And you’re taxed on $70k in gains at capital gains rate. I don’t recall the CG rates, let’s say 20%. So you pay $14k taxes and walk away with $556,000. Is that really so scary, trapping people?
The cost basis is in 1975 dollars. The difference between 1975 dollars and 2023 dollars really ought to be removed from your “profit”; though in your example there’d still be a good bit of it.
That’s a point.
I didn’t say anything about its being scary or about its trapping people. I was just quibbling about its being pure profit.
Sorry, I should not have attributed that to you
I’m not a finance guy, but is inflation factored into capital gains based on stocks bought in '75? I’m pretty sure the answer is “no”. But stock sales don’t get the 250/500K tax free offering to help make up for that lack of inflation consideration. I think we are quibbling over terms.
And this is an important point. In the US, if you’ve done any improvement to the house, anything at all - new roof, remodeled bathrooms, kitchen, landscaping, prep of the property to sell it - you get to take that off of the gains. This can be a substantial tax shelter from gains when you sell the house. Keep those receipts!
A house is a money making monster if you do it right. Taxes? Whatever.
(I’ve owned five houses and have paid zero fed taxes selling properties)
I second this advice. And I add to it: keep track of where you kept them. You don’t want to be hunting through the attic in the hope of finding a box you may have stuck them in 30 years ago.
City leaders don’t exist in a vacuum. Our city leaders would probably be open to building a lot more housing if the “no growth” crowd wasn’t so loud. That’s why California is enforcing it at the state level, and suing cities that refuse to build up near transit hubs. Like I said, I heard people wanting more cops and no more growthat the same time. And they are old timers without their entire fortunes in their homes.
As mentioned, this is a thing. We didn’t pay a penny on our reasonably small gains when we sold in New Jersey. But I’m a newbie on my block, and I’ve been here 26 years, and we all have more than a million bucks in profits. I don’t think any of us are going to pay the government multiple hundreds of thousands of bucks to vacuum fewer rooms. Like a said, a first world problem, and I am not in favor of increasing the limit, but it does discourage making room for families that could make better use of the house.
My neighbor is thinking of renting, which is one solution. I don’t know of many companies buying up houses here, which did happen after the crash. Investors from China I do know about. But probably less now than a few years ago.
Bought at $330K Which we thought was ridiculous 25 years ago. Now worth $1.9 - $1.6 million depending on the wind. And I know my neighbors paid a lot less than I did, because their property taxes are lower, which I’m not complaining about.
I don’t think people in rational markets understand what is going on around here. And I live in basically a bedroom community, with only one section of tech. We’re cheap compared to San Francisco or Cupertino.
In the Uk you dont pay capital gains on your main residence: this makes property more investy.
But also, 250k is a paltry threshold for a house thats been owned for decades. I suggest a tapered relief of 5% per year owned.
As a brit lumbered with us citizenship im shot by both sides - have rampant property inflation and i have to pay capital gains to the only fucking country in the fucking world that taxes non residents.
On the other hand, the US threshold for inheritance tax seems insanely high.
Oh i forgot. Have you considered the current Uk method of reducing house prices by ruining the economy with self-imposed economic sanctions?
Yes, my fellow Americans get stupid about taxes. I could give numerous examples but the one given in that post is emblematic of the property.
They forego a profit because it’s not profitable enough, and wind up making no profit at all. Yet I see that “reasoning” over and over again.
I’m sure you meant rent out homes in that statement, because otherwise it makes no sense.
There is a significant different between small-scale landlords, mid-size landlords, and very large, corporate landlords and they should have different treatment under the tax code so as to give incentive to both actually rent out the units (which can be a problem with large investor-owned companies holding a lot of rental property) and maintain them properly (which can be an issue for individual/small landlords with less capital on hand). I have both worked for landlords and rented from them during my life, there is much that is problematic in our current system.
