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Old 08-13-2021, 08:39 PM   #61
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Old 08-13-2021, 11:44 PM   #62
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Well no one likes paying taxes. I especially dislike tax on used cars that have already had the tax paid maybe multiple times.
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Old 08-14-2021, 09:01 AM   #63
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If you're going to be taxed like a rich person, you should begin working the tax code like a rich person.

The 1031 tax-deferred exchange is still on the books and if you take advantage of it before Congress changes it, you'll be saving taxes on all your cap gains and depreciation recapture. Rich people don't pay extra taxes if they don't want to and can legally avoid it.

There has been much discussion on this forum about DST real estate investments, you should search out old posts, or look at some of my old posts. There are many thousands of investors taking this route, with tens of millions of dollars every month being invested. These investments are an excellent way for you to stay invested in real estate for it's diversification and income benefits, while still getting tax deductions from RE, avoiding taxes on your sale and getting out of active RE management.

Some people don't like them because they lost money or paid high fees. I've been invested in 4 of them since 2014 and they pay me every month, even through COVID. The distributions did not waver one cent during lockdown. I earn 5-7% annually, after all fees and am happy to pay someone else to manage the properties and send me money every month. These investments preserve my capital, may show some appreciation and pay me regular income. I plan to continue using 1031 exchanges, as long as Congress doesn't mess up my strategy in their never-ending quest for more of my money, and the properties will go to my heirs with a stepped-up basis.
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Old 08-14-2021, 09:04 AM   #64
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If you're going to be taxed like a rich person, you should begin working the tax code like a rich person.

The 1031 tax-deferred exchange is still on the books and if you take advantage of it before Congress changes it, you'll be saving taxes on all your cap gains and depreciation recapture. Rich people don't pay extra taxes if they don't want to and can legally avoid it.

There has been much discussion on this forum about DST real estate investments, you should search out old posts, or look at some of my old posts. There are many thousands of investors taking this route, with tens of millions of dollars every month being invested. These investments are an excellent way for you to stay invested in real estate for it's diversification and income benefits, while still getting tax deductions from RE, avoiding taxes on your sale and getting out of active RE management.

Some people don't like them because they lost money or paid high fees. I've been invested in 4 of them since 2014 and they pay me every month, even through COVID. The distributions did not waver one cent during lockdown. I earn 5-7% annually, after all fees and am happy to pay someone else to manage the properties and send me money every month. These investments preserve my capital, may show some appreciation and pay me regular income. I plan to continue using 1031 exchanges, as long as Congress doesn't mess up my strategy in their never-ending quest for more of my money, and the properties will go to my heirs with a stepped-up basis.
That is an option but a 1031 exchange does avoid taxes. It just defers them.
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Old 08-14-2021, 09:07 AM   #65
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That is an option but a 1031 exchange does avoid taxes. It just defers them.
Which is why the first few words in my 2nd paragraph say "...1031 tax-deferred exchange..." I don't get your point.
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Old 08-14-2021, 09:09 AM   #66
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That is an option but a 1031 exchange does avoid taxes. It just defers them.
Until you: retire outside of a high-tax state like California, or die so your heirs can sell based on the stepped-up valuation.
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Old 08-14-2021, 09:15 AM   #67
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Until you: retire outside of a high-tax state like California, or die so your heirs can sell based on the stepped-up valuation.
Until thatís taken away or you exceed the estate tax exemption amount which is planned to be reduced significantly in the near future when the current exemption amount sunsets and is cut in half again.
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Old 08-14-2021, 09:23 AM   #68
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Until thatís taken away or you exceed the estate tax exemption amount which is planned to be reduced significantly in the near future when the current exemption amount sunsets and is cut in half again.
It seems foolish to plan for what may happen. The future is uncertain, including whether any of us will live to see the changes you forecast. But let's say the changes you cite do happen. What is the difference between the OP's current situation and the future situation you refer to? The OP is faced with the same tax situation then as (s)he is now. Kicking the can down the road is a viable strategy. And based on the current reality, deferring taxes is the best strategy IMO.
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Old 08-14-2021, 10:17 AM   #69
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Until thatís taken away or you exceed the estate tax exemption amount which is planned to be reduced significantly in the near future when the current exemption amount sunsets and is cut in half again.
From the OP: "selling price: $400k"

So no, I don't think so.
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Old 08-14-2021, 10:23 AM   #70
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Until you: retire outside of a high-tax state like California, or die so your heirs can sell based on the stepped-up valuation.
Since the property is in Calfornia, California is going to get their tax on the gain on sale whether or not you are still a California resident at the time of sale.
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Old 08-14-2021, 11:35 AM   #71
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Being a landlord in CA I feel your pain. CA is especially anti landlord and pro tenant. They recently passed legislation (AB 1462) trying to implement state wide rent control. Fortunately, I was exempt this time. These laws make it exceedingly more difficult and more expensive to get back control of your property (in case you want to sell or move in).

