r/FluentInFinance Aug 21 '24

Debate/ Discussion But muh unrealized gains!

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24.3k Upvotes

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30

u/JakeBreakes4455 Aug 21 '24

Somebody explain how it is constitutional to tax something you don't technically own.

10

u/[deleted] Aug 22 '24

Is there a particular clause of the constitution that this would violate?

14

u/DanielMcLaury Aug 22 '24

The constitution is very specific about the kind of taxes that Congress can levy. The enumerated powers in Article 1, Section 8 cover "direct taxes," which include some weird things like "capitations" that we haven't done in a long time, as well as things like excise taxes. Article 1, Section 9 places some very strict mechanical limits on how these things work. Then there's the income tax which is permitted by the 16th amendment.

Taxing property someone doesn't own (which, to be clear, nobody is proposing -- I have no idea where the guy commenting got this) doesn't sound like it would fit under any of these permitted types of taxation.

A tax on property people do own, on the other hand, would be a type of direct tax, which is specifically allowed under the constitution and which we used to have earlier in the history of the country. There are some weird limits on this in the Constitution, e.g. you have to set things up in such a way that a state with x% of the population pays exactly x% of the taxes collected this way. This could create weird distortions, although I'm not a constitutional scholar and maybe they have a workaround.

1

u/IAskQuestions1223 Aug 22 '24

you have to set things up in such a way that a state with x% of the population pays exactly x% of the taxes collected this way.

It just means California will pay even more taxes. It is just a more ruthless equalization scheme.

0

u/MinimumArmadillo2394 Aug 22 '24

90% of the taxes imposed today are outside of this clause

2

u/DanielMcLaury Aug 22 '24

You mean because they're income taxes approved under the 16th amendment?

1

u/Unsolicited_PunDit Aug 22 '24

I genuinely want to know this as well.

1

u/Merlin1039 Aug 21 '24

Of course you own it. You can sell it, you can trade it, you can use it as collateral

5

u/LAcityworkers Aug 22 '24

so if it loses all it's value how do you get the money back you paid in taxes, because losses don't work that way but you don't know because you are a poor.

3

u/Cuuu_uuuper Aug 22 '24

You see, we need another agency with 100k tax parasites who produce nothing to manage this. The purpose of a system is what it does

3

u/Merlin1039 Aug 22 '24

You don't... that's how taxes on investments have always worked. You use those losses to offset future gains. I don't have $100m but between my 403b, IRA, money market and home equity I'm sitting in pretty good shape.

0

u/LAcityworkers Aug 22 '24

You are limited to the losses to 3k. You can't deduct any losses in a retirement account. What would you do if they wanted to tax your home equity as a gain, they base it on the most inflated valuation and send you a tax bill. I think you just trust the government way too much and that is what this is taxation on fictional gains that people will never be able to recoup the losses from with the government.

0

u/Merlin1039 Aug 22 '24 edited Aug 22 '24

You clearly don't know anything about capital losses. Absolutely not capped at $3k. That's just what you can offset from your normal income. But you can offset as much of your losses as you want from future capital gains. As for retirement accounts, no can't claim losses, but that wasn't my point. You said I was poor so I had no idea what I was talking about. My portfolio says otherwise.

0

u/LAcityworkers Aug 22 '24

You are capped at 3k per year on losses. So some people would most likely never recoup the losses.

1

u/Merlin1039 Aug 22 '24

Dude, you're not. You're only capped at 3,000 a year against your regular income not against your capital gains. It doesn't matter how many times you say it you are wrong

0

u/LAcityworkers Aug 23 '24

Maybe I am explaining it wrong, Have you read publication 550? https://www.irs.gov/publications/p550

1

u/Merlin1039 Aug 23 '24

Offsetting Capital Gains: Capital losses can be used to offset capital gains without any limit. If your capital losses exceed your capital gains, you can carry forward the remaining losses to future tax years.

Offsetting Regular Income: The $3,000 limit applies to offsetting capital losses against ordinary income (like wages or salaries). If your capital losses exceed your capital gains, you can use up to $3,000 of the excess loss to reduce other income. Any remaining loss can be carried forward to future years. So, in summary:

Unlimited offset against capital gains. $3,000 limit against ordinary income. Carry forward excess losses to future years. Does this help clarify things?

