| ▲ | Wobbles42 6 days ago |
| This needs to be repeated more often. If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax? That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality. Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right? You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers. |
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| ▲ | jen20 6 days ago | parent | next [-] |
| > Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? In much of the US, you made a loss, since your property taxes will go up the next year. > I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right? Absolutely. |
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| ▲ | carlosjobim 6 days ago | parent | prev | next [-] |
| > That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality. We take what the highest bidder is willing to pay, as well as what the lowest seller is willing to sell for. So it's a completely fair way of fixing the value. If you think the price is too high, then why aren't other sellers rushing to sell for the same? If you think the price is too low, then why aren't other buyers rushing to buy? |
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| ▲ | bluecalm 6 days ago | parent [-] | | Because different market participants have different views, risk tolerance and needs. The market argument only works for very high liquidity public stocks. Even then it's unlikely Musk or Zuckerberg can sell their equity at the price of the day. It completely fails for smaller businesses. | | |
| ▲ | carlosjobim 5 days ago | parent [-] | | The monetary (note: monetary) value of anything and everything is determined by when the minimum value which a seller accepts to sell it for is equal to the maximum value a buyer accepts to buy it for. If you by some hacker magic know of any way to circumvent this fundamental logic, then you will become the richest man in history within less than a year, since you will then buy for less than anybody is willing to sell for and sell for more than anybody is willing to buy for. | | |
| ▲ | bluecalm 5 days ago | parent [-] | | Yes but it assumes the whole thing.
Just because someone is willing to buy a chunk for X doesn't mean there are enough buyers for all chunks at this price. | | |
| ▲ | carlosjobim 5 days ago | parent [-] | | How can you only see one side of the transaction? Just because somebody is willing to sell a chunk for X doesn't mean there are enough sellers for all chunks at this price. The agreed price for the last executed sale is the de facto value of anything traded. This has been a fact for hundreds of thousands of years by now. | | |
| ▲ | bluecalm 5 days ago | parent [-] | | The whole point is that it isn't.
Liquidity availability is big part of finance. In your specific example of other side - yes - just because someone who needs to sell a chunk for reasons like an emergency, retirement or consumption needs doesn't mean they are happy to sell the rest of the chunks at that price. Market based valuations only work in case of very high liquidity publicly traded assets and only if you don't own a significant %. This makes your argument weaker, not stronger though. If there isn't liquidity market based valuation doesn't work. >>This has been a fact for hundreds of thousands of years by now. It isn't and never was. Liquidity was always big part of it. | | |
| ▲ | carlosjobim 5 days ago | parent [-] | | You still argue like there aren't two sides to every transaction: A buyer and a seller. You're only talking about the sellers perspective as if the buyer side is something abstract and non-human. Do you think anybody would purchase anything for more than they think it's worth because of "liquidity"? |
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| ▲ | crazygringo 6 days ago | parent | prev | next [-] |
| > If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Of course you did! Assuming that "some idiot" is actually representative of the market. Go sell your house for $1M ASAP, move somewhere else for $100k and keep the $900k profit. > You simply can't establish value without an actual transaction. Not perfectly, but you can definitely estimate it pretty decently for tax purposes. And you talk about the highest bidder in a market, but remember it's also the lowest seller. Markets are not generally distorted by "idiots" paying 10x. That's a straw man. |
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| ▲ | carlosjobim 6 days ago | parent | prev [-] |
| > did I just magically make $900k? Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing. |
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| ▲ | seabass-labrax 6 days ago | parent | next [-] | | How does that work? Mortgaging is selling a portion (in an abstract sense) of a house for cash, with an obligation to buy that portion back in installments. So parent has mortgaged their 100k house for a million - now what? How do they get out of their obligation to repay the mortgage - that is, buy the house back again for at least a million - without incurring penalties? If there weren't repercussions for defaulting on mortgage payments, anyone could just trick lenders into buying their house immediately. | | |
| ▲ | qwertylicious 6 days ago | parent | next [-] | | The parent is referring to the "buy, borrow, die" strategy of wealth accumulation. Would that work in your parent's specific circumstance? Maybe? Maybe not? But taking a low interest loan against assets as a method of wealth generation and tax avoidance is both a viable strategy and an extremely popular one. | |
| ▲ | carlosjobim 5 days ago | parent | prev [-] | | > How do they get out of their obligation to repay the mortgage After they have repaid the mortgage they will own a million dollar house clear and free. Which they can sell or mortgage again. I'm stating that the ability to mortgage or sell your house for a million is evidence that it has increased in value by 900 000. |
