8 ms·

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at

by hardtke 10mo ago

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

shadowpho 10mo ago
> Generally they can borrow money at a lower rate There is some tax tricks you can play, but in general homes for primary residence is lower then secondary/rent, which is a big proportion of cost.
api 10mo ago
Our system is far more regressive than most people realize. The poor pay more for things, don't have access to all kinds of tax breaks and cheap money, and can't afford accountants and shell companies and all the other complicated tricks you can use if you are wealthier. I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?
- AnthonyMouse 10mo ago
  > would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have? That's an easy one to fix regardless. Use a flat tax with a large fixed refundable credit. Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. But the marginal rate is the same for everyone so there aren't all these complexities and arbitrage games, and at lower incomes the credit stands in for a lot of assistance programs so you don't get all the marginal rate cliffs from overlapping phase outs.
  - ceejayoz 10mo ago
    > Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. This only maybe works if you count capital gains as regular income. Otherwise they do the Steve Jobs $1 salary thing. Even the capital gains can be largely evaded. https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files https://www.propublica.org/article/billionaires-tax-avoidanc... https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec... etc.
    - AnthonyMouse 10mo ago
      > This only maybe works if you count capital gains as regular income. Yes, that's how a flat tax works. It's flat, for everything. The nominal reason capital gains has a lower rate is that the amount of the gain is calculated without respect to inflation. But that's dumb; just use the normal rate and actually do the inflation adjustment from the time of purchase instead.
- bpt3 10mo ago
  > I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have? Absolutely not. The US has the most progressive federal tax code in the OECD, mainly because we don't have a VAT like most other countries. Nearly all of the loopholes you mention are at the federal level, where half of the households in the nation pay <= $0 in income tax.
BeetleB 10mo ago
As another commenter pointed out, buying a home to live in gets you lower interest rates than buying for any other reason. > but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. If you're referring to cost segregation, this is probably less true now than in the past. It used to cost a lot of money to do a cost segregation analysis, and made sense only for apartment complexes (i.e. the cost to do the analysis vastly exceeded whatever savings you'd get on a single house). So only rich investors who owned 20+ unit complexes would do it. I've heard that in the last few years, many accounting firms are providing it for relatively cheap, so ordinary investors can do it now. RE people make a big deal about depreciation as a tax benefit, but it's minor in my experience. You're effectively reducing the cost basis, so when you ultimately sell, you have to pay a larger tax on the capital gains. Overall you gain, but not by a lot. Perhaps if you combine with a 1031 exchange, you may get a greater benefit.
- the_sleaze_ 10mo ago
  And what about if rent into the next 10 years fully servicing the debt, and the maintenance with a margin on top? If I am blackrock? If I am smaller PE deploying 10 million a year?
  - BeetleB 10mo ago
    And ...? Not sure what you're asking. As the report points out, institutional investors purchase only 3% of homes nationwide (but much higher in some cities). Regular smaller investors likely buy more homes than the institutional ones.
    - NickC25 10mo ago
      > institutional investors purchase only 3% of homes nationwide (but much higher in some cities). This is crucial. People are in cities - in the day and age of corporate consolidation, less and less jobs are available, and they are increasingly in-office, and increasingly in only a select few metro areas. Nobody would give a damn if a glut of housing was built in the middle of South Dakota or Maine or Wyoming. That's because there's very little to no jobs growth in those regions.
zipy124 10mo ago
This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Mortages however are a special case since they are basically mandated to be low and safe by most governments in exchange for letting banks exist. Or in the US explicitily guaranteed through freddie mac and fannie may.
- roboror 10mo ago
  >This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Are these companies going to banks and applying for a loan? I'd think they are privately backed and invested in.
  - Havoc 10mo ago
    Privately backed isn't necessarily cheaper. In fact PE funds often have a big fat bank loan on their books because it pushes down the average cost
- CGMthrowaway 10mo ago
  You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in basis that can be depreciated again, while still not triggering any capital gains for you until you convert
  - JumpCrisscross 10mo ago
    > PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset Source? That looks like a juicy target for state taxation…
    - 10mo ago
HexPhantom 10mo ago
It's wild when you think about it: a family scrapes together a down payment and pays full freight on property taxes, while a corporate landlord can roll one property's paper losses into the next deal and keep building their portfolio, tax-deferred
- drivingmenuts 10mo ago
  Don't forget the sweetheart tax rebates they sometimes get for promises of development.
- hippich 10mo ago
  Afaik, property taxes are due no matter what, at least in Texas.
  - thfuran 10mo ago
    The tax being deferred is income/capital gains.
    - deleted 10mo ago
      [deleted]
  - burnt-resistor 10mo ago
    A lot of veterans live in TX because they have reduced or no property taxes, and also no income taxes. It's probably ~ 8-10% of disabled vets in my neighborhood.
    - seethishat 10mo ago
      The reduction in property taxes is just for vets, right? I read that, in general, property taxes are high in Texas compared to other states.
      - burnt-resistor 10mo ago
        Yep and yep.
triceratops 10mo ago
What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase? Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thing. But landlords are a special, privileged investor class to whom these rules don't apply. They can sell a house and pay no taxes on gains as long as they buy another property.
- CGMthrowaway 10mo ago
  It's not special, just requires scale for it to make sense. E.g. Cost segregation studies and UPREIT transactions are cheaper on a neighborhood level. And you need enough passive income to absorb the depreciation losses
  - pempem 10mo ago
    ^ This And the scale applies at every single step of the process. A citizen homebuyer is playing a oneshot game. There are few discounts to be had and every single fee is its own battle. A corporation/PE is playing a multi-shot game. There are bulk discounts, relationships, and scale that is applied to everything from title insurance and inspections to cost segregations to filing all of the paperwork.
    - georgefrowny 10mo ago
      > There are few discounts to be had and every single fee is its own battle. Also if you take a 10% gamble on a strategy to save 50k and it backfires and lands you with a 500k legal bill, that's just the cost of business to a big (or even not that big) company, but it'd be absolutely ruinous to private individuals.
- AnthonyMouse 10mo ago
  > IIUC any landlord can use depreciation to lower their tax bill. This is also not really how depreciation works for assets that retain their value. If you buy a building to rent it out, the cost of the building essentially a cost of doing business, i.e. a tax deduction. You pay tax on the profit which is revenue (rents) minus costs (building, interest, maintenance, advertising, etc.) Depreciation is the building, they make you take it over time instead of all at once when you buy it. But the depreciation lowers the book value of the building, which is your tax basis when you sell it. If you buy a building for a million dollars, depreciate it down to $500,000 and then sell it for $2M, you have a $1.5M capital gain from the sale. You basically have to give back all the depreciation unless the building actually lost that much value by the time you sold it, and in practice it usually goes up instead of down. It's really the homeowners who have the advantage here because there is a large capital gains tax exemption from the sale of your primary residence, and that's actually a reduction in taxes instead of just a deferral.
mx7zysuj4xew 10mo ago
This^, this is how you end up with serfdom
- mx7zysuj4xew 10mo ago
  Ah yes, the down votes have started I forgot that this is a forum for the rent seeking class
  - lemper 10mo ago
    not really, mate. usually people downvote replies that add nothing of substance or something similar to reddit reaction reply, you get the gist. but yes, this is a forum of rent-seeking class.
    - red-iron-pine 10mo ago
      nah HN has some pretty aggressive biases. a lot of temporarily embarrassed millionaires, some of whom may actually cross that threshold.
maxerickson 10mo ago
Build enough housing and all of the sudden it isn't such a sure thing investment. Not easy to do of course, but the problems that come with building more housing are better then the problems we have now.
- Teever 10mo ago
  That may be the case but it would still be a good idea to look at regulating these run away feedback loops writ large so that people can't just play a game of whack-a-mole where they play the same old tricks in different sectors or invent whole new mediums to play the same old games afresh

by hardtke 10mo ago

shadowpho 10mo ago

> Generally they can borrow money at a lower rate There is some tax tricks you can play, but in general homes for primary residence is lower then secondary/rent, which is a big proportion of cost.

api 10mo ago

Our system is far more regressive than most people realize. The poor pay more for things, don't have access to all kinds of tax breaks and cheap money, and can't afford accountants and shell companies and all the other complicated tricks you can use if you are wealthier. I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?

