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Should the Capital Gains Tax for Real Estate Investors Be Reduced?

By Paul Francis

Real Estate Agent with Francis Group Real Estate

March 18, 2008 12:02 AM

I actually posted this back on February 2nd on my own Las Vegas Real Estate Blog concerning an idea of what would really help the U.S. Economy and it basically boils down to this:

(I probably bloviated a little too much which is obviously a big mistake in any blog so I'll break it down to simple terms and concepts. I'm looking at a Members List of 78,297 members for this real estate professional site so let's hope we can get some intelligent answers here. You are supposed to be real estate professionals so let's hope we get some professional answers/opinions.)

Should the U.S Government provide a period of time for Investors to invest in United States Real Estate with no capital gains taxes on the profit they make?

Ok, I can't help it but I'm going to bloviate again and not provide pretty pictures to capture the attention of the clueless but I really would like some opinions of true professionals.

Really Simple terms. Buy Investment real estate until 12/31/2009, have a requirement to hold it for a minimum time period (more then two years) and pay ZERO capital gains taxes on any profits made when the investor sells.

For anybody who does not understand this concept, the current capital gains tax for real estate investors is whatever their tax rate is if they sell the property within one year, 15% after one year, two years, three years, etc... (And this is not permanent -- Senators Barack and Hillary just voted against extending this or making it permanent and you can do your own research on that which will hinder investment IMO.)

Right now we have the FED scrambling to lower rates (lowering the value of the dollar which is great for travel destinations of foreigners but certainly bad for us because the cost of Oil is skyrocketing due to the value of the dollar) and the Treasury giving out money to everybody (which most of it will get spent at Wal-Mart on Chinese goods.)

Am I crazy or would it make more sense to give a break in taxes for investors who purchase Real Estate in the United States? It costs ABSOLUTELY NOTHING up front and all of the benefits mean Money Invested Right back into the U.S. and rewarding the people who deserve it the most.... Investors willing to invest on the Bricks and Sticks that make up the United States.

The money is out there (Gold just hit all time record highs), the trick is to get it truly invested into the community... the very same communities currently getting beat up by the current fiasco of major lending institutions that were more interested in pleasing their investors then being responsible in their lending practices.

Geez... I could only imagine performing our real estate calculations for true real estate investors taking out that 15% capital gains taxes (or reducing it) and it would cost the U.S. nothing up front to make it happen.

Thoughts, opinions?

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Michael (Mike) Elliott

Nottingham Real Estate Group - Hamilton, NJ

Yes. End of story. We're taxed to freaking death. Good post!!

Mar 18, 2008 12:16 AM

Paul Francis

Francis Group Real Estate - Las Vegas, NV

Las Vegas Real Estate Agent - Summerlin Homes

Thanks Mike!

The overall question is if lowering the Capital Gains Taxes for real estate investors would have more of a benefit on the economy then tax rebates, lower interest rates or bailing out companies that made bad lending decisions on over priced real estate to begin with.

Mar 18, 2008 12:21 AM

June Piper-Brandon

Coldwell Banker Realty - Columbia, MD

Creating Generational Wealth Through Homeownership

In Maryland, I can't speak for other parts of the country we do a lot of 1031 exchanges where investors roll profits into other investments and thereby reducing or delaying their capital gains tax. Taxes are lower already in the United States than in some other countries and if the country is going to continue to offer government services then the money to fund those has to come from somewhere. The bottom line is Investors are in the business to make money and they like everyone else has to pay tax on their income, whether it's by capital gains or whether it's through income tax. The bottom line though, is get a good accountant and write off as much as you can.

Mar 18, 2008 12:27 AM

Paul Francis

Francis Group Real Estate - Las Vegas, NV

Las Vegas Real Estate Agent - Summerlin Homes

June,

Thanks for stopping by but the question has nothing to do with 1031 Exchanges and DELAYING the payment of capital gains taxes. (And, it does not matter if you are in Maryland, Nevada or Alaska for that matter -- the current 15% capital gains taxes is a FEDERAL tax.)

The Question is -- would it help the national real estate market if the federal capital gains tax rate for investors was reduced from the current 15%?

(1031 Exchanges are only a method in the delay of payment of real estate taxes by the way.)

