5 ms·

I agree with your general point, but your specific example of selling highly appreciated real estate is a poor one, since you incur no tax when selling your pri

I agree with your general point, but your specific example of selling highly appreciated real estate is a poor one, since you incur no tax when selling your primary residence (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) as long as you lived there for two of the last five years. It’s a huge tax advantage for homeowners. One could argue that it is in itself unfair as it advantages people who already have large assets over those who do not.

jtdev 5y ago
It also encourages liquidity in the residential real estate market… which seems to be a net good thing.
nostrademons 5y ago
> (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) In a lot of markets this absolutely hits the "moderately wealthy trying to leave the working class". Bay Area houses that went for $1.2M in 2009 now go for about $3M, for a gain of $1.8M. That's well over the $500K exclusion, even including capital improvements. Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about.
- motohagiography 5y ago
  The people who live in hot real estate areas for years made them the hot real estate areas. Real estate appreciation isn't free money. It's people who risked moving into an area and brought their culture with them. This is what creates the value. Just because middle class people benefit from the subsidy of low interest rates that create asset bubbles does not mean that the people who raised families in a neighbourhood or a city are somehow undeserving of the rewards on their equity. The idea that money not taken in taxes is an "expenditure," or an advantage, and this idea of accounting for the hypothetical opportunity cost of not taking some peoples money as a tax privilege is bizzare.
  - RC_ITR 5y ago
    >brought their culture with them. Yikes. Do you really think places like SOMA, SLU, DTLA, etc. got better because rich people brought their 'culture' there? I'd recommend you visit said places and see for yourself, most of the 'culture' is in adjacent (usually historically minority) neighborhoods.
    - frockington1 5y ago
      In those places there is a huge value difference between the adjacent neighborhoods and the rich neighborhoods. This is primarily due to a culture of stability and safety
      - RC_ITR 5y ago
        What are you trying to say? That DTLA is safer/cheaper than Little Tokyo (you're wrong)? That SOMA is safer than the Mission(you're wrong)? That SLU is safer than Capitol Hill(you're wrong)?
    - vineyardmike 5y ago
      > in adjacent (usually historically minority) neighborhoods. These are the people that brought their culture. Their housing is probably also well appreciated.
      - RC_ITR 5y ago
        It's amazing how often people on HN think that working class minorities have equal access to owning their own homes, despite huge evidence to the contrary. https://usafacts.org/articles/homeownership-rates-by-race/ https://usafacts.org/articles/homeownership-rates-by-race/
    - motohagiography 5y ago
      Specifically, I said that rich(er) people go to those places because the people who were there before them made those places appealing. Poor(er) people who made due and built a community with businesses and neighboors that attracted others. As for why people who say 'yikes' seem to scare so easily, the concern is noted and ignored.
- omgwtfbbq 5y ago
  >Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about. You lose a lot of money to taxes when you win the lottery, should we modify the tax code for those people too?
- ineptech 5y ago
  "Well, this tax might still hit someone at the upper-upper-end of the middle class if they live in the fastest-appreciating real estate market in history" seems equivalent to admitting that it does not hit the middle class generally.
- whakim 5y ago
  In the US, simply owning a house that's worth $3M (and literally zero other assets of any kind) puts you in the top 1.5% of the wealth distribution, per the WID. So I'm not sure how you could classify this scenario as "moderately wealthy trying to leave the working class." More like "extremely wealthy people trying to become even more wealthy."
HPsquared 5y ago
When a person moves house, the proceeds from the sale of the old house are used to buy the new house. If someone has lived in an area for a long time, wants to move across the street to an otherwise identical house with the same value, why should they be taxed for that move but not for simply living in the first house?
- edmundsauto 5y ago
  This is exactly what happens. If you buy house #2 within 90 days, you can do a 1031 (I think?) property exchange. Then you don’t pay taxes on the first sale.
  - flabbergasted 5y ago
    This tax deferment only applies to investment property. As I understand it, if you're living there, then 1031 is not an option for you.
  - ejstronge 5y ago
    This is generally only true for investors, not for people who buy real estate for the sole purpose of obtaining lodging
  - w4 5y ago
    1031 exchanges are not available to homeowners, they are exclusively available for investment properties. Homeowners receive a $250k/$500k tax shelter as discussed above.
    - sp_nster 5y ago
      The $250/$500k is a one-time benefit and you will absolutely take advantage of it when you sell your home. The idea of taxing this "profit" for the home owner would be insane. The investment and re-investment in real-estate drives a big majority of the economy. I'm for modifying 1031 for investors who rent their properties. \
    - TheOtherHobbes 5y ago

jtdev 5y ago

It also encourages liquidity in the residential real estate market… which seems to be a net good thing.

