4 ms·

I feel like your comment is implying that it's common for renovations in the US to increase the value of the property by over $500,000 (or over $250,000 for the

I feel like your comment is implying that it's common for renovations in the US to increase the value of the property by over $500,000 (or over $250,000 for the sort of home that an unmarried person would flip). If that's not what you're implying, then there's no difference in incentive to reno-and-flip. It seems to me that the incentive-difference is that in the US, the tax code is telling you to flip often, or not flip at all. Another big difference in tax policy, if I recall correctly, is that Americans don't pay tax on mortgage interest. Seems to me, that incentivizes Americans to over-leverage on paying mortgage interest. Don't worry though, in Canada these days, we too over-leverage on mortgages, because otherwise we're homeless, as per the article. I sure wish I could tax-deduct my mortgage interest, because that's the main thing I spend money on.

sologoub 3y ago
Not a tax expert, but I don’t think you can flip often using owner occupancy. You are limited to a single deduction every two years: https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp https://www.investopedia.com/ask/answers/06/capitalgainhomes... 1031 is probably closer to flip model, but not sure the implications of the rules.
- jholman 3y ago
  I'd think that a $250k deduction (per person) every two years is pretty often, no? I feel like if my entire income stream was buying, renovating to improve value, and selling, and my spouse and I had a family income of $300k per year, and we could only get the income tax waived on $250k of that (me one year, my spouse the next), and thus were only paying income tax on one sixth of our income, I'd feel like I wasn't paying very much income tax. Though. I mean. Currently I teach post-secondary for a living, so the idea of a $300k two-earner family income sounds like a dream, no matter what the taxes, so maybe my intuitions about the incentives of house-flippers are off the mark.
  - sologoub 3y ago
    It seems you are assuming that flipping houses is somehow super easy and therefore seemingly high returns and possibly preferential tax treatment are morally objectionable. Moral questions are very person and I won’t speculate on that. However, flipping is far from easy on a consistent basis - it requires: a lot of capital (that one has presumably earned), sourcing deals, managing transactions, carrying market risk while capital is not liquid, project management (at minimum, but I’m sure there are folks who actually do the repairs/renovations themselves), marketing/selling the property for profit. During all this time our hypothetical house flipper is not getting paid, they have to wait for this once every two years payout. That’s not how businesses run, so this tax treatment doesn’t really encourage house flipping. This tax treatment does help people that have to move for job or other reasons, which I’d say is a good thing.

sologoub 3y ago

Not a tax expert, but I don’t think you can flip often using owner occupancy. You are limited to a single deduction every two years: https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp https://www.investopedia.com/ask/answers/06/capitalgainhomes... 1031 is probably closer to flip model, but not sure the implications of the rules.

jholman 3y ago
I'd think that a $250k deduction (per person) every two years is pretty often, no? I feel like if my entire income stream was buying, renovating to improve value, and selling, and my spouse and I had a family income of $300k per year, and we could only get the income tax waived on $250k of that (me one year, my spouse the next), and thus were only paying income tax on one sixth of our income, I'd feel like I wasn't paying very much income tax. Though. I mean. Currently I teach post-secondary for a living, so the idea of a $300k two-earner family income sounds like a dream, no matter what the taxes, so maybe my intuitions about the incentives of house-flippers are off the mark.
- sologoub 3y ago
  It seems you are assuming that flipping houses is somehow super easy and therefore seemingly high returns and possibly preferential tax treatment are morally objectionable. Moral questions are very person and I won’t speculate on that. However, flipping is far from easy on a consistent basis - it requires: a lot of capital (that one has presumably earned), sourcing deals, managing transactions, carrying market risk while capital is not liquid, project management (at minimum, but I’m sure there are folks who actually do the repairs/renovations themselves), marketing/selling the property for profit. During all this time our hypothetical house flipper is not getting paid, they have to wait for this once every two years payout. That’s not how businesses run, so this tax treatment doesn’t really encourage house flipping. This tax treatment does help people that have to move for job or other reasons, which I’d say is a good thing.