Who says there is no Tax Haven in US?

[gerntz]

While my heirs will benefit from it, step up basis is a prime way wealth is concentrated at the top. I.e., taxes are never paid on your gain.

[gerntz]

Quote:

Originally Posted by Koolau You had me at $8.1 million total assets. After that, I suppose I too would look for some tax loop holes, but that wouldn't be my main concern. I'd be more concerned about how I was going to spend that much money over the next 30+ years. ALL good problems to have. Honestly, with that nice a stash, I'd be more interested in living someplace I wanted to live - taxes would be a secondary (but not insignificant) distraction. YMMV

Given they'd have a lot of LTCG to spend much of it, part of the spending would be to the tax man.

[ziggy29]

Quote:

Originally Posted by gerntz While my heirs will benefit from it, step up basis is a prime way wealth is concentrated at the top. I.e., taxes are never paid on your gain.

Assuming your estate is below the estate tax threshold, true.

[Chuckanut]

Quote:

Originally Posted by cathy63 The obvious "solution" to this "problem" is that all investment income should be treated and taxed the same as wages earned from a job.

I could agree with this with three added changes:

1. Don't tax dividends paid to stockholders. That is double taxation of the same profit.

2. Adjust taxable Capital Gains to take inflation into account.

3. Adjust all fixed tax limits such as the SS earnings limit to inflation.

I am not holding my breath.

[Clone]

Tax laws are written with the intent of shaping how money moves. We want people to own homes, we allow for a deduction of mortgage interest. We want business to make capital investment, then we allow for depreciation and incentives. If we want people to buy electric cars or add solar panels, we give them a tax break. Eventually, we end up with a convoluted situation with lots of nooks and crannies where you can shelter money or generate income that is taxed at a lower rate.


As taxpayers, we look at the rules (to the best of our ability), and decide how to 'play the game'. Not everybody will agree with all of the rules, especially when they may benefit somebody else.

[audreyh1]

I’m still getting my head around a $1.5M house in Austin. California, sure. But Texas property values in general are far lower.

That $1.5M house would take a bit to maintain in addition to huge property taxes so I don’t think that couple is getting by on low taxable income.

[ziggy29]

Quote:

Originally Posted by Chuckanut I could agree with this with three added changes: 1. Don't tax dividends paid to stockholders. That is double taxation of the same profit. 2. Adjust taxable Capital Gains to take inflation into account.

Agreed with these. Though I would prefer that dividends be passed through the corporation tax-free and taxable to the recipient at the full individual marginal tax rates (though there may need to be some wrinkle for taxing dividends paid to foreign shareholders). Double taxation discourages dividend payouts and encourages "retained earnings", which for many businesses can't be used effectively (resulting in unproductive "hoarding" of cash).

That does three things: first, it encourages dividend payouts (you can't fake real cash payouts like you can fake retained "earnings", so there is more faith in the integrity of the balance sheet). Secondly, it allows people of modest means to collect dividend income at still reasonably low tax rates. Thirdly, it makes US businesses more competitive and attractive for global capital. Is it a corporate giveaway? I don't think so. The corporation isn't keeping any of the money it is paying out by finding arcane loopholes. It is actually putting money into the hands of shareholders. And the shareholders would pay a tax rate based on their income.

The second one, though, would be an accounting nightmare, I think, which may be why they just decide that long term capital gains will be taxed at a certain amount lower than the marginal.

[Chuckanut]

Quote:

Originally Posted by audreyh1 That $1.5M house would take a bit to maintain in addition to huge property taxes so I don’t think that couple is getting by on low taxable income.

+1

An excellent point.

Big houses are more expensive to heat, cool, keep clean, replace the roof, furnish, paint, etc. etc. etc.

[statsman]

Quote:

Originally Posted by audreyh1 I’m still getting my head around a $1.5M house in Austin. California, sure. But Texas property values in general are far lower. That $1.5M house would take a bit to maintain in addition to huge property taxes so I don’t think that couple is getting by on low taxable income.

Having just moved from an area of California in recent months where $1.5M gets you a basic 3br/2ba 1,500-1,800 sq ft house to a suburb outside Austin, I agree. The house we're purchasing is less than 1/3 that amount, and that same house would cost $2.5M+ in the area where we lived.

Unfortunately for this couple, downsizing would result in a sizeable capital gains bill. As others have mentioned, they really are tied to their tax structure for their lifestyle. Honestly, if I were them I would still downsize, pay the capital gains, and save on the yearly properly taxes, energy costs, and insurance costs.

[ziggy29]

Quote:

Originally Posted by audreyh1 That $1.5M house would take a bit to maintain in addition to huge property taxes so I don’t think that couple is getting by on low taxable income.

Every time I see those HGTV "dream home" giveaways, all I can think about is how much income you need for ONLY taxes, maintenance, utilities and insurance! No wonder almost all the winners sell quickly, or take cash instead of the home. At least with cash, you can set 1/3 aside for taxes. With a house, you can't chop 1/3 of it off and give it to the government.