nostrademons 5y ago

> (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) In a lot of markets this absolutely hits the "moderately wealthy trying to leave the working class". Bay Area houses that went for $1.2M in 2009 now go for about $3M, for a gain of $1.8M. That's well over the $500K exclusion, even including capital improvements. Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about.

motohagiography 5y ago
The people who live in hot real estate areas for years made them the hot real estate areas. Real estate appreciation isn't free money. It's people who risked moving into an area and brought their culture with them. This is what creates the value. Just because middle class people benefit from the subsidy of low interest rates that create asset bubbles does not mean that the people who raised families in a neighbourhood or a city are somehow undeserving of the rewards on their equity. The idea that money not taken in taxes is an "expenditure," or an advantage, and this idea of accounting for the hypothetical opportunity cost of not taking some peoples money as a tax privilege is bizzare.
- RC_ITR 5y ago
  >brought their culture with them. Yikes. Do you really think places like SOMA, SLU, DTLA, etc. got better because rich people brought their 'culture' there? I'd recommend you visit said places and see for yourself, most of the 'culture' is in adjacent (usually historically minority) neighborhoods.
  - frockington1 5y ago
    In those places there is a huge value difference between the adjacent neighborhoods and the rich neighborhoods. This is primarily due to a culture of stability and safety
    - RC_ITR 5y ago
      What are you trying to say? That DTLA is safer/cheaper than Little Tokyo (you're wrong)? That SOMA is safer than the Mission(you're wrong)? That SLU is safer than Capitol Hill(you're wrong)?
  - vineyardmike 5y ago
    > in adjacent (usually historically minority) neighborhoods. These are the people that brought their culture. Their housing is probably also well appreciated.
    - RC_ITR 5y ago
      It's amazing how often people on HN think that working class minorities have equal access to owning their own homes, despite huge evidence to the contrary. https://usafacts.org/articles/homeownership-rates-by-race/ https://usafacts.org/articles/homeownership-rates-by-race/
  - motohagiography 5y ago
    Specifically, I said that rich(er) people go to those places because the people who were there before them made those places appealing. Poor(er) people who made due and built a community with businesses and neighboors that attracted others. As for why people who say 'yikes' seem to scare so easily, the concern is noted and ignored.
omgwtfbbq 5y ago
>Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about. You lose a lot of money to taxes when you win the lottery, should we modify the tax code for those people too?
ineptech 5y ago
"Well, this tax might still hit someone at the upper-upper-end of the middle class if they live in the fastest-appreciating real estate market in history" seems equivalent to admitting that it does not hit the middle class generally.
whakim 5y ago
In the US, simply owning a house that's worth $3M (and literally zero other assets of any kind) puts you in the top 1.5% of the wealth distribution, per the WID. So I'm not sure how you could classify this scenario as "moderately wealthy trying to leave the working class." More like "extremely wealthy people trying to become even more wealthy."

HPsquared 5y ago

When a person moves house, the proceeds from the sale of the old house are used to buy the new house. If someone has lived in an area for a long time, wants to move across the street to an otherwise identical house with the same value, why should they be taxed for that move but not for simply living in the first house?

edmundsauto 5y ago
This is exactly what happens. If you buy house #2 within 90 days, you can do a 1031 (I think?) property exchange. Then you don’t pay taxes on the first sale.
- flabbergasted 5y ago
  This tax deferment only applies to investment property. As I understand it, if you're living there, then 1031 is not an option for you.
- ejstronge 5y ago
  This is generally only true for investors, not for people who buy real estate for the sole purpose of obtaining lodging
- w4 5y ago
  1031 exchanges are not available to homeowners, they are exclusively available for investment properties. Homeowners receive a $250k/$500k tax shelter as discussed above.
  - sp_nster 5y ago
    The $250/$500k is a one-time benefit and you will absolutely take advantage of it when you sell your home. The idea of taxing this "profit" for the home owner would be insane. The investment and re-investment in real-estate drives a big majority of the economy. I'm for modifying 1031 for investors who rent their properties. \
  - TheOtherHobbes 5y ago