Hacker News Reader

Comment by umeshunni | Hacker News Reader

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..

View on HN

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?

Reply on news.ycombinator.com