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Capital gains?
Old 04-13-2021, 12:33 PM   #1
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Capital gains?

Iíve seen some threads of people with property to sell in retirement. Often they are advised not to sell due to the capital gains taxes incurred.

My feeling is it seems to be a sellers market and the capital gains tax will apply anyway at the time of the sale.

With the tax and spend government now in place is it reasonable to expect capital gains wonít go up in the future and the housing market will slow at some pont?

Iím thinking it is a good time to sell and get unsaddled from a property no longer wanted in retirement.
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Old 04-13-2021, 07:32 PM   #2
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My opinion is that movement in tax rates is out of the hands of the investor, and therefore a speculative topic. Therefore it is not actionable information for the investor.

The housing market in my opinion will remain strong for several years, possibly more than 5 years. This is because of fundamental demand, and tightness of supply. These are good factors. Not a debt bubble like in 2008. The debt bubble could come, but it would take years to develop and would be detectable. I am invested in housing-related stocks because of the strength of this market. I follow housing-related economic data closely.

I agree that it's a good time to get unsaddled from the illiquid investment that real estate is. And it's a sellers' market as you noted.

Taxes are taxes, we all have to pay them. Ignore what anyone may say about what tax rates will do in the future.
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Old 04-13-2021, 08:04 PM   #3
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Originally Posted by Alderman View Post
Iíve seen some threads of people with property to sell in retirement. Often they are advised not to sell due to the capital gains taxes incurred.

My feeling is it seems to be a sellers market and the capital gains tax will apply anyway at the time of the sale.

With the tax and spend government now in place is it reasonable to expect capital gains wonít go up in the future and the housing market will slow at some pont?

Iím thinking it is a good time to sell and get unsaddled from a property no longer wanted in retirement.
I agree with you. It will be hard passing a tax increase but the current administration has pledged to increase taxes including capital gain taxes.

So that may be another reason to think about selling a property you no longer want or need.
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Old 04-13-2021, 09:51 PM   #4
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My opinion is that movement in tax rates is out of the hands of the investor, and therefore a speculative topic. Therefore it is not actionable information for the investor.

The housing market in my opinion will remain strong for several years, possibly more than 5 years. This is because of fundamental demand, and tightness of supply. These are good factors. Not a debt bubble like in 2008. The debt bubble could come, but it would take years to develop and would be detectable. I am invested in housing-related stocks because of the strength of this market. I follow housing-related economic data closely.

I agree that it's a good time to get unsaddled from the illiquid investment that real estate is. And it's a sellers' market as you noted.

Taxes are taxes, we all have to pay them. Ignore what anyone may say about what tax rates will do in the future.
Isnít the housing market out of the hands of the investor also so speculative and not actionable?
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Old 04-14-2021, 06:10 AM   #5
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Isn’t the housing market out of the hands of the investor also so speculative and not actionable?
Yes and no. Data show that the housing market has increasing prices, increasing transaction volume and low supply. Not speculative. Actionable information, very actionable. In fact I have taken action on this data and have realized returns on it. What is speculative, to a small degree, is how long the market conditions will continue. Duration of today’s favorable investing climate in residential real estate can be estimated by, again, using data. Very actionable data.
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Old 04-14-2021, 08:25 AM   #6
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Yes and no. Data show that the housing market has increasing prices, increasing transaction volume and low supply. Not speculative. Actionable information, very actionable. In fact I have taken action on this data and have realized returns on it. What is speculative, to a small degree, is how long the market conditions will continue. Duration of todayís favorable investing climate in residential real estate can be estimated by, again, using data. Very actionable data.
Actually, IMO the most actionable data is the fact that nationally housing costs cannot continually increase faster than household incomes, which long-term IIRC increase a couple of points faster than inflation. Housing is never going to crowd out food.

Hot housing markets are like parties. Everyone wants to stay until just before the cops show up. The OP suggests that they do not want to wait that long; probably a wise decision.
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Old 04-14-2021, 10:31 AM   #7
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Read Joe Davis' commentary on Morningstar. He sees no bubble in housing. Housing is a fertile ground now for investors, and will remain so for some time.
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Old 04-14-2021, 10:55 AM   #8
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Read Joe Davis' commentary on Morningstar. He sees no bubble in housing. Housing is a fertile ground now for investors, and will remain so for some time.
No surprise; I'm sure the chattering monkeys span the spectrum from bull to bear on this subject just like they do all the others. Does this guy publish a ten-year audited report on the accuracy of his predictions?
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Old 04-14-2021, 11:09 AM   #9
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Originally Posted by Alderman View Post
Iíve seen some threads of people with property to sell in retirement. Often they are advised not to sell due to the capital gains taxes incurred.

