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Comment by onlyrealcuzzo | Hacker News Reader

> The legislation could be a major benefit to senior citizens on a fixed income who often can’t afford to move, whether because of high interest rates or capital gains taxes incurred by selling a long-time home.

A group that is extremely small - and we pretend like every grandma in the world lived in a little cottage in Hollywood that's now worth $3m - and whatever would she do if she had to 1031 into rental properties and live lavishly literally anywhere else in the world.

We have to think about all the poor multi-millionaire grandmas and not the current generation that can't afford to own a home and start a family - which is a looming demographic disaster.

It's fine if your kids can't afford to live where they grew up. But it's not fine if grandma has to take a $3m windfall and move to the mountains, or Mexico, or Europe, or literally anywhere.

Have your cake and eat it, too, grandma.

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Can you please make your substantive points without snark? We're trying for something else here.

This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html.

> We have to think about all the poor multi-millionaire grandmas and not the current generation that can't afford to own a home and start a family

I think it comes from a distaste for low-income housing.

California law requires a fraction of new developments to be low-income housing. Because Cupertino doesn't want that, but does want to build, they created low-income housing for seniors only. (Also you get priority if you've lived in Cupertino, famously-affordable Cupertino, for a certain number of years.)

TL; DR Think of the millionaire grandmas is a convenient way to dodge low-income housing requirements.

To be fair, the group also includes grandma's children who have a lot staked on inherited the $3m shack on a stepped-up basis.

Bring back the death tax, IMHO.

I may get a few hundred thousand from inheritance, but even that feels really unfair. Society shouldn't operate that way.

>1031 into rental properties and live lavishly literally anywhere else in the world.

That is an optimistic spin on a situation that can play out in several ways. What you describe is the best possible outcome. Another, pessimistic, way of phrasing that is that you're kicking out grandma because she is too poor to pay the taxes. Nevermind if it's the place where she raised a family, built a house, and had an entire life's worth of memories. She should be forced to move somewhere else to make room for Hollywood producer man and his mistress?

The economic incentive to build housing and lower prices already exists. I can buy a piece of land that has 1 house on it, bulldoze the house, and then build a multi-unit condo on it (easily quadrupling the number of people who can live on that piece of land). I will make a ton of money doing that because 3 extra families can live there and all pay me for the housing. If you let this take on a city-wide basis, prices will come down. However that incentive has been effectively killed because the city has something called "zoning". Which means the city mandates exactly what is allowed to be built on each parcel of land, in excruciating detail. If you don't believe me just google "FAVORITE-CITY zoning ordinance". The vast majority of housing in cities and towns in the US is zoned as "single family" which means that even if you own a piece of land and want to build more housing, the city will not allow you. To change this you have to go to the city zoning board and ask them to change the zoning for your land. Guess who the people on that zoning board are? People who own single family homes in the city. They do NOT want to see the character of their neighborhood change, they will deny your request in a heartbeat.

So we're prioritizing the "character" of our neighborhoods instead of the people who actually live in them? That seems completely backward.

Source: I have physically tried to build housing and been stopped by the city zoning board.

> A group that is extremely small...

Senior citizens may be a small group, but they turn up to vote.

Can't afford to move because they have to pay capital gains tax is such a bullshit reason. Pay it from the fucking gains, grandma..

I wish reporters highlighted the stepped up basis tax loophole that causes the bizarre behavior, rather than claiming that grandmothers just can’t “afford” to sell. Many grandmothers would “afford” to sell their house if there were no tax benefit to holding it until death. Same with the “Buy, borrow, die” behavior that ProPublica reported on (https://www.propublica.org/article/the-secret-irs-files-trov...). Instead of advocating for an esoteric unconstitutional wealth tax, why didn’t they advocate for closing the loophole that creates the incentive?

What is the tax benefit of stepped-up basis over 1031-ing into RE rental properties and a cheaper primary residence?

In California - obviously prop 13 if someone in the family plans to keep the house.

1031 exchange by itself only defers taxes (which can be helpful for cash flow purposes). People combine it with the stepped up basis loophole to avoid taxes completely.

As for Proposition 13/58 inheritance, note that Proposition 19 (2020) restricted the inheritance benefit to only family homes and farms, so I don’t think inheritance is a widespread benefit anymore. Proposition 19 also made the property tax basis portable, so the increasing property tax is no longer an impediment to grandma moving.

(AIUI,) You can't 1031 exchange an owner-occupied property into a rental property. (1031 is a "like kind" exchange treatment and you can't take personal-use property and directly 1031 into business-use property.)

If I were facing that situation (as I might be 25-30 years from now), I'd surely not rob my children/grandchildren of part of their inheritance by paying capital gains while I am alive rather than passing it along with stepped-up basis after my and my wife's death.

"Whoa, hold on; we should change the law on that last point!" I hear you saying. And I might even agree, but unless/until we do, grandma is doing the obviously sensible thing by not selling while she's alive.

Right, but that's the point - why is legislation moving forward that doesn't address the problem?

It turns out that there are thousands of problems various legislatures can choose to address. That they're addressing just a subset of the entire problem space with any given piece of legislation is a feature, not a bug.

In this case, the federal tax treatment of inherited property (problem 1) cannot be addressed by a California state-level legislature, but the latter can try to increase the supply of housing in CA (problem 2) by making ADU sales legal there.

> why is legislation moving forward that doesn't address the problem?

Helping multi-million dollar inheritances built on the housing shortage dodge taxation isn't the political winner it might have sounded like on first glance?

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