[audreyh1]

Quote:

Originally Posted by statsman Having just moved from an area of California in recent months where $1.5M gets you a basic 3br/2ba 1,500-1,800 sq ft house to a suburb outside Austin, I agree. The house we're purchasing is less than 1/3 that amount, and that same house would cost $2.5M+ in the area where we lived. Unfortunately for this couple, downsizing would result in a sizeable capital gains bill. As others have mentioned, they really are tied to their tax structure for their lifestyle. Honestly, if I were them I would still downsize, pay the capital gains, and save on the yearly properly taxes, energy costs, and insurance costs.

I think the moral of the story is that they probably have a $500K house in Austin.

[pjigar]

Quote:

Originally Posted by pb4uski But..... in order to stay in zero capital gains bracket they need to limit their income to $103,150 in 2019 ($78,750 top of zero LTCG bracket + $24,400 standard deduction)... a whopping 1.6% WR.... plus if their house is worth $1.5m their property taxes are probably $25k or so a year so if they intend to avoid taxes entirely they won't be living like they have $6.6 million of investments. Sounds to me like the scenario that you described is great for the son but not so great for the parents. Plus if they live long the will ultimately get whacked with taxes on RMDs. Don't let the tax-tail wag the enjoyment-of-your-retirement dog. (But I get your point).

We have bought our modest forever home on a large tract of land which can enjoy 1-d-1 agriculture use-based tax exemption (Taxable value $150,000) so you CAN have your cake and eat it too in Texas. I am shooting for all the OP mentioned plus healthy balance in Roth IRA and HSA.

[gerntz]

Quote:

Originally Posted by ziggy29 Assuming your estate is below the estate tax threshold, true.

Despite the estate tax, I think the LTCG still step up. And a couple can protect $22M after step up before paying taxes.

[Montecfo]

Quote:

Originally Posted by ziggy29 Agreed with these. Though I would prefer that dividends be passed through the corporation tax-free and taxable to the recipient at the full individual marginal tax rates (though there may need to be some wrinkle for taxing dividends paid to foreign shareholders). Double taxation discourages dividend payouts and encourages "retained earnings", which for many businesses can't be used effectively (resulting in unproductive "hoarding" of cash). That does three things: first, it encourages dividend payouts (you can't fake real cash payouts like you can fake retained "earnings", so there is more faith in the integrity of the balance sheet). Secondly, it allows people of modest means to collect dividend income at still reasonably low tax rates. Thirdly, it makes US businesses more competitive and attractive for global capital. Is it a corporate giveaway? I don't think so. The corporation isn't keeping any of the money it is paying out by finding arcane loopholes. It is actually putting money into the hands of shareholders. And the shareholders would pay a tax rate based on their income. The second one, though, would be an accounting nightmare, I think, which may be why they just decide that long term capital gains will be taxed at a certain amount lower than the marginal.

You have that all about right IMHO. Huge boom for US economy.

[Montecfo]

Agree. That appreciation from 200k makes little sense

[audreyh1]

Quote:

Originally Posted by gerntz Despite the estate tax, I think the LTCG still step up. And a couple can protect $22M after step up before paying taxes.

Yes - the heirs will get stepped up capital gains on what remains after the estate pays the estate taxes.

[RunningBum]

Quote:

Originally Posted by audreyh1 I’m still getting my head around a $1.5M house in Austin. California, sure. But Texas property values in general are far lower. That $1.5M house would take a bit to maintain in addition to huge property taxes so I don’t think that couple is getting by on low taxable income.

Zillow shows 217 houses for sale over $1.5M in Austin. Not that many but not unheard of.

[ziggy29]

Quote:

Originally Posted by gerntz Despite the estate tax, I think the LTCG still step up. And a couple can protect $22M after step up before paying taxes.

Well, yes. But the tax man gets his cut of what is above that amount once the step up in basis is applied.

[audreyh1]

Quote:

Originally Posted by RunningBum Zillow shows 217 houses for sale over $1.5M in Austin. Not that many but not unheard of.

And a retired couple with otherwise a net worth of only $6.5M is going to own one of those?

The bit about buying a home for $200K in 1999 and appreciating to $1.5M today in Austin is extremely unrealistic.

[pb4uski]

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Originally Posted by Independent ..... I don't get the second sentence. The gov't gets more than a trillion dollars in Social Security, Medicare, and Federal Income taxes from wage earners every year. If "wages hardly get taxed at all", where does that money come from?

The subject was income taxes, not social security or Medicare taxes.

Let's say that employer pays employee $100 of wages. Employee is in the 22% tax bracket and pays $22 in taxes on $100 of income. Employer gets a $100 deduction and get $21 tax benefit as a result.

Net impact is $1 of tax paid.... $22 paid by employee less $21 tax benefit employer receives.... seems like hardly taxed at all to me.