My feeling is it seems to be a sellers market and the capital gains tax will apply anyway at the time of the sale.

With the tax and spend government now in place is it reasonable to expect capital gains wonít go up in the future and the housing market will slow at some pont?

Iím thinking it is a good time to sell and get unsaddled from a property no longer wanted in retirement.
One wild card of course is the basis step up upon death. In a community property state, if the home is community property, there is a even a full step up on the death of the first spouse. This is a big incentive for me to stay put as my home has appreciated well beyond the home exclusion.

I did just read another article about proposals to eliminate or curtail the basis step up for heirs, so who knows.
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Old 04-14-2021, 11:16 AM   #10
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There are no legislative proposals to increase the capital gain tax, change the step up basis, or anything else. To date itís all some combination of electoral rhetoric and speculation & hype.
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Old 04-14-2021, 03:17 PM   #11
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Originally Posted by Alderman View Post
Iíve seen some threads of people with property to sell in retirement. Often they are advised not to sell due to the capital gains taxes incurred.

My feeling is it seems to be a sellers market and the capital gains tax will apply anyway at the time of the sale.
Is this a personal residence, rental or something else?
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Old 04-14-2021, 04:11 PM   #12
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There are no legislative proposals to increase the capital gain tax, change the step up basis, or anything else. To date itís all some combination of electoral rhetoric and speculation & hype.
This from March 29, 2021:
https://www.insidernj.com/press-rele...nd%20for%20all.

"Today, U.S. Senators Cory Booker (D-NJ), Chris Van Hollen (D-MD), Bernie Sanders (I-VT), Sheldon Whitehouse (D-RI), and Elizabeth Warren (D-MA), announced a new proposal to close the stepped-up basis income tax loophole"


This currently on Senator Chris Van Hollen (Maryland) website:
https://www.vanhollen.senate.gov/imo...STEP%20Act.pdf

"Problem: Tax-free stepped-up basis
Working Americans pay taxes every year on their income. But the income tax is more optional for the wealthiest
families, whose income often comes from their wealth rather than their work. Income from wealth
accumulation is supposed to be taxed as capital gains when someone sells an asset for more than what they
paid for it. However, when someone dies with assets that increased in value during their lifetime, income taxes
are never collected on these capital gains Ė even if their heirs sell the asset the next day.
This is called the ďstepped-up basisĒ loophole, because it allows heirs to step up their cost basis in inherited
property to match the value on the date of the previous ownerís death, meaning that only capital gains above
that point could ever be subject to income taxes...

Solution: The STEP Act
This legislation would close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit
huge fortunes on which the original owner never paid income taxes. The tiny share of estates that owe the
estate tax will not be subject to double taxation, because the income taxes paid under this bill will be deductible
for estate tax purposes."
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Old 04-14-2021, 04:22 PM   #13
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A lot of bills get introduced. Very few make it out of committee, fewer come to the floor for a vote and fewer still are ever enacted as law. In 2019, there were 8820 bills and joint resolutions introduced. 105 of them became law (1.2%) Source https://www.rollcall.com/2020/01/22/...ut-few-passed/

Even then, there are often substantial changes between the bill and the eventual law. So, I need to see a bill reported out of committee to even start thinking about adjusting my affairs in response. Otherwise, I'm wasting my time and energy getting hopped up about things that in all likelihood will never come to pass.

(As a moderator, I note that this lines up nicely with this board's general restriction on discussing legislation until it has made it out of committee).
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Old 04-14-2021, 08:34 PM   #14
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No surprise; I'm sure the chattering monkeys span the spectrum from bull to bear on this subject just like they do all the others. Does this guy publish a ten-year audited report on the accuracy of his predictions?

OK, @OldShooter. Where are you putting your money these days? What sources/writers do you read to guide your investing?
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Old 04-14-2021, 11:52 PM   #15
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One wild card of course is the basis step up upon death. In a community property state, if the home is community property, there is a even a full step up on the death of the first spouse. This is a big incentive for me to stay put as my home has appreciated well beyond the home exclusion.

