Quote:
Originally Posted by arock10
Can someone explain to me why making money with money should be taxed less then making money with actual labor. I've been making money with money most of my life and can't seem to understand how profit is different then profit
Also lots of clueless people on how real estate works in this thread. 1031 exchange and cash out refi. If you do flips then who cares that's just short term money so just cost of doing biz
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one reason can be illustrated by following hypothetical example:
- you buy a $100k house (at a time when a "car" costs $20k, so you can buy 5 "cars")
- inflation rate is 10%/year
- so 10 years later you sell that house for $200k
- naive person would think you made $100k "profit", but really that $100k is "phantom profit"
- you get taxed 50%+ like Sanders proposed on that 100k "phantom profit" and so you end up with $150k
- you try to spend that $150k on other goods and notice that your buying power is far less than what you had 10 years earlier... ("cars" went up 200% too, so they now cost $40k, you want to buy cars now, but can't even buy 4 of them when 10 years earlier you could have bought 5 with your capital)
so when all is done, you had your capital frozen for 10 years and end up with negative real rate of return on top of that...
there are indeed some tricks to minimize the damage... but 1031 has many limitations, cash out refi is great if interest rates are low, when they are high it doesn't work that great anymore...