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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (3748)7/31/2002 12:55:22 PM
From: GraceZRead Replies (1) of 306849
 
I can always tell when I'm close to winning an argument when I get a completely emotional response like yours. -g-

If the gain on homes is not taxed, mortgage interest and other homeowner expenses should not be deductible.
If these expenses are deductible, the gain on sale should be taxable.
The same tax policy should apply to all investments.

The easy answer is to stop taxing capital gains on all investments and make it uniform.

If I operate a business that is an investment based business then all the expenses related to that investment business are deductible. On my rental properties for instance, all mortgage expense is deductible (the mortgage interest deduction provided for investment property is actually more valuable than the one provided to homeowners because of where it is taken- or to put it from the government's perspective more expensive to the tax payers), depreciation, taxes, insurance. I'm able to continuously roll up the cap gain into other properties, some investment property owners manage to postpone cap gains indefinitely. Not only that, when I factor in the depreciation it sometimes results in a paper loss that I can apply to my active income. This allows me to be able to rent my properties at very reasonable rents. If I use your logic, my tenants are being subsidized by this tax treatment. In reality I charge them a market rate, actually I rent to them slightly below market rate primarily because I've found that doing so reduces turnover.

I realize this is an emotional issue for you. Maybe because you live in an area where you feel houses are priced out of your reach? If that is the case, you should vote with your feet.

I'm just trying to point out the flaw in taking the stance that the government subsidizes one set of living expenses when in fact they subsidize pretty much everyone's. If I was to take issue with the deductibility of mortgage interest I would have to say that it raises the cost of mortgage money. This happens because borrowers maintain a persistent belief that they aren't really paying the full cost of mortgage interest. They always fail to factor in the standard deduction when figuring out the real cost of owning as opposed to renting. They also fail to factor in the considerable expense of maintaining a depreciating asset and the effects of inflation when counting up their cap gains.
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