There’s a thing in the US that holds out home ownership as the highest and best aspiration and looks down at any form of renting which is sad because renting is and should be a component of housing. People who move frequently for professional reasons, for example, could easily be better off renting than continually buying and re-selling. Not everyone wants to or is even capable of doing the necessary maintenance on a house. People just starting out in adult life can get their own place much quicker by renting than buying (and before someone suggestions young people simply stay with their parents longer before moving out, that’s not always a good idea for a variety of reasons, and not everyone has family). After a disaster - fire, flood, earthquake, tornado, whatever - people need temporary housing quickly and renting can fill that need if the units are available. And probably other reasons as well but those get more and more niche.
We need more decent and fair-priced rentals. We need more “starter” homes and mid-level property. The only thing we need less of are high-luxury, investment firms squatting on property, and flippers.
From my travels in this world, it’s basically analogous to how we view mass transit in the US.
And with distinct, but probably equivalent, deleterious effects.
Something, something … rugged individualist … something, something.
It’s probably a bit of a hijack, so I’ll leave it at this:
A Black couple settled their lawsuit against a real estate company which had estimated the pair’s Northern California home to be worth nearly $500,000 less than when a white friend pretended to be its owner, the plaintiff said Wednesday.
Puts a pretty find point on it.
As a jumping off point for any with interest, I remember this program.
You don’t really want to “remove” it though. You think that since inflation isn’t your doing, you shouldn’t have to pay taxes on it, but you’ll absolutely collect all the tainted fruits of inflation as profit.
Investors in every asset class would love to pay capital gains on the inflation-adjusted cost basis, but for some reason homeowners are the only ones who will tell you with a straight face that they’re entitled to that.
Actually, what we’re seeing around here is corporations buying up housing by paying significantly over the asking price, with the intention of keeping them forever, and renting them out. This takes the houses off the real estate market forever, and means a lot of people will be paying rent their whole lives, rather than building up equity in an owned residence.
This drives up the over-all costs of buying, because the company can outbid just about any real people. Adding a decade or two to the time needed to pay off the initial investment isn’t a big issue for a company that is effectively immortal and has cash on hand to burn, but it screws the real people. Drive up the cost enough, and even 60-year mortgages become a problem.
The problem with San Francisco and New York City is that they are these hubs for massive wealth creation. They create a lot of mega-rich and regular rich people and draw in more looking to get that way. Because of the high land value in New York City (by which most people mean Manhattan and trendy parts of Brooklyn), it tends to cater to two markets - 1) the ultra rich who can afford 40 million condos in a luxury tower as tall as the Empire State Building and 2) young single childless professionals who don’t care about living in 400 sq ft or with 4 room mates as they jump start their career in tech or Wall Street.
More and better public transportation and work from home policies would effectively increase supply by reducing the need to live in close proximity to the urban core where one’s job is located.
That, and some realistic options for work-from-home when home really can be anywhere. I think some folks heavily invested in the status quo fear and despise the concept because it would instantly de-value their overpriced real estate investments. If you don’t need to live in Manhattan to get Manhattan wages then suddenly Manhattan isn’t as attractive/necessary. You can live in Nowhere, Idaho and still work in Manhattan, or any other of the mega-economic engines.
That still doesn’t solve the problem of making it possible to staff the Starbucks in Manhattan, but the Manhattan employee actually living and existing in Nowhere isn’t going to need a Manhattan barista, they’ll be going to the Nowhere Starbucks, where staffing isn’t such a problem because there is affordable housing in Nowhere for the barista.
At the root of all this are the two competing motivations. Making money and caring for people at large can be incompatible. US society choose again and again to put making money over humane treatment of people, then seems astonished when this has negative consequences. Of course, the opposite could also have negative consequences which is why maybe we should look for a middle path - something largely impossible in the political and socially divided US,
As someone who has rented from both individuals and corporations, corporations owning rental units is not inherently evil or bad. Corporations have some advantages over individuals due to being able to support actual crews of employees to maintain and repair units, being able to by some needed things in bulk, and other economies of scale. Also, on average, corporate management tends to know the law better and conduct itself more professionally.
