Selling rental, what taxes to expect

[pb4uski]

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.

 

[Joylush]

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 don’t value what they don’t pay for in nearly the same way they value what they do pay for. Personally I’d 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 driver’s license than someone who doesn’t 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 don’t happen to feel that way. It’s not treating everyone equally.

 

[Koolau]

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.

 

[pb4uski]

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.

 

[jkern]

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.

 

[Joylush]

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.

It doesn’t bother me enough to move. But I have plenty of experience working in the government to know I don’t want them given any more of anyone’s money to waste. The constant misinformation as to who pays what is disingenuous and the class warfare promotion does rather disgust me but that’s what you get when you have a generally gullible and uninformed population.

What is clear is the more you have the harder you must work to protect what you have because there sure are a lot of people out their trying to get their hands on your earnings and who are willing to vote themselves a greater share of what belongs to you.

What they should be doing is focusing their efforts more on the tremendous amount of waste there is caused by the government and demand they be held accountable.

But when you’re not paying any taxes anyway it’s hard to recognize how it might affect you.

I do feel bad for those who are affected through no fault of their own by poor government policy. A recent example is all the quality renters who are going to find it even harder to find affordable housing, never-mind the poor quality renters who will find it impossible. But when the government fails to do their job and enforce legal contracts (as is the case with the eviction moratorium going on for well over a year now) the result will be much fewer rental housing units being available. Such an obvious consequence but here we are. The short sightedness is astounding.

Why should the wealthy continue to risk their money when half is going to be taken away? Tax them reasonably they will continue to earn and you’ll get more from them. Some folks are just more focused on taking from them because they want to redistribute their wealth and don’t care how it might affect economic growth. Short sightedness.

 

[ivinsfan]

This is a great discussion.


pb4 you talk about the cost of government.What's the real cost of government. As the scope of government broadens the costs rise in tandem. I'd even argue that as the scope broadens and costs rise, the waste of taxpayers money goes up as well.


In my lifetime I don't think I've ever seen the scope or size of government shrink.



Ironically our posters selling rental units here don't have the political juice to make any of these rules more palatable. They are kind of stuck in the middle and I don't blame them for being unhappy about it.

 

[Joylush]

This is a great discussion.


pb4 you talk about the cost of government.What's the real cost of government. As the scope of government broadens the costs rise in tandem. I'd even argue that as the scope broadens and costs rise, the waste of taxpayers money goes up as well.


In my lifetime I don't think I've ever seen the scope or size of government shrink.


Ironically our posters selling rental units here don't have the political juice to make any of these rules more palatable. They are kind of stuck in the middle and I don't blame them for being unhappy about it.

I’m in the group selling rental properties. I am so very torn about this.

I have good, long term tenants. But due to recent events my houses have increased in value tremendously. The thought that my rights are no longer protected under the law is truly frightening. So while this hasn’t directly affected me it has greatly appalled me.

Now I find myself with tenants paying significantly below market rents compared to my market. All my costs, especially property taxes have increased significantly and I am essentially subsidizing these tenants.

Some examples:

House renting for $1100 should rent for $1500-$1600 (I have at least five of these)
House renting for $875-$960 should rent for $1300-$1400 (I have at least five of these)
House rented for $1600 should rent for $2000-$2200 (I have a couple of these)
House rented for $700-$800 should rent for $1000 (I have a couple of these)

I am being hurt by this. My tenants are being hurt by this. Neither of us are the reason prices and costs have gone sky high. Every one of them is going to be getting at least $100 a month increase which will still put them below the going rates. I’d like them to move so I can sell but they have nowhere to go because even with a $100 a month increase they are still getting the best deal around.

A benefit to me is they are even better tenants than they were in the first place because they know I’m selling and they don’t want to give me any reason to sell their home. Their gratefulness makes it even harder for me to do what’s in my best interest.

At this point I view it as my charitable contribution. Part of the reason I have been so generous with my subsidies is because I know where it’s going and I value these folks. And extra $100 in income to me is only worth $70 but it’s worth a whole $100 to them and they need it more than I do.

Plenty of other landlords are just like me so the whole “greedy landlord” mantra is rather annoying.

I could generate a much greater rate of return by selling my houses, paying the taxes and investing the proceeds. And with far fewer headaches. Just last week I paid $5775 for a 3 ton heat pump replacement which I would have paid $3500 for a couple years ago.

I apologize for somewhat changing the subject. I just don’t see how anyone can support such government overreach and short sightedness which while intending to only hurt the rich really hurt everyone else even more.

Restraining their overreach and spending and holding them accountable should be the first order of business.
But keeping the populace focused elsewhere by promoting class warfare takes the focus off them.

And do you know that technically the IRS could question why my rents are low and technically charge me tax on the rent amounts they think I should be charging but didn’t actually charge? So I run the risk of being taxed on income I didn’t receive if I were audited- evil landlord that I am. Tenants should view the government as their enemy, not their landlord.

