Living Stingy: 09/01/2019

Buying a house is a huge decision. Deciding what house to buy predicated on the paint color is idiotic. A reader noted in response to my prior posting that I possibly could do a Starker-type deferred exchange on my condominium and therefore defer taxes. This may be true, but I want to spend the money at this time in my own life and escape the Real Estate business for good. So I must pay capital gains taxes. I wrote about Starker-type exchanges before and how they work. It is one particular “loopholes” you hear politicians railing about, but of course, nobody wants to close it.

If you get an investment property in Chicago and then decide to move to New York, you might want to sell the Chicago property and purchase an identical property in New York. Is this a “realization event” (see my posting on that) or merely transferring funds from point A to point B? Mr. Starker seemed to think not, and because of his courtroom case, the statutory laws has been changed to permit such transfers. Your equity in the initial property is used in the new one, tax-free. You can find rules and limits to this, of course – seek advice from a tax adviser for details.

We did this back the 2000’s, offering a duplex and buying two condominiums in Florida. The duplex got doubled in value through the crazy times of the 2000’s and we bought the condominiums with the proceeds, transferring our basis in the property to those condominiums. We then decided to sell one condo, after it doubled in value from its price. We’d to pay taxes on that. The other we made our principal residence for 3 years and then sold it, tax-free, as you don’t pay fees on the sale of your principal residence. Neat technique when you can golf swing it.

Well, not cheated per se as it is the law – a law that favors real estate investors just. Ah, the neat stuff you learn in law school – like the way the rich get richer. But why is a personal residence not taxed? Again, we protected this before – you do not really make money on the house your home is in, it appreciates at a level equal to inflation generally.

And when you element in how much you allocated to the house to keep it, well, it is a zero-sum game at best. You might get a huge paycheck at the final end, but it is add up to all the amount of money you spent over the years on the house – in most cases.

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Again, see my posting on that subject. So the regulation recognizes this and doesn’t tax personal residences. Nevertheless, you can convert accommodations property you own into your individual home and then (if you live there for three years or so) not pay taxes on the sale. Pretty odd law. Nonetheless it illustrates how laws – like Obamacare – can be oddly crafted to produce unintended results. Three recent occasions in my own life happened which made me think about home buying. First was articles the Chicago Tribune (I think) stating that mini-mansions are hard to market nowadays.

600,000 reduction on it (which is NOT deductible!) to be able to sell it. The styles of the 2000’s and colors are not as salable today and new home can be purchased for less. The second thing was I found the first season of Glee! 1 and was viewing it. The part about “Sheets and Things” (where Mark worked well briefly) was spot-on, as was the scene where the young couple is thinking of buying a residence – more worried about features and appearances than real value of the home. The third thing was my Brother-in-Law telling me about displaying homes to a millenial few.

They turned down solid houses at decent prices because they didn’t like the color of the inside paint which of course is idiotic. It though got me to considering, that many of people make huge mistakes in home buying based on appearances and other superficial things and finish up broke because of this. Paint can be transformed. So can cabinets and home appliances – once they wear out after 10-15 years. But many people choose a true home based on the colour of the walls, the type of cabinets and flooring, and the appliances.

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