But this refers to corporations that actually rent property. As opposed to investment firms that sit on units that remain vacant. That’s real estate speculation and not actually providing housing. Then there are entities that will rent you a house - but YOU, the renter, are also on the hook for maintenance and repairs which, to my mind, combine the worst features of renting and owning into one package.
Sure, my rent is higher than a mortgage payment for an equivalent owned property (which, admittedly, is hard to find a comparison for but it can be done) BUT if my furnace goes out, an appliance stops working, a window breaks, the parking area needs to be plowed, etc. I pay nothing additional. Instead of episodic large payments you pay a certain amount each month so when those episodic things happen it doesn’t disrupt your budget.
This is why, in this renter’s opinion, renting from a corporation can be more stable and preferable to renting from an individual. If you’re renting from an individual and the furnace needs to be replaced is your landlord going to be able to do that? If no, that ease of moving elsewhere will definitely be a plus. You’re less able to negotiate rental terms with a corporation, but if your needs are conventional that’s not too high an obstacle.
Yes, the trade-off is that you don’t build equity. And you don’t get a mortgage deduction (although in my state renters DO get to deduct the cost of their rent (up to a certain maximum) from their state taxes). Nothing is perfect. But if a person’s finances are such that they would not be able to handle the episodic needs of a home ownership (like needing a new roof) then they might be better off renting. As that is most likely to happen lower on the socioeconomic ladder I do think below a certain income and resource level renting starts to make a lot of sense. Putting someone into a house they won’t be able to maintain over the long term isn’t a good investment.
Again, we see the meme that owning is the goal and the only worthwhile goal. And while I agree that is a worthy thing for a lot of people we need to stop thinking of it as the ONLY possible worthy or sensible goal.
If you are a person who relocates frequently as part of their job/career then owning is actually foolish in some circumstances. If you’re relocating every year or two you aren’t building equity in a home, either, but you do have costs with continually selling and buying. That’s an instance where renting makes more sense. And before you jump in with talk of investing and saving for retirement and so forth yes, absolutely such people DO need to save and invest via different means of doing so. However, this also requires either a high enough wage OR low enough rental costs that there is money left over to do such a thing. This doesn’t mean everyone would want to do this all their life, but certainly people just starting out might find this attractive, and some people really are that nomadic for one reason or another.
Someone disabled or in poor health might prefer renting with the landlord being responsible for maintenance repairs over owning. That’s why my parents did the last portion of their lives: they sold their last home before it deteriorated when it become apparent that no, they couldn’t continue to maintain it on their own. Sure, they could have hired people to work on their home, but how is that different than renting when you sit down and tally up costs? There was also the advantage in renting that if conditions deteriorated then it was MUCH easier to up stakes and move which, again, happened at one point when the property was sold and the new owners turned out to be incompetent - dad rapidly relocated himself and mom to a different rental property.
Granted, this required my parents to overcome that notion that owning is always better than renting, which wasn’t quite as hard for them as some because they had had a mix of renting and owning in their lives. Fact is, though, my parents would not have been able to keep up with their last owned home and it would have lost value, not to mention have various other problems (such as stairs, which were becoming more problematic). All your wealth tied up in your house? You can cash it in - which is what my parents did. They paid some taxes then had a stack of money on which to live in their final years with maximum flexibility.
When disaster hits it might be easier to relocate if you’re a renter - IF rental units are available. There was also an instance in my own life when the place I was living suddenly became uninhabitable. No power, light, heat, water, no functional utilities. When it became apparent this was not going to be fixed in a day or two I upped stakes, found, and moved into a new residence within two weeks. My old landlord was saddled with a property he couldn’t rent out but on which he still had to pay taxes and provided at least minimal upkeep while he either made repairs or decided to sell.
If you rent will not be left in the sort of bind where your house burns down and you’re left still owing a mortgage for a house that no longer exists while at the same time looking for a new place to live. Ah, insurance you say - but ask anyone whose ever been in that position, insurance does not show up instantly and seldom really fixes the problem.
Renting allows a certain flexibility that home owners do not have. It’s not for everyone, but some people find it desirable. Any housing program that ignores this is only solving part of the problem.