AnthonyMouse 10mo ago
> would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have? That's an easy one to fix regardless. Use a flat tax with a large fixed refundable credit. Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. But the marginal rate is the same for everyone so there aren't all these complexities and arbitrage games, and at lower incomes the credit stands in for a lot of assistance programs so you don't get all the marginal rate cliffs from overlapping phase outs.
- ceejayoz 10mo ago
  > Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. This only maybe works if you count capital gains as regular income. Otherwise they do the Steve Jobs $1 salary thing. Even the capital gains can be largely evaded. https://www.propublica.org/article/billionaires-tax-avoidance-techniques-irs-files https://www.propublica.org/article/billionaires-tax-avoidanc... https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec... etc.
  - AnthonyMouse 10mo ago
    > This only maybe works if you count capital gains as regular income. Yes, that's how a flat tax works. It's flat, for everything. The nominal reason capital gains has a lower rate is that the amount of the gain is calculated without respect to inflation. But that's dumb; just use the normal rate and actually do the inflation adjustment from the time of purchase instead.
bpt3 10mo ago
> I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have? Absolutely not. The US has the most progressive federal tax code in the OECD, mainly because we don't have a VAT like most other countries. Nearly all of the loopholes you mention are at the federal level, where half of the households in the nation pay <= $0 in income tax.

BeetleB 10mo ago

As another commenter pointed out, buying a home to live in gets you lower interest rates than buying for any other reason. > but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. If you're referring to cost segregation, this is probably less true now than in the past. It used to cost a lot of money to do a cost segregation analysis, and made sense only for apartment complexes (i.e. the cost to do the analysis vastly exceeded whatever savings you'd get on a single house). So only rich investors who owned 20+ unit complexes would do it. I've heard that in the last few years, many accounting firms are providing it for relatively cheap, so ordinary investors can do it now. RE people make a big deal about depreciation as a tax benefit, but it's minor in my experience. You're effectively reducing the cost basis, so when you ultimately sell, you have to pay a larger tax on the capital gains. Overall you gain, but not by a lot. Perhaps if you combine with a 1031 exchange, you may get a greater benefit.

the_sleaze_ 10mo ago
And what about if rent into the next 10 years fully servicing the debt, and the maintenance with a margin on top? If I am blackrock? If I am smaller PE deploying 10 million a year?
- BeetleB 10mo ago
  And ...? Not sure what you're asking. As the report points out, institutional investors purchase only 3% of homes nationwide (but much higher in some cities). Regular smaller investors likely buy more homes than the institutional ones.
  - NickC25 10mo ago
    > institutional investors purchase only 3% of homes nationwide (but much higher in some cities). This is crucial. People are in cities - in the day and age of corporate consolidation, less and less jobs are available, and they are increasingly in-office, and increasingly in only a select few metro areas. Nobody would give a damn if a glut of housing was built in the middle of South Dakota or Maine or Wyoming. That's because there's very little to no jobs growth in those regions.

zipy124 10mo ago

This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Mortages however are a special case since they are basically mandated to be low and safe by most governments in exchange for letting banks exist. Or in the US explicitily guaranteed through freddie mac and fannie may.

roboror 10mo ago
>This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Are these companies going to banks and applying for a loan? I'd think they are privately backed and invested in.
- Havoc 10mo ago
  Privately backed isn't necessarily cheaper. In fact PE funds often have a big fat bank loan on their books because it pushes down the average cost
CGMthrowaway 10mo ago
You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in basis that can be depreciated again, while still not triggering any capital gains for you until you convert
- JumpCrisscross 10mo ago
  > PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset Source? That looks like a juicy target for state taxation…
  - 10mo ago