And... I don't need an accountant -- the question has nothing to do with real estate investment advice - it has to do with asking opinions from real estate professionals.

"Investors are in the business to make as much money as they can" --- Ummmm..?? I think that's the whole point of investing.

Mar 18, 2008 12:58 AM

Renée Donohue~Home Photography

Savvy Home Pix - Allegan, MI

Western Michigan Real Estate Photographer

As you know Paul, in the LV area there is much pressure on rental prices because of the law of supply and demand. It would definitely be an incentive for a LONG TERM hold (no more flip/flops), as you suggest. I like the idea :)

Mar 18, 2008 06:14 AM

Jim Fischetti

The Fischetti Group/Keller Williams - Wake Forest, NC

How about ELIMINATED!!!!!!!!!!!!!!

We are seriously OVER_TAXED.

Jim in NC

Mar 18, 2008 08:10 AM

Paul Francis

Francis Group Real Estate - Las Vegas, NV

Las Vegas Real Estate Agent - Summerlin Homes

Renee -- Thanks! Empty homes owned by the bank are not doing anybody any good. Taking that 15% out in our investment calculations when it comes time to sell is certainly a huge incentive for any investor.

As flip-floppers learned, flipping real estate within one year had some tax consequences. Something the "Flipping" shows certainly left out in their "$100,000 made on my flip".

(Nice to hear from somebody who knows what an "investment" is.) People seem to have forgotten that the long term capital gains tax for investment property was reduced to 15% in 2003 and that's when the true investors came out. The rookies came out the next couple of years when they saw appreciation rates going up and wanted to make the quick buck. (Something tells me they are chasing gold prices now.)

Jim -- Taxes are a necessary evil. Short term relief for sticks and bricks investment would certainly help. The long term effect of Cheapening the dollar has it's consequences. (There is a reason why oil prices are skyrocketing which has a bottom line effect on pretty much everything.)

Smart financial planning can certainly help alleviate taxes (or living in a state with no State Income Tax and low property taxes like Nevada:) -- not much we can do for inflation.

Mar 18, 2008 11:56 AM

Chuck Willman

Chuck Willman - Alpine, UT

NewHouseUtah.com

I'm all for it... but I'd probably limit the number of homes owned ... as I've seen some investors become too ambitious and over-purchasing in one area.

Mar 18, 2008 05:34 PM

Paul Francis

Francis Group Real Estate - Las Vegas, NV

Las Vegas Real Estate Agent - Summerlin Homes

Thanks for commenting Chuck,

As far as limits go, true investors understand the relationship of cash flow when it comes to laying out the cash for their real estate investment.

True investors understand alternative financial returns on their money and for this reason alone, it's why our clients sold out of Las Vegas real estate in '04 and '05. The ROI on their equity was better served in alternative investments that generated higher and safer returns.

Speculation is just that, a guess.... a true investment is being able to calculate alternative choices for your money and making the choice that is best served on the ROI of your money.

Limiting the amount of homes for somebody who has a couple of million in cash (and trust me, this number in our client database is a lot) has no benefit. The only thing that a limit would accomplish is keeping people who have ZERO clue about investments in the first place from getting over extended which in a way has a benefit, but in the big picture.... really is not.

REALTORS in my opinion should not have anything in their advertising claiming real estate is a good investment unless they have an understanding of what an investment really is. IMO, this blanket advertising is extremely misleading and precisely why there are so many foreclosures in the first place.

Mar 18, 2008 06:05 PM

Steve Loynd

Alpine Lakes Real Estate Inc., - Lincoln, NH

800-926-5653, White Mountains NH

Paul

I think the elimination of the capitol gains tax would do more for real estate than lowering interest rates, it can make a net gain out of a break even event, it would make it easier for a investor to work a deal with a buyer getting the new buyer into the market for the first time, or allow a buyers to absorb some inventory that sits unsold because the numbers now make more sense (without the worry of gains tax on the way out).. I'm with you on this.

Mar 20, 2008 05:13 AM

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Las Vegas Real Estate Agent specializing in the Master Planned communities of Las Vegas and Henderson which includes Summerlin Homes for sale, Green Valley and Rhodes Ranch Golf course homes.

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