That’s usually the catch and trade-off. It’s entirely possible to get a house where your monthly note is comparable to what it costs to rent when you buy it, and where it’s actually lower as time progresses. That’s what’s happened to us in fact. Our note was slightly higher than renting when we bought our house, but now 16 years later, we’re still paying the same mortgage amount, but rents have gone up in the meantime. And we’ve got 16 years of equity built up in the house as well.
The gotcha is that you have to have a number of things- the credit to do it, the down payment to do it, and the skills/motivation to engage in maintenance, or the wherewithal to pay someone else to do it. Those things aren’t necessarily present in everyone, especially when they’re younger.
Renting does make sense for a lot of people a lot of the time. So does buying a house. But neither is a catch-all solution for people. I myself rented for a long time- until my early 30s in fact. That’s in large part because I wasn’t convinced I was staying put, and didn’t really want all the trouble of being tied to a house, in case I found a job elsewhere and wanted to move on short notice. I knew others my age who bought homes as single people in their mid-late 20s, because they had decided they were staying put, and were getting on with the rest of their lives.
I kind of think maybe the whole “buy a house and settle down” way of thinking should probably be changed into something more along the lines of “Consider and make the best choice for yourself, based on your need for flexibility, financial situation, and willingness to maintain a house.”
Honestly, I don’t know the numbers, and I don’t know that I want to go digging into them to prove my mother a liar, but, according to her according to her REALTOR, if she sells the house and gets a cheaper one, she will end up having to make up a substantial difference in price, which may be worthwhile to have a smaller house and yard to maintain, as well as a single story to eliminate stairs.
Maybe she’s wrong, exaggerating, or straight up lying, and I’ve learned more from this thread on the subject than I knew before. But, I do hear it as a very common complaint, and I’m surprised that that many people are either unaware or are deceptive about their economic position.
Mixed minds on this. As a business owner, I would also like to be able to buy my own property, rather than rent it, and commercial landlords drive that price up as well.
What I envision as being best would be a progressive property tax system, where you pay a higher percentage of the value of the property that you own the more you have. Maybe make all properties have to be owned by a real person, to avoid spawning shell companies to get around it.
I think that we also need to avoid them renting them out for significantly more than a mortgage would be. @Broomstick has a point that renting comes with some advantages. I’ve found that home ownership can have some unexpected and significant costs. But any company renting out will already have those costs figured in, and the rest is profit. Profit that comes from charging someone to live in a location that otherwise they would not pay, which increases the cost of housing.
They don’t even need to renovate them, just by holding them they can drive up prices. My landlord owns about a dozen properties in the area, and he is able to raise the area rates unilaterally.
For many, the home was their primary investment, and it needs to cover them in retirement. Unlike stocks, where you can sell a little bit here and there, or even just live off dividends, a house sale is pretty much all or nothing.
Not everyone is married.
It’s also because it’s about the only form of investment most people can afford. You have to live somewhere, and you can either pay rent to someone else, or you can pay a mortgage and get to keep some of that. There’s also the benefit that your mortgage doesn’t go up (unless you did something like an ARM), while rent does. After owning a home for 20 years and refinancing when interest rates were low, I pay a third to a quarter what people in my area are paying in rent.
And young people are probably going to be moving around more, as they figure their life out. I spent the first few years of my adult life renting. Probably actually bought a house a bit younger than I should have, but it’s worked out for me.
Agreed, and yet, I see starter homes being bulldozed and being replaced with much more expensive homes all over the place.
Sure, there are times when renting makes more sense. I’ve done that myself in the past, and my mom is doing that now, in her old age.
But it’s also true that, for most people in our society, owning a home medium-to-long term is the best way they have to build up some wealth. My concern is that, if enough houses end up as rental units, a lot of people who want to buy a house won’t be able to, as there just won’t be enough on the market.
Companies would love to have a large captive market for an essential product, which they can set an arbitrarily high price on, as they control most of the market. They’d love nothing more than to have people pay them for decades, and then have nothing to show for it in the end.