, in most places there is already a wealth tax on the property itself.
- fighterpilot 5y ago
  That's why we need a land tax instead of a cap gains style tax that applies to transactions.
giantg2 5y ago
Not sure if this exempts all real estate. In other areas they often exclude the primary residence. I think it's because for most people, that's their biggest asset and would represent a huge loss of wealth for the lower and middle classes. Especially if they are selling it to move into a retirement home (they'll likely need that money to pay for it too).
scsilver 5y ago
Landowners vote
gimmeThaBeet 5y ago
I half agree, there are no doubt interested businesses. I don't know what the breakdown in benefits between people and businesses, but I do agree. But when you think about housing and capital gains tax benefits at a federal level, specifically related to one's primary residence, I think it's reasonable to say that taxing real estate sales (or at least housing) is not very popular in like, a literal sense. Now obviously people don't usually go selling their home every two years, so it might not be frequently relevant. I just feel that housing transactions are, I don't know, more in public consciousness, than like selling a mutual fund? That assertion is basically speculation though, i.e. people might more commonly identify more as home owners, than people with large amounts of equities etc. And I guess part of that is mental, and part financial, in that it seems housing is more frequently the biggest piece of one's total picture than I would guess.
spaetzleesser 5y ago
I have the same question. For middle class we should exempt a certain amount of money from any investment and treat all capital gains the same. The real estate exemption just creates huge inflation in real estate prices.
- jxidjhdhdhdhfhf 5y ago
  No, the middle class isn't some special group that must be protected at all costs. Have them pay more.
apex3stoker 5y ago
I think if real estate is like stock, most real estate holders will be happier. Real estate is subject to property tax, which is pretty much a form of wealth tax.
jandrewrogers 5y ago
In the specific case of Washington, they have an excise tax on the sale of real estate up to (IIRC) 3% of property value, which is substantial. Taxing the gain and the sale would put quite a significant tax burden on people moving house, particularly in very expensive markets like Seattle where most home sales will be subject to capital gains.
refurb 5y ago
Because housing in WA has gone up like crazy so a ton of residents are sitting on huge capital gains. The feds might exempt $250k of gain, but they’d get hit in WA. We can’t have people to hit the housing lottery pay a dime of those gains as taxes, can we?

Non-pessimistic answer: it’s largely the only place the middle class parks its wealth. Besides that it would be stuff like 401k and Roth IRA which would also be exempt already. Pessimistic answer: it’s for developers and landlords

majormajor 5y ago
Yes, if you included real estate at the 250K number, you'd hit a much broader target than you would for stocks. But eliminating real estate entirely is a huge break for rent-seeking large landlords and developers. Probably should've simply chosen a higher dollar threshold for real estate.
- giantg2 5y ago
  They probably don't want the tax inflating real estate prices. Those rental owners will just pass the cost on to renters.
  - gnopgnip 5y ago
    The tax applying to real estate would drive down real estate prices, making investing in stocks and other alternatives more profitable.
    - giantg2 5y ago
      That might work if this were a property tax. That would only for prices though, and that annual tax would still be passed in to renters. The real estate tax they are talking about here applies to the net gain when you sell a property. People price things for what value they want to get out of them (and what the buyer is willing to pay). If you have a 7% tax on profit from a home sale (or appartment building) theybwill be priced higher to make up for it. That cost will be put on the renter in the form of slightly higher rent to cover the owners mortgage or target return.
      - gnopgnip 5y ago
        Whether or not a tax or other cost is passed on to others depends on multiple factors that contribute to price elasticity. For the rental market, for a cost that is incurred on sale and only applies to the most wealthy/active participants this is mostly going to be paid by the seller/owner
        giantg2 5y ago
        How so? It's just going to get rolled into the mortgage and passed on in cost of rent. Even if it's not mortgage, the people (companies) rich enough to do that will increase the price to meet their target return. I don't see the price elasticity being a limiting factor. Your looking at $70 a month more on a $1k rent or $140 on a $2k rent, maybe even less if they plan it keep the property for a long time. People are choosing more on location and quality. Not to mention all properties, given sufficient time, will be subject to the tax and there will be no competition with existing untaxed properties to keep prices low, assuming there's any pressure to keep the price low in the first place.
- vineyardmike 5y ago
  What “rent seeking large landlord” is paying person taxes from selling expensive properties? Wouldn’t this have a bigger impact on regular people selling their homes not being caught paying the tax?
deleted 5y ago
[deleted]

bombcar 5y ago

There's a fairness argument that can be made (but probably should only apply to primary residences only) - you buy a house for $100k in Seattle 10 years ago - now you want to move to another neighborhood into an identical house, but both are now worth upwards of $500k - you'd have to come up with the tax difference on the "profit" even though all you're doing is moving between nearly identical properties. Also stock sales are more easily "structured" to avoid this tax (sell half this year, half next year) whereas a house has to be sold as a "whole".

lordnacho 5y ago
Can't be hard to invent an exemption for that case. When you buy the new house, the tax is deferred, in proportion to the cost. So if you trade down you pay and you will have the money. If you buy a more expensive place there's nothing to pay, but you have a balance. When you die, you pay the balance or your heirs inherit it.
medvezhenok 5y ago
That's exactly what the 1031 exchange is for
- gnopgnip 5y ago
  That only applies to investments
LanceH 5y ago
Also, in most places there is already a wealth tax on the property itself.
fighterpilot 5y ago
That's why we need a land tax instead of a cap gains style tax that applies to transactions.

giantg2 5y ago

Not sure if this exempts all real estate. In other areas they often exclude the primary residence. I think it's because for most people, that's their biggest asset and would represent a huge loss of wealth for the lower and middle classes. Especially if they are selling it to move into a retirement home (they'll likely need that money to pay for it too).

scsilver 5y ago

Landowners vote

gimmeThaBeet 5y ago

I half agree, there are no doubt interested businesses. I don't know what the breakdown in benefits between people and businesses, but I do agree. But when you think about housing and capital gains tax benefits at a federal level, specifically related to one's primary residence, I think it's reasonable to say that taxing real estate sales (or at least housing) is not very popular in like, a literal sense. Now obviously people don't usually go selling their home every two years, so it might not be frequently relevant. I just feel that housing transactions are, I don't know, more in public consciousness, than like selling a mutual fund? That assertion is basically speculation though, i.e. people might more commonly identify more as home owners, than people with large amounts of equities etc. And I guess part of that is mental, and part financial, in that it seems housing is more frequently the biggest piece of one's total picture than I would guess.

spaetzleesser 5y ago

I have the same question. For middle class we should exempt a certain amount of money from any investment and treat all capital gains the same. The real estate exemption just creates huge inflation in real estate prices.

jxidjhdhdhdhfhf 5y ago
No, the middle class isn't some special group that must be protected at all costs. Have them pay more.

apex3stoker 5y ago

I think if real estate is like stock, most real estate holders will be happier. Real estate is subject to property tax, which is pretty much a form of wealth tax.

jandrewrogers 5y ago

In the specific case of Washington, they have an excise tax on the sale of real estate up to (IIRC) 3% of property value, which is substantial. Taxing the gain and the sale would put quite a significant tax burden on people moving house, particularly in very expensive markets like Seattle where most home sales will be subject to capital gains.

refurb 5y ago

Because housing in WA has gone up like crazy so a ton of residents are sitting on huge capital gains. The feds might exempt $250k of gain, but they’d get hit in WA. We can’t have people to hit the housing lottery pay a dime of those gains as taxes, can we?