The eviction ban just exasperates the problem. The risks of being a landlord in CA are going up exponentially. Just like all investments, if the risk goes up the return must go
up or you sell out. If I fall under rent control in the future I will liquidate and get out of the business. That means three fewer rental units in the rental market. Legislation like this will eventually reduce the supply and drive the costs even higher.

Also, in many cases the depreciation recapture is a bad deal the tax payer. For many people the recapture tax is higher than the tax savings realized from depreciation over the years. I believe that's why the government forces you to depreciate. Given the choice I would skip it.

Unfortunately, what use to be a 15% Capital Gains tax has become 23.8% tax for large gains like the sale of Real Property.

There's my rant for the day.
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Old 08-14-2021, 11:48 AM   #72
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Since the property is in Calfornia, California is going to get their tax on the gain on sale whether or not you are still a California resident at the time of sale.
So I'd do a 1031 exchange (or series of exchanges) instead, probably at a lower return, of course, holding until my estate gets the step-up rather than lose ~$100k on a $400k sale.
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Old 08-14-2021, 11:59 AM   #73
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Since the property is in Calfornia, California is going to get their tax on the gain on sale whether or not you are still a California resident at the time of sale.
Yup. And you can't exchange your way out of the tax due either. If you do a 1031 to swap property that's in CA for something out-of-stae, you have to file form CA-3840 every year until you either dispose of the final property in the chain and pay the deferred tax or you die.
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Old 08-15-2021, 08:39 AM   #74
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Since tax fairness was one tangent in this thread, I figured that I would post this link which showed up in my inbox from Kiplinger.

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Are You Paying Your Fair Share of Taxes?
How does your tax bill compare to others?

Our handy tool will tell you where you rank as a taxpayer.

We're hearing a lot lately about creating a more fair and equitable tax system. President Biden and Congressional Democrats have plans to tax the rich more heavily and make them pay their "fair share" of taxes. The long list of proposals to increase taxes on wealthier Americans include raising the top income tax rate from 37% to 39.6%, eliminating the lower capital gains tax rates for people earning $1 million or more, auditing more rich people, and eliminating various tax breaks for people making at least $400,000 per year.

But what about you? Are you paying your "fair share" of the nation's tax burden? Do you even have the faintest idea what portion you pay...beyond a gnawing feeling that it's too darn much? Are you in the top 1%, 5%, 10%, 25% or 50%...or the bottom 50% of income earners?

To help you answer these questions, we created a tool to show how the nation's taxable income and the country's federal income tax bill are distributed among its citizens. Our tool uses the latest IRS data to shine a bright light into what are too often murky shadows.

We also show you how your own income stacks up against that of your fellow Americans.

Are you ready to see where you fit in? With the calculator below, simply enter a single number from your latest tax return, and you'll instantly know the answer.
https://www.kiplinger.com/kiplinger-...utm_source=tax

And if I input $107,650, the amount of income that would put a MFJ couple that are both over 65 at the top of the 12% tax bracket in 2020, then I get the following result. While the result is interesting it doesn't necessarily answer the "fair" question which is one of those "eye of the beholder" type things.
Attached Images
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Old 08-15-2021, 09:09 AM   #75
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Since tax fairness was one tangent in this thread, I figured that I would post this link which showed up in my inbox from Kiplinger.



https://www.kiplinger.com/kiplinger-...utm_source=tax

And if I input $107,650, the amount of income that would put a MFJ couple that are both over 65 at the top of the 12% tax bracket in 2020, then I get the following result. While the result is interesting it doesn't necessarily answer the "fair" question which is one of those "eye of the beholder" type things.
It is interesting to show where you fit but it doesnít really cover the fairness issue. All it told me is I pay much more than most people. I already knew that. Is it fair? Depends on if you are me or you I guess.

In my view the only way to make it truly fair and equal weíre if everyone paid the exact same amount. Income shouldnít matter. One person doesnít pay more for a loaf of bread simply because they earn more.

Since we know thatís never going to happen we need to be sure the percentage paid by the various income groups doesnít become punitive or over-the-top. Even if the rate was the same for every group those making more would always be paying more.

Every income group should pay something. Even if itís a paltry amount. If you are not participating in any way itís hard to take you seriously.
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Old 08-15-2021, 10:22 AM   #76
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I'm thankful that you are not in charge of tax policy.

Exact same amount?... so Bill Gates would pay the exact same amount as a recent college graduate just starting their career.... seriously?

We're talking about sharing the costs of common defense, etc. and not buying a loaf of bread... if the common defense fails then you have a lot more to lose than some low income person so you should pay more to protect that. Even a flat tax would be very unfair and exact same amount is worse than that.