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| ▲ | Wobbles42 6 days ago | parent | prev | next [-] | | That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains. I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset. | |
| ▲ | mytailorisrich 6 days ago | parent | prev [-] | | No, a mortgage is a loan. You don't "make" any money by taking a loan since you obviously have to pay the money back. Don't worry that if a loan was considered "making money" it would be taxed as income... which would make no sense at all. In fact, disguising transactions as loans while not intending to repay the money is a well-known tax evasion scheme, which tax authorities always keep an eye on. | | |
| ▲ | carlosjobim 6 days ago | parent [-] | | You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate. The money is paid back during the course of decades, when that money will be worth 1/4, 1/3 or half to what it is worth now. And your real estate is ripe to be mortgaged again for another jackpot payout. Hundreds of millions of people all over the world do it, and tax authorities applaud it. Who do you think writes the tax code? | | |
| ▲ | mytailorisrich 6 days ago | parent | next [-] | | > You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate. That's incorrect on both counts. You did not make money and the loan is not a way to realize the profit since you have to pay it back, as explained before. I think this illustrates that finance and accounting are very poorly understood topic and are easily used for sensationalism. | | |
| ▲ | carlosjobim 6 days ago | parent [-] | | There's nothing sensational about it, and I'm disappointed that you cannot see this thing for what it is. Ask people among your relatives who own real estate and you will realize that a lot of them mortgaged their real estate to pay for new cars, vacations, investment in a business, kid's education. The money is paid back over a long period of time, while the currency depreciates in value and the real estate appreciates in value. The amount of people who have made a fortune through real estate appreciation probably outnumber by a factor of 10 to 1 the amount of people who made a fortune by business or a working career. If I purchase shares in a company and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the shares or I can mortgage the shares by borrowing against their value. Should that value increase be taxed? If I purchase real estate and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the real estate or I can mortgage it and borrow against its value. Should that value increase be taxed? | | |
| ▲ | mytailorisrich 6 days ago | parent [-] | | > I can sell the real estate or I can mortgage it and borrow against its value You make money if you sell. You don't if you use the asset as security for a loan. This has been explained several times. A loan is a loan, whether it is a secured loan or not. A mortgage is a secured loan whose security is real property. You are effectively claiming that getting a loan is making money. Obviously you do not see that this is clearly not the case when thinking about it through a mortgage, but would you make the same claim with credit cards or a personal loan to buy a car, or a secured loan against, say, your car? My guess is that you wouldn't although it is the same thing as getting a mortgage. | | |
| ▲ | carlosjobim 5 days ago | parent [-] | | Instead of repeating myself, let me hear your side of the argument. If my property increased 9 times in value and I can: A) Sell it and get that money right now, or B) Mortgage it and get all or part of that money right now, then pay it back in the future. By what kind of logic have you not made money from the value increase? > You are effectively claiming that getting a loan is making money. No, I said that you made the money when the value increased. Your ability to take a loan against it is the evidence that the value in fact increased. I never said anything else. |
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| ▲ | seabass-labrax 6 days ago | parent | prev [-] | | If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount. You'll also probably need to pay interest accumulated during the time the property was mortgaged, which means you can't use it to avoid inflation. What lender do you know of who will voluntarily reduce your mortgage obligation if the property depreciates? | | |
| ▲ | carlosjobim 6 days ago | parent [-] | | > If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount. Mistake in logic. The money you received as a loan doesn't depreciate in value if the underlying asset depreciates in value. And vice versa. As for interest, if your real estate has appreciated by a factor of 9 as in the example we're discussing, then interest rates are of minor concern to get the jackpot payout. As you certainly know, you wouldn't have to take out a loan corresponding to the entire value of your asset, and neither would most banks give it. | | |
| ▲ | seabass-labrax 6 days ago | parent [-] | | OK, 9x the value of your property as liquid wealth is nice, but you'll still need to pay it back eventually, won't you? | | |
| ▲ | carlosjobim 5 days ago | parent [-] | | After you've paid it back, you still own the property which is 9x the value, or maybe more. So you can cash out instantly, without having to move out. And you get to pay it back in 30 or 50 years time. By that time, the money is worth half or less than half than what it is today. And your interest is much less than inflation. And you can deduct the interest from your taxes. |
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