Quote:
Originally Posted by WarrenC12
I think we need some form of capital gains tax on principle residences. I don't know how this will be politically possible, but even with a lifetime exemption ($1M+), it would make a big difference IMO. Housing should be less of an investment/retirement plan.
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It doesn't actually make much sense and would bring in a lot lower revenue than people think. If you go through the accounting of it people start to see why.
Say someone has a house they bought for 300K and selling for a million. You do not get to tax the 700 K since its not a capital gain. You can deduct every expense associated to get to that gain. That would include:
- Mortgage interest
-Property Taxes
-Renovation costs
-Maintenance costs
-Maybe your lawnmower and grass supplies
-insurance
-utilities
-The new driveway, roof, lawn, fence, windows, furnace, AC.
-lawyer fees
-land transfer taxes
-realtor fees
On the above example, say someone bought a home and had that 700K doing the math:
Interest Expense at an average of 5.5% - $260,000
Property Taxes (30 years at 3500 avg) - 105,000
Renovation costs (new floors, kitchen, bathroom over 30 years - 75,000
Maintenance costs - 25,000
House Supplies - 10,000
Insurance - 30,000
utilities - 15,000
Replacing items at end of lifespan - 75,000
Lawyers (buy and sell)- 4,000
Realtor - 50,000
LAnd transfer tax - 10,000
other - 15,000
Total $674,000
Actual Capital Gain is 26,000
At the capital gains rate, the government can tax 13,000 and say they have a rate of 33 % the government collects $4290.
On top of that everyone who goes negative now has a massive capital gain credit they can claim on other investments. Everyone at that point should be a landlord, as they can likely get a loss on main house and use that credit against a gain on the investment.