....
This is a great way to avoid the taxes on a wildly appreciated house.... of course you only get to do it once, and can't really enjoy the $$$ either
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Old 04-14-2021, 11:59 PM   #16
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This is a great way to avoid the taxes on a wildly appreciated house.... of course you only get to do it once, and can't really enjoy the $$$ either
Indeed, not exactly winning the game....
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Old 04-15-2021, 07:38 AM   #17
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I'm in one of those hot housing markets where homes are pending within a day or two. Typically there are many multiple bids, most lately from California buyers flush with cash and using portfolios as a basis for qualification, trying to outbid each other on the same property because their perception is it's still "a deal" compared to where they are coming from so they see nothing wrong with bidding hundreds of thousands over asking price.

So they are waiving appraisals, home inspections, paying closing costs, and agreeing to no-charge leasebacks for several months allowing the seller to stay in the home until they find other housing.

These buyers are forking over hundreds of thousands at closing in what I believe is ghost value.

Would I sell right now? Absolutely. And I did. I figured I'd throw my hat in the ring while the goofy money is still flowing.

Will this last forever? 5 years? 10? I don't think so. I know many of my realtor and mortgage broker friends believe this cycle will never end. And I think that is simply a symptom of euphoria and FOMO. But there are so many artificial and/or temporary reasons why the current market is as hot as it is and it will only take a few of them to correct in order to stop the fire.

I often ask those realtor friends that if they really believe this is going to last, are they telling their sellers to wait another year so they can make even more on the sale of their home? Of course not.
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Old 04-15-2021, 08:54 AM   #18
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With the tax and spend government now in place is it reasonable to expect capital gains won’t go up in the future and the housing market will slow at some pont?
I wonder if you could please refrain from political statements in this forum. It's a hard and fast rule here! Thank you!

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Old 04-15-2021, 09:30 AM   #19
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OK, @OldShooter. Where are you putting your money these days?
Well, after spending about 30 years wandering in the wilderness of picking stocks, picking sectors, buying on margin, cooking up trading schemes, and chasing hot managers I finally came to understand that this was a loser's game. So for the last couple of decades we have held the total US market with a healthy dollop of International. Currently our equity tranche is about 98% VTWAX, so we hold the world, cap weighted.

On the fixed side, we are about 90% TIPS. This is inflation insurance as really bad inflation is about the only thing that could really wreck our retirement. We made this decision in 2006.

So the whole portfolio is just two securities, and we are running fairly serious money.

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What sources/writers do you read to guide your investing?
Here are a few, simple stuff first:
"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365

"A Random Walk Down Wall Street" by Burton Malkiel https://www.amazon.com/Random-Walk-D.../dp/0393330338 (be sure to get the latest edition)

"Winning the Loser's Game" by Charles Ellis https://www.amazon.com/Winning-Loser.../dp/0071813659 (be sure to get the latest edition)

"Unconventional Success" by David Swensen https://www.amazon.com/Unconventiona.../dp/0743228383 (surprisingly relevant for a somewhat aged book)

"The Investor's Manifesto" by William Bernstein https://www.amazon.com/Investors-Man.../dp/B002U3CBY8

"Your Money and Your Brain" by Jason Zweig: https://www.amazon.com/Your-Money-Br.../dp/0743276698
You can Google these books and authors' names to see their credentials.

I do not read the chattering monkeys and I tell my Adult-Ed investing class students to avoid them as well. Think about this: If one of the monkeys actually had enough skill to make money, why would he be pandering for clicks, hustling newsletter sales, or even working for a mutual fund? He could make as much money as he cared to while sitting beside the pool on his private yacht. So their mere existence is strong prima-facie evidence that their advice is worthless. It is not by accident that AFIK none of them publish long-term track records.
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Old 04-15-2021, 09:46 AM   #20
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Thanks for the responses. I was just curious about this as on another thread it seemed some were advising against a sale due to capital gains.
My personal experience with owning a rental property was not a good one as it seemed to be one problem after another and I most assuredly did not want to go into retirement saddled with that burden.
Tapping into this site is a privilege to find the whys and why nots of doing things in preparation and entry into the wonderful world of retirement.
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