The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Elroy Jetson who wrote (3728)	7/31/2002 3:41:11 AM
From: GraceZ	Read Replies (1) of 306849

Both items attract an income tax subsidy (deduction) on both properties. But the profit on the appreciation of the Apartment Building is taxable while an enormous amount of the profit on the appreciation of the Condo is tax-free. One is a personal dwelling and the other is an investment (regardless of the fact that someone lives in the rental-to the owner it is an investment). There is a decided difference between the two. The rental building is bought for the sole purpose of producing an income. This is why they have different tax treatments. Why would it be treated any different from any other income producing asset in a business? The house is an expense not an investment, even if some time in the future you get some of your money paid into that expense back and can roll it into another dwelling (expense). Your point that the owner of the Apartment building is likely to be well off and should therefore pay through the nose in taxes, while the Condo owner likely earns less than $26,415 so the appreciation on his Condo should be tax-free is noted, but misplaced. Never would I make such a stupid socialist argument. If I were to argue at all it would be that ALL capital gains taxes should be repealed, on houses and investment properties alike. On stocks and bonds as well. The tax on capital gains is a major drag on risk capital. The reason all these big corporations prefer using debt instead of retained earnings to grow is because of the paltry returns on risk capital when you factor in capital gains taxes. From a macroeconomic perspective the government subsidy for homeowner real estate provides a one-time permanent increase in the value of that investment at the expense of other investments. (Permanent that is until the welfare program is ended.) There should be no confusion that the government subsidy makes homes more affordable. Aggregate Home prices will increase by the exact amount of the subsidy. The subsidy is merely a government welfare program for home-owners. These persons are no more deserving of feeding at the public trough than are diamond owners, or bond holders. You seem to be stuck on the idea that the absence of tax is a subsidy. Whenever someone uses the word "welfare" in regards to the absence of a tax I know I'm not talking to a capitalist. Various government subsidy programs after 1945 caused several distinct one-time permanent divergences between GDP (Income) and Real Estate prices in Los Angeles County. Understanding of this fact can be confused by introducing microeconomic factors into a discussion of macroecconomics. Are you talking the GDP from one county or the whole country? Because if you apply the GDP growth of the whole country to a specific county's home appreciation rate and then say real estate diverged from income, aren't you the one who is confusing the micro with the macro? Los Angeles county is hardly representative of what occurred in real estate prices in aggregate. If anything it is the outlier in the aggregate data. This was what I was trying to point out with my delving into the micro world. You see a correlation between a tax treatment change and a change in housing appreciation and you make a causal connection without seeing if that connection can be made to real estate in aggregate or if it happens to be only coincidentally connected. I think if you compared residential real estate in aggregate you would find it has a poor investment return when compared to other types of investments like stocks.....the ones that don't benefit from favorable tax treatment. Its a wasting asset that depreciates rather than appreciates. Take out inflation and you really don't have much gain to tax. At least with stocks you can get real returns over inflation. (in theory, although you'd have trouble proving that lately -g-)

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