HexPhantom 10mo ago

It's wild when you think about it: a family scrapes together a down payment and pays full freight on property taxes, while a corporate landlord can roll one property's paper losses into the next deal and keep building their portfolio, tax-deferred

drivingmenuts 10mo ago
Don't forget the sweetheart tax rebates they sometimes get for promises of development.
hippich 10mo ago
Afaik, property taxes are due no matter what, at least in Texas.
- thfuran 10mo ago
  The tax being deferred is income/capital gains.
  - deleted 10mo ago
    [deleted]
- burnt-resistor 10mo ago
  A lot of veterans live in TX because they have reduced or no property taxes, and also no income taxes. It's probably ~ 8-10% of disabled vets in my neighborhood.
  - seethishat 10mo ago
    The reduction in property taxes is just for vets, right? I read that, in general, property taxes are high in Texas compared to other states.
    - burnt-resistor 10mo ago
      Yep and yep.

triceratops 10mo ago

What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase? Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thing. But landlords are a special, privileged investor class to whom these rules don't apply. They can sell a house and pay no taxes on gains as long as they buy another property.

CGMthrowaway 10mo ago
It's not special, just requires scale for it to make sense. E.g. Cost segregation studies and UPREIT transactions are cheaper on a neighborhood level. And you need enough passive income to absorb the depreciation losses
- pempem 10mo ago
  ^ This And the scale applies at every single step of the process. A citizen homebuyer is playing a oneshot game. There are few discounts to be had and every single fee is its own battle. A corporation/PE is playing a multi-shot game. There are bulk discounts, relationships, and scale that is applied to everything from title insurance and inspections to cost segregations to filing all of the paperwork.
  - georgefrowny 10mo ago
    > There are few discounts to be had and every single fee is its own battle. Also if you take a 10% gamble on a strategy to save 50k and it backfires and lands you with a 500k legal bill, that's just the cost of business to a big (or even not that big) company, but it'd be absolutely ruinous to private individuals.
AnthonyMouse 10mo ago
> IIUC any landlord can use depreciation to lower their tax bill. This is also not really how depreciation works for assets that retain their value. If you buy a building to rent it out, the cost of the building essentially a cost of doing business, i.e. a tax deduction. You pay tax on the profit which is revenue (rents) minus costs (building, interest, maintenance, advertising, etc.) Depreciation is the building, they make you take it over time instead of all at once when you buy it. But the depreciation lowers the book value of the building, which is your tax basis when you sell it. If you buy a building for a million dollars, depreciate it down to $500,000 and then sell it for $2M, you have a $1.5M capital gain from the sale. You basically have to give back all the depreciation unless the building actually lost that much value by the time you sold it, and in practice it usually goes up instead of down. It's really the homeowners who have the advantage here because there is a large capital gains tax exemption from the sale of your primary residence, and that's actually a reduction in taxes instead of just a deferral.

mx7zysuj4xew 10mo ago

This^, this is how you end up with serfdom

mx7zysuj4xew 10mo ago
Ah yes, the down votes have started I forgot that this is a forum for the rent seeking class
- lemper 10mo ago
  not really, mate. usually people downvote replies that add nothing of substance or something similar to reddit reaction reply, you get the gist. but yes, this is a forum of rent-seeking class.
  - red-iron-pine 10mo ago
    nah HN has some pretty aggressive biases. a lot of temporarily embarrassed millionaires, some of whom may actually cross that threshold.

maxerickson 10mo ago

Build enough housing and all of the sudden it isn't such a sure thing investment. Not easy to do of course, but the problems that come with building more housing are better then the problems we have now.

Teever 10mo ago
That may be the case but it would still be a good idea to look at regulating these run away feedback loops writ large so that people can't just play a game of whack-a-mole where they play the same old tricks in different sectors or invent whole new mediums to play the same old games afresh