Unrealized Capital Gains tax

[Another Reader]

How many times will you be taxed on the gain? If you have a million dollar gain on a house in Silly Valley, will you be taxed once and then again every year? What rate will be applied?

Most important, is this guy floating an idea, or has someone written a bill to be considered?

 

[audreyh1]

No more capital gains tax rates? Ordinary rates instead?

But should only affect the top 0.1% of US taxpayers?

His plan, which he has promised to flesh out in a white paper in the coming weeks, would tax the appreciation of assets owned by the very wealthy as income each year, an approach known as mark-to-market taxation. It would also subject that income to ordinary tax rates rather than special, lower income tax rates that apply to capital gains.

The Wall Street Journal quoted Wyden’s office as saying the proposal would be structured to affect only the richest 0.1 percent of Americans. Depending on the details, this proposal could raise significant revenue and counter growing inequality in the United States.

https://itep.org/sweeping-reform-would-tax-capital-gains-like-ordinary-income/

 

[braumeister]

But should only affect the top 0.1% of US taxpayers?

At first.

What could go wrong?

 

[Popeye]

It's completely impossible. Think outside the stocks & bonds box: How would the value of an office building or a company I own be established for tax purposes? Suppose I am a minority owner; my share is almost valueless unless the whole asset sells.

My brother owns an undivided quarter of our deceased parent's lake home. His share is worth almost nothing, since no one would buy into a deal with three other partners that comprise a majority voting bloc, completely controlling the property.

I really wonder what these guys smoke. Maybe he's from a MJ state?

Well, he is from Oregon

 

[RobbieB]

People love to get all bent out of shape because of rumors, what's new?

 

[Huston55]

I really wonder what these guys smoke. Maybe he's from a MJ state?

You mean like Oklahoma?

 

[MRG]

You mean like Oklahoma?

Or the majority of states?

 

[gerntz]

I say leave Democrats out of this discussion.

haha.

 

[MarieIG]

Sounds awful.

 

[brucethebroker]

From the discussion of the tax proposal;
Certain assets that have a relatively easily defined market value, like stocks of a publicly traded corporation, would be marked to market. For other assets, owners would continue to defer paying income taxes until the asset is sold, but their income tax at the time of the sale would be increased to put the taxpayer in the same position she would be in if the asset had been subject to true mark-to-market taxation each year.

And homes already have an exclusion from capital gains, this is really going to be a simplification of the tax code.

This, this form of taxation already applies to houses: property taxes (percentage taxation of assessed value each year). Apparently it works so well for real estate (filling the coffers on a county/state level) that it needs to apply to all assets......

 

[sengsational]

Even as a proposal to soak the rich, it seems like given cursory thinking, it's not even one of the better ways to soak the rich. Doesn't the taxing authority of a government and the government itself want a constant flow of funds that isn't depending on the whims of Mr market? Why would they engineer in a guaranteed confounder?

 

[CRLLS]

They might as well just make it a Personal Asset (property) tax. What it the value of all the assets you own/have? Send in x% of that value. A lot of other tax law changes would have to be changed at the same time to prevent double taxation. I simply cannot see the proposed tax happening any time in the near future. Pipe dreams IMO. Sort of like Bernie's platform of free college for everybody. Nice things to promote in order to get free press and everybody talking. Never a chance of happening.

 

[Mdlerth]

Revolution now! You have nothing to lose but your savings, your house, etc.

A lot of other tax law changes would have to be changed at the same time to prevent double taxation.

Who says they want to prevent double taxation?

I simply cannot see the proposed tax happening any time in the near future. Pipe dreams IMO. Sort of like Bernie's platform of free college for everybody. Nice things to promote in order to get free press and everybody talking. Never a chance of happening.

Never say never.

 

[Sunset]

Even as a proposal to soak the rich, it seems like given cursory thinking, it's not even one of the better ways to soak the rich. Doesn't the taxing authority of a government and the government itself want a constant flow of funds that isn't depending on the whims of Mr market? Why would they engineer in a guaranteed confounder?

If they want to simply tax the rich, an easy way would be to force reporting of ALL asset value when assets over 5 Million.
Altering the Fincen requirements from simple foreign asset to all assets would do this.

