5 ms·

Homes that are not bought to live in should be taxed in a fundamentally different manner.

bink 5y ago
They are, in a sense. You do not receive the capital gains tax exemption if you do not reside in the house for something like 2 of the last 5 years before the sale. You also pay a different tax level if the sale occurs within a year. I'm not sure how a 1031 exchange impacts these companies though. They're probably reinvesting the money in other real estate.
djrogers 5y ago
In most markets (ie. not right now in a huge run-up), house flippers are generally good for a neighborhood. They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them. Oh, and they pay taxes on the profits. If you choose to penalize this behavior, not only will it not occur in average and down markets, you’d lose out on the capital gains tax revenue that’s currently collected.
- mgkimsal 5y ago
  "Oh, and they pay taxes on the profits." do they? or do they just keep doing 1031 exchanges, and doing cash-out refinances now and then to use the money?
  - sakopov 5y ago
    According to IRS 1031(a)(1) a property that isn't held for investment does not qualify for 1031 exchange. A pure flip on real estate is held for sale and therefore does not qualify for 1031 exchange.
  - diveanon 5y ago
    I personally know someone who did this up to a $30m home in ft. Lauderdale that they cashed out recently and paid effectively no taxes on. The system is completely broken.
- alexashka 5y ago
  > They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them. How is that better than fixing it up without the buying and selling in-between? These people fix up houses to look good, while using the cheapest labor and materials possible to maximize profit - taking advantage of the fact that most people don't know that the shitty 'fix-up' will fall apart 3 years later. That's not good for anyone except the people engaging in this dirty business. It's like arguing that the good old buy failing business, cut expenses, do some short-term shenanigans to appear/be profitable at the expense of longterm sustainability and re-sell is good. It isn't good, it's short term profiteering at the cost of long term disaster someone else has to clean up.
  - toast0 5y ago
    > How is that better than fixing it up without the buying and selling in-between? The previous owner that neglected it obviously isn't going to fix it. The prospective owner that may buy it it it's fixed likely can't manage a mortgage on a property they're fixing, the costs to fix it, and the cost of living somewhere else. But it's often easier to make major changes if the building isn't occupied during the process. You certainly have a point with respect to some/many of the changes being superficial, but even with superficial changes, that can be hard to manage with an occupied home.
    - deleted 5y ago
      [deleted]
- Iefthandrule 5y ago
  House flippers are notorious for cosmetic upgrades that maximize their profit, not upgrades that maximize quality.
rsj_hn 5y ago
They already are. Mortgage interest deduction is only for the home you live in. Rental properties deduct depreciation, and there are huge differences in treatment of capital gains when you sell the property. See * https://www.irs.gov/newsroom/know-the-tax-facts-about-renting-out-residential-property https://www.irs.gov/newsroom/know-the-tax-facts-about-rentin... * https://www.millionacres.com/taxes/capital-gains/how-capital-gains-tax-investment-property-work/ https://www.millionacres.com/taxes/capital-gains/how-capital... Tax treatment is completely different for rental and owner-occupied properties -- you really need to get an accountant if you own rental property because it's quite complex. Most homeowners don't need an accountant if they are just wage earners who own their own home.
webinvest 5y ago
Homestead exemption! But the homestead exemption has not been raised for inflation.

bink 5y ago

They are, in a sense. You do not receive the capital gains tax exemption if you do not reside in the house for something like 2 of the last 5 years before the sale. You also pay a different tax level if the sale occurs within a year. I'm not sure how a 1031 exchange impacts these companies though. They're probably reinvesting the money in other real estate.

djrogers 5y ago

In most markets (ie. not right now in a huge run-up), house flippers are generally good for a neighborhood. They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them. Oh, and they pay taxes on the profits. If you choose to penalize this behavior, not only will it not occur in average and down markets, you’d lose out on the capital gains tax revenue that’s currently collected.

mgkimsal 5y ago
"Oh, and they pay taxes on the profits." do they? or do they just keep doing 1031 exchanges, and doing cash-out refinances now and then to use the money?
- sakopov 5y ago
  According to IRS 1031(a)(1) a property that isn't held for investment does not qualify for 1031 exchange. A pure flip on real estate is held for sale and therefore does not qualify for 1031 exchange.
- diveanon 5y ago
  I personally know someone who did this up to a $30m home in ft. Lauderdale that they cashed out recently and paid effectively no taxes on. The system is completely broken.
alexashka 5y ago
> They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them. How is that better than fixing it up without the buying and selling in-between? These people fix up houses to look good, while using the cheapest labor and materials possible to maximize profit - taking advantage of the fact that most people don't know that the shitty 'fix-up' will fall apart 3 years later. That's not good for anyone except the people engaging in this dirty business. It's like arguing that the good old buy failing business, cut expenses, do some short-term shenanigans to appear/be profitable at the expense of longterm sustainability and re-sell is good. It isn't good, it's short term profiteering at the cost of long term disaster someone else has to clean up.
- toast0 5y ago
  > How is that better than fixing it up without the buying and selling in-between? The previous owner that neglected it obviously isn't going to fix it. The prospective owner that may buy it it it's fixed likely can't manage a mortgage on a property they're fixing, the costs to fix it, and the cost of living somewhere else. But it's often easier to make major changes if the building isn't occupied during the process. You certainly have a point with respect to some/many of the changes being superficial, but even with superficial changes, that can be hard to manage with an occupied home.
  - deleted 5y ago
    [deleted]
Iefthandrule 5y ago
House flippers are notorious for cosmetic upgrades that maximize their profit, not upgrades that maximize quality.

rsj_hn 5y ago

They already are. Mortgage interest deduction is only for the home you live in. Rental properties deduct depreciation, and there are huge differences in treatment of capital gains when you sell the property. See * https://www.irs.gov/newsroom/know-the-tax-facts-about-renting-out-residential-property https://www.irs.gov/newsroom/know-the-tax-facts-about-rentin... * https://www.millionacres.com/taxes/capital-gains/how-capital-gains-tax-investment-property-work/ https://www.millionacres.com/taxes/capital-gains/how-capital... Tax treatment is completely different for rental and owner-occupied properties -- you really need to get an accountant if you own rental property because it's quite complex. Most homeowners don't need an accountant if they are just wage earners who own their own home.

webinvest 5y ago

Homestead exemption! But the homestead exemption has not been raised for inflation.