Taxes based on ability to pay has generally been accepted as fair for decades... I see no reason to change that.

The problem with a paltry amount is that it would probably cost more to administer and collect than it is worth. I don't at all mind letting those with incomes below the standard deduction amount off the hook... it doesn't make sense to require them to prepare tax returns to pay negligible amounts of tax (though many of them still prepare returns to receive refunds if they had tax withheld).

Its sad that you seem to think that low income people who don't pay income taxes shouldn't be taken seriously.... it sounds pretty out-of-touch to me.... I'm not sure if you meant that or not but it is what you wrote.
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Old 08-15-2021, 10:31 AM   #77
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I'm thankful that you are not in charge of tax policy.

Exact same amount?... so Bill Gates would pay the exact same amount as a recent college graduate just starting their career.... seriously?

We're talking about sharing the costs of common defense, etc. and not buying a loaf of bread... if the common defense fails then you have a lot more to lose than some low income person so you should pay more to protect that. Even a flat tax would be very unfair and exact same amount is worse than that.

Taxes based on ability to pay has generally been accepted as fair for decades... I see no reason to change that.

The problem with a paltry amount is that it would probably cost more to administer and collect than it is worth. I don't at all mind letting those with incomes below the standard deduction amount off the hook... it doesn't make sense to require them to prepare tax returns to pay negligible amounts of tax (though many of them still prepare returns to receive refunds if they had tax withheld).

Its sad that you seem to think that low income people who don't pay income taxes shouldn't be taken seriously.... it sounds pretty out-of-touch to me.... I'm not sure if you meant that or not but it is what you wrote.
I disagree. People donít value what they donít pay for in nearly the same way they value what they do pay for. Personally Iíd be insulted to find my contribution was worth so little I was considered a non-participant.

I will agree we will never agree as to what is fair. Because I feel what is fair is to treat everyone the same.

Someone who drives to work gets more value out of having a driverís license than someone who doesnít drive to work. Yet they both pay the same amount to maintain their license.

So saying someone who earns more should pay more for defense implies their lives are worth more to defend and so they need to pay more to defend them. I donít happen to feel that way. Itís not treating everyone equally.
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Old 08-15-2021, 10:37 AM   #78
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I'm thankful that you are not in charge of tax policy.

Exact same amount?... so Bill Gates would pay the exact same amount as a recent college graduate just starting their career.... seriously?

We're talking about sharing the costs of common defense, etc. and not buying a loaf of bread... if the common defense fails then you have a lot more to lose than some low income person so you should pay more to protect that. Even a flat tax would be very unfair and exact same amount is worse than that.

Taxes based on ability to pay has generally been accepted as fair for decades... I see no reason to change that.

The problem with a paltry amount is that it would probably cost more to administer and collect than it is worth. I don't at all mind letting those with incomes below the standard deduction amount off the hook... it doesn't make sense to require them to prepare tax returns to pay negligible amounts of tax (though many of them still prepare returns to receive refunds if they had tax withheld).

Its sad that you seem to think that low income people who don't pay income taxes shouldn't be taken seriously.... it sounds pretty out-of-touch to me.... I'm not sure if you meant that or not but it is what you wrote.
I have a problem with the word "fair" being thrown around. It's a totally undefined word when used to describe financial status. Also it's about as loaded as a word can get in relation to financial status. I'll leave it at that as YMMV.
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Old 08-15-2021, 10:57 AM   #79
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I guess I take a much broader view of the function of tax policy in an advanced society than you do Joylush.

Taxation effectively spreads the cost of government across the population. The cost of government broadly sets the stage for commerce.... the cost of an educated work force (such as it is), monetary systems, common defense, and a wide variety of the costs of society.

The wealthy benefit more from the educated workforce, monetary systems, etc. and as a result they are asked to pay more because they benefit more than Joe Sixpack. I don't have any problem with that. I am thankful for what I have and what I get to keep compared to those less fortunate and what they get to keep.

If US tax policy really bothers you then you can always move... that is one of the advantages of wealth... but I think that you'll find that most other countries that have advanced societies that you would be willing to live in probably have even higher taxes than the US.
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Old 08-15-2021, 11:05 AM   #80
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Many years ago, while I was working, I added up my total tax burden. I counted Income taxes, FICA, SDI, Property taxes, sales tax, government fees, gas tax, car tax, and guessed on other hidden taxes.

At the time I was making about $100K per year. This income was squarely in the middle class range for the SF Bay Area. My total direct tax burden was 45%. This doesn't include indirect taxation that gets passed through to the consumer in goods and services.

My feeling was that the tax burden was too high. Losing 45% of your purchasing power to direct taxation was too much for a middle class working stiff.

With regards to a fair tax, I always thought a flat tax or semi-flat tax would be fairer.
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