Then everyone that reports over $5 Million to Fincen, gets taxed x% of the amount over $5 Million each year.

Since most politicians are rich (officially or not) I don't see this passing

 

[RAchip]

As mentioned above, this would be a form of asset tax. It would not be an income tax because you have no income if you simply own an asset and don't sell it. This is absolutely crazy and would do unbelievable damage to the economic system in our country by causing people to sell appreciated assets to raise cash to pay "taxes" (its not actually a tax, it would actually just be wealth confiscation). These forced sales would cause incalculable disruption and damage to all sorts of markets in this country.

 

[CRLLS]

I have an early-earned aversion to Personal Property taxes. At an early age of 15, I owned a boat that was assessed a Personal Property Tax. This was the first "tax" that I ever had to pay. The next year our state eliminated the PPT.

Determining the ever changing value of Personal Property is a difficult task. Think Rembrandt paintings. or collectable autos. Or more to the point, Enron stock.

Under this proposal, what about private stocks that I personally own and hold stock certificates for? How would that be known, or even valued/taxed?

 

[Running_Man]

As mentioned above, this would be a form of asset tax. It would not be an income tax because you have no income if you simply own an asset and don't sell it. This is absolutely crazy and would do unbelievable damage to the economic system in our country by causing people to sell appreciated assets to raise cash to pay "taxes" (its not actually a tax, it would actually just be wealth confiscation). These forced sales would cause incalculable disruption and damage to all sorts of markets in this country.

The idea this is not income is laughable,
Lets just look at Elon Musk, given several million shares from 2013 to 2017 as compensation, no salary, Elon paid no taxes. Took the shares to a bank received nearly a billion dollars from them as a loan, again tax free. Used the money to buy houses jets and trips. Lives the good life without paying a dime in taxes on the money.

This is not an asset tax it is a tax on the increase of investment value, that everyone here says is no different than a dividend. See any thread. This merely agrees with that view and will place in tax code. To argue that ELON has not realized any income from the time of holding the assets is ludicrous. He is just deferring the recognition of the income to a time of his choosing, the new law will recognize the income as it occurs and prevent permanent avoidance of tax as Warren Buffet, Elon Musk and many others do through their lifetime.

 

[OldShooter]

... Never say never.

In this case I will say never.

It is completely impossible to implement. Sure, a few financial assets held by pipsqueek investors have values that can be determined, but beyond that lies chaos.

A large stock holding, say 15% of the float) cannot be liquidated at today's market price. Its value is much less because selling will drive down the market. So what is its value? The only way to find out is to sell. If Buffet sold his interest in BRK the whole company value would tank, far beyond just the price pressure from trying to move his shares.

Real estate assets, same impossibility to value, especially for minority partners. A limited partnership in an apartment building, for example, cannot be sold for its nominal fraction of the appraiser's number. It can only be sold at a discount.

And how to value a non-public company? A yacht? A collector car?

The government simply does not have enough attorneys to fight valuation battles with tens of millions of people and, anyway, there are not enough courtrooms.

 

[Running_Man]

Further a natural outgrowth of this would be for companies to develop a plan to pay dividends in order to allow their shareholders pay the taxes that would be due. In the long run this would be extremely beneficial to the economy as deals would be developed on their economic merit not tax benefits. In the short run, this could crash the market and eliminate all gains I realize.

 

[Running_Man]

In this case I will say never.

It is completely impossible to implement. Sure, a few financial assets held by pipsqueek investors have values that can be determined, but beyond that lies chaos.

A large stock holding, say 15% of the float) cannot be liquidated at today's market price. Its value is much less because selling will drive down the market. So what is its value? The only way to find out is to sell. If Buffet sold his interest in BRK the whole company value would tank, far beyond just the price pressure from trying to move his shares.
This is why Berkshire would immediately begin to pay a large dividend - a 25% tax on 15% of a company requires a 4% dividend once you are past the first year the accumulated basis would make the tax less than the dividend

Real estate assets, same impossibility to value, especially for minority partners. A limited partnership in an apartment building, for example, cannot be sold for its nominal fraction of the appraiser's number. It can only be sold at a discount.