 

[ivinsfan]

Well Joylush, basically you are Da...ed if you do and Da..ed if you don't.
I concur it's not a good policy for the government to put landlords in a position like this. If you do sell to another landlord the rents will go nowhere but up.


Minneapolis is putting a rent control initiative on the ballot for this fall.


Some tax rules has short sighted views. It's in the interest of our country as a whole to have many individual landlords who think they are being treated fairly. Not "special" but fairly.

 

[Joylush]

Well Joylush, basically you are Da...ed if you do and Da..ed if you don't.
I concur it's not a good policy for the government to put landlords in a position like this. If you do sell to another landlord the rents will go nowhere but up.


Minneapolis is putting a rent control initiative on the ballot for this fall.


Some tax rules has short sighted views. It's in the interest of our country as a whole to have many individual landlords who think they are being treated fairly. Not "special" but fairly.

Rent control does not result in more affordable housing.

 

[ivinsfan]

Rent control does not result in more affordable housing.

Ya think

 

[captain3d]

If the gov could organize how to get the billions in rental assistance to the tenants on a timely manner everything would be a lot better.

As a landlord you can not apply. But if a tenant does not pay for a year, even if the are working, they can not be evicted and also do not qualify for assistance.

A tenant can not pay for many months while waiting for assistance and then just leave. The landlord can do nothing.

As the eviction moratorium burden is on the landlord. Why not let the landlord apply for the assistance.

Well I guess they can but still need a tenant signature

 

[pb4uski]

....Some examples:

House renting for $1100 should rent for $1500-$1600 (I have at least five of these)
House renting for $875-$960 should rent for $1300-$1400 (I have at least five of these)
House rented for $1600 should rent for $2000-$2200 (I have a couple of these)
House rented for $700-$800 should rent for $1000 (I have a couple of these)

.... And do you know that technically the IRS could question why my rents are low and technically charge me tax on the rent amounts they think I should be charging but didn’t actually charge? So I run the risk of being taxed on income I didn’t receive if I were audited- evil landlord that I am. Tenants should view the government as their enemy, not their landlord.

On the first part, why? Are these long-term tenants that you just have chosen not to increase the rent on? A friend of mine has somehting like that... he hasn't raised the tenant's rent in probably at least 5 years and probably more. Every year when I do his taxes I mention to him that he should do some rent increase as his costs have gone up but he refuses to do it.... the guy is a good tenant who pays on time and occasionally helps my friend with some things.

On the second part, I'm skeptical and would like to see the citations and cases on that.

 

[RetireBy90]

Every income group should pay something. Even if it’s a paltry amount. If you are not participating in any way it’s hard to take you seriously.

This is so true.

 

[Joylush]

On the first part, why? Are these long-term tenants that you just have chosen not to increase the rent on? A friend of mine has somehting like that... he hasn't raised the tenant's rent in probably at least 5 years and probably more. Every year when I do his taxes I mention to him that he should do some rent increase as his costs have gone up but he refuses to do it.... the guy is a good tenant who pays on time and occasionally helps my friend with some things.

On the second part, I'm skeptical and would like to see the citations and cases on that.

They are long term tenants and their rents have increased yearly but only by very small amounts, $10, $15, $25. Rents in my area have gone up 43% in the last two years alone. One guy I’ve had for 11 years. He started at $900. His rent should be in the $1500 range now and he’s at $1065.

When his wife left him two years into the lease and he came to me asking for reduction I was able to offer him reduced rent at $850. For a few years I failed to raise him at all and have been slowing trying to catch him up but it no longer is working because prices and rents have increased substantially over the last five years. All my tenants have been with me for over five years.

I was fortunate to have a nine year tenant move two years ago and the rent went from $1200 to $1650. That same house now should easily rent for $2000 minimum. I should have asked more for it two years ago but one of my other tenants wanted a bigger house so I offered it to them at a price they could afford. They moved from a smaller house of mine where they were paying $1150. Then I sold the one they had been renting. Otherwise I would have sold the bigger one they ended up renting. Their new house has also increased in value 150k since they moved in two years ago.

As far as the second part which you don’t believe, research the IRS regs and you will see it’s true. Normally they only tend to go after you if you are renting below market to a family member. But that’s just the norm. I would challenge any questioning I might encounter because I can show I have raised rents and I have no relationship to my tenants other than a landlord/tenant one but I could still be challenged on it. And because I still show a profit and not a loss charging the amounts I charge they would have a hard time challenging their fair market value requirement. They want you to make as much as you can so they can take more of your money.

 

[Koolau]

I guess I take a much broader view of the function of tax policy in an advanced society than you do Joylush.

Unfortunately, so does our government.

 

[Koolau]

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.