And how to value a non-public company? A yacht? A collector car?
These is already stated on if non-market information is not available tax will be paid when sold but at much higher rates

The government simply does not have enough attorneys to fight valuation battles with tens of millions of people and, anyway, there are not enough courtrooms.

 

[CRLLS]

The idea this is not income is laughable,
Lets just look at Elon Musk, given several million shares from 2013 to 2017 as compensation, no salary, Elon paid no taxes. Took the shares to a bank received nearly a billion dollars from them as a loan, again tax free. Used the money to buy houses jets and trips. Lives the good life without paying a dime in taxes on the money.

This is not an asset tax it is a tax on the increase of investment value, that everyone here says is no different than a dividend. See any thread. This merely agrees with that view and will place in tax code. To argue that ELON has not realized any income from the time of holding the assets is ludicrous. He is just deferring the recognition of the income to a time of his choosing, the new law will recognize the income as it occurs and prevent permanent avoidance of tax as Warren Buffet, Elon Musk and many others do through their lifetime.

I, for one would be laughing right now if it weren't for some elected official thinking that this "value" is actual earnings. It is a paper gain that has no real value until actually sold at whatever gain or loss there might be at the time of sale. To think that this proposed bill would provide any long term benefit to the feds is simplistic IMO. Under today's tax rules, at any given point of time, people are selling investments and being taxed. In the macro-picture, the feds would be trading tax income now for tax income they will not have later on.

If Elon or Warren is your point of reference, the laws should be changed regarding that.

 

[Mdlerth]

It can't happen here... until it does

In this case I will say never.

It is completely impossible to implement. Sure, a few financial assets held by pipsqueek investors have values that can be determined, but beyond that lies chaos.

A large stock holding, say 15% of the float) cannot be liquidated at today's market price. Its value is much less because selling will drive down the market. So what is its value? The only way to find out is to sell. If Buffet sold his interest in BRK the whole company value would tank, far beyond just the price pressure from trying to move his shares.

Real estate assets, same impossibility to value, especially for minority partners. A limited partnership in an apartment building, for example, cannot be sold for its nominal fraction of the appraiser's number. It can only be sold at a discount.

And how to value a non-public company? A yacht? A collector car?

The government simply does not have enough attorneys to fight valuation battles with tens of millions of people and, anyway, there are not enough courtrooms.

I dunno. Contemplate any of these sorts of assets you mention, as well as others you did not (jewelry, art, mineral rights, intellectual property), as if they were owned by your grandfather. Upon his demise they are subject to estate tax. Easy to compute a value? Maybe not easy, but government finds a way.

I'm sticking with "sufficiently unlikely that I'm not going to lose sleep over it", but not impossible.

 

[Mdlerth]

Musk eludes IRS auditors by stowing away on Mars rocket

The idea this is not income is laughable,
Lets just look at Elon Musk, given several million shares from 2013 to 2017 as compensation, no salary, Elon paid no taxes.

I don't have any data to dispute this, but how did he manage it? There were times during my career when part of my compensation was in company stock. I was taxed on it based on its share price the day it was awarded. How did EM escape?

 

[CardsFan]

I don't have any data to dispute this, but how did he manage it? There were times during my career when part of my compensation was in company stock. I was taxed on it based on its share price the day it was awarded. How did EM escape?

Good point. Near as I can tell, stock in lieu of salary is taxed at the time given and at the market rate:
https://finance.zacks.com/tax-stock-lieu-pay-11287.html

 

[gwraigty]

You have a basis, a year end value and you pay taxes, your new basis is the year end tax basis. When you sell the stocks they go against the adjusted basis, quite simple actually.

Example Buy stock at 100 on 3/16/2019

At 12/31/2019 stock is at 130. Income is number of shares X (130-100) times the applicable tax rate.

It could be years before people sell stocks/MFs/ETFs. You'd have to go through a calculation every year to determine unrealized capital gains/losses. For example, at 12/31/2020, if the stock was down to $120, you'd get to deduct $10/per share times the applicable tax rate, right? ($120 new year-end basis minus the $130 previous year-end basis.)