I hate to tell you this, pb4, you CAN leave, but you still owe USA taxes. Only 2 ways around that - and only one of them is legal. You leave, have nothing in assets and make no money going forward. If you can live like that the US tax man will leave you alone. The other way is to illegally transfer your assets to one of the very few countries who have no tax treaty with the US. That's possibly doable, but it's illegal. You'll never come back to your 50th HS reunion or attend your parents or friends funerals "back home."

Baring these two options - you WILL pay US taxes, even if you don't live in the US. Fail to send "your fair share" and they'll take the assets you left behind. SO, let's hear no more about "leaving" if you don't like it. That would change nothing. (I think you can change your citizenship and AFTER 10 years, stop paying US taxes.) YMMV

 

[pb4uski]

I hate to tell you this, pb4, you CAN leave, but you still owe USA taxes. Only 2 ways around that - and only one of them is legal. You leave, have nothing in assets and make no money going forward. If you can live like that the US tax man will leave you alone. The other way is to illegally transfer your assets to one of the very few countries who have no tax treaty with the US. That's possibly doable, but it's illegal. You'll never come back to your 50th HS reunion or attend your parents or friends funerals "back home."

Baring these two options - you WILL pay US taxes, even if you don't live in the US. Fail to send "your fair share" and they'll take the assets you left behind. SO, let's hear no more about "leaving" if you don't like it. That would change nothing. (I think you can change your citizenship and AFTER 10 years, stop paying US taxes.) YMMV

I hate to tell you this Koolau, but you're full of it.

You can renounce your US citizenship, pay an exit tax as if you liquidated everything, move out and then you will be free of US taxes. Please do is little research so you don't continue to post falsehoods.

https://www.forbes.com/sites/robert...es-how-irs-computes-exit-tax/?sh=951e2a7287d4

https://americansoverseas.org/en/knowledge-centre/us-taxes-and-liability/exit-tax-us/

 

[Sunset]

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...=20210728-tax&utm_medium=email&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.

I was excited to try this tool, but it gave the same result when I put in $150,000 or $151,000 or $140,000
Because it just lumps whatever number you enter into the blocks of upper 25% of people, then upper 10% of people, etc.

So it's pretty basic.

 

[RetiredAndLovingIt]

True, the IRS came after Boris Johnson, the British Prime Minister who left the USA when he was five years old. He has now renounced his US citizenship.

https://www.forbes.com/sites/robert...-boris-johnson-tax-protester/?sh=7c4a75f27e8e

 

[Koolau]

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.

I hate to tell you this Koolau, but you're full of it.

You can renounce your US citizenship, pay an exit tax as if you liquidated everything, move out and then you will be free of US taxes. Please do is little research so you don't continue to post falsehoods.

https://www.forbes.com/sites/robert...es-how-irs-computes-exit-tax/?sh=951e2a7287d4

https://americansoverseas.org/en/knowledge-centre/us-taxes-and-liability/exit-tax-us/

You call paying an exit tax NOT paying US tax upon leaving? Maybe you can avoid FUTURE taxation, but you DO pay US taxes.

If the exit tax is the extent of it as you suggest (I'm not so sure it is - heh, heh, you can't even tax-escape California taxes within the USA!!) most STILL can not leave the US without paying up. So, leave if you want to but the USA WILL have the last word tax wise.

 

[captain3d]

If I left CA and moved to another country for work, CA will claim I am still a tax resident for 535 days!

Well I do like CA but not that much [emoji3]

 

[RobbieB]

The FTB makes the IRS look like puppy dogs.

 

[SheitlQueen]

Was state wide rent control in place when you bought the property?

Not sure if you are addressing me or not, but no. There was no rent control when I bought the rentals. None of these rules were in existence when I purchased the rentals. The other fun thing is I have to give the tenants 90 days notice when I sell it, I can only sell to someone who is going to owner occupy the house, the purchaser must present a written statement to that affect, and I have to show a copy of the sales agreement to the tenant. And pay them $4500 in "moving costs". It is absolutely insane. If these rules had been in place earlier I would never have purchased rentals.

 

[Winemaker]

I do feel bad for those who are affected through no fault of their own by poor government policy. A recent example is all the quality renters who are going to find it even harder to find affordable housing, never-mind the poor quality renters who will find it impossible. But when the government fails to do their job and enforce legal contracts (as is the case with the eviction moratorium going on for well over a year now) the result will be much fewer rental housing units being available. Such an obvious consequence but here we are. The short sightedness is astounding.

Why should the wealthy continue to risk their money when half is going to be taken away? Tax them reasonably they will continue to earn and you’ll get more from them. Some folks are just more focused on taking from them because they want to redistribute their wealth and don’t care how it might affect economic growth. Short sightedness.

Government policy creates many problems incrementally because it is screwing people slowly and intermittently. Today, it's the landlords who try to profit by renting property to rent paying tenants.

Yesteryear, it was secured debt holders who were stepped on by unsecured debt holders in the GM bankruptcy. And the secured debt holders of Fannie Mae and Freddy Mac.

There is/was not a big enough voting block to stop the transgression.