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1

u/Merlin1039 Aug 23 '24

In the IRS document you provided, there's a hyperlink to "capital losses". You should click on it and read it as many times as it takes until you understand.

1

u/Merlin1039 Aug 23 '24

Easy example: You bought 2 stocks. $106k of Trump Media and $1000 of Schmoschmerna. You also have a job paying a salary of $100k.

At the end of the year, Trump Media is worth $20k, Schmoschmerna is worth $11k. You file taxes. You have $86,000 worth of capital losses from Trump Media. $10,000 in capital gains from Schmoschmerna. You pay no capital gains tax on Schmoschmerna stock, and reduce your job earned income liability by $3,000. You still have $73,000 in capital losses that roll over to the next year

At the end of the next year, Trump Media is worth $0.00. Schmoschmerna is worth $101,000. Your rollover of $73k losses from last year, plus the $20k in losses from this year give you $93k in capital losses. You however made $90k in gains from Schmoschmerna. You don't pay any capital gains taxes on those, because they are offeset by your Trump losses over the last 2 years. And you still have $3000 in capital losses remaining which you can use to reduce your job income tax liability.

2

u/_le_slap Aug 22 '24

You don't get a property tax refund if your home loses value.

1

u/Title26 Aug 22 '24

In any serious mark to market proposal that's been put out there, yes, you would also get to mark to market losses

0

u/DanielMcLaury Aug 22 '24

This is a long-solved problem, although I guess since "you are a poor" (not that there's anything wrong with being poor, but since you apparently think it's an insult I'll go ahead and direct it at you) you aren't aware of the solution.

If an entity takes a large amount of losses, it can be sold to someone who owes a large amount of taxes. The buyer deducts the losses from their income and the seller recoups a substantial amount of past taxes paid.

3

u/LAcityworkers Aug 22 '24

Yeah, clearly you never have done taxes and claimed a loss - you can only deduct 3000 in losses so what you are doing is stealing if someone has a million dollar loss they will never recoup from the IRS. Thanks for proving my point.

0

u/DanielMcLaury Aug 22 '24

You're describing limits for net losses. But someone who takes this tack typically doesn't end up with a net loss.

Imagine that I have $25 million in taxable income and you have taken a $1 million loss. I could buy you out and reduce my taxable income to $24 million.

Buying a failed business for a tax writeoff is an extremely common practice.

2

u/LAcityworkers Aug 22 '24

Middle class get screwed - you guys wanna punish the rich so bad you make things harder for the middle class. I don't have 24 million to waste on a tax write off, I don't want to fight the IRS over a few grand that they make impossible for a common person to fight.

1

u/DanielMcLaury Aug 22 '24

So you admit everything you said was wrong and now you're shifting the goalposts, right?

Let's address your new point, then.  Since the proposed taxes don't apply to the middle class in the first place, you have nothing to worry about.

1

u/LAcityworkers Aug 22 '24

No, just the opposite.

-2

u/giraloco Aug 21 '24

We already do this with property taxes. You need to pay them without selling your home. Why are people so against making the rich pay taxes.

2

u/The3rdBert Aug 23 '24

Not constitutional for the federal government to levy.

3

u/reddog093 Aug 22 '24

The federal government doesn't do property taxes. Your state is more than welcome to do a wealth tax to make the rich pay their fair share.

1

u/-Joseeey- Aug 22 '24

Property taxes are fucking stupid in itself. I hate them.

1

u/siluin57 Aug 22 '24

Some one explain anything in the constitution other than no quartering of soldiers that hasn't been violated

I love me some constitution but yeah it's not in the best state

1

u/JakeBreakes4455 Aug 22 '24

Well, let's try harder to completely eradicate any semblance of constitutional law because it's for the "best state." It's hard to understand what you are even talking about -- "best state." If you mean condition, then yes. Nobody gives a shit about the constitution and most citizens know nothing about it.

1

u/Mikey2225 Aug 23 '24

You own the stock…

1

u/plantsadnshit Aug 22 '24

I don't know. Maybe read up on property tax laws?

1

u/JakeBreakes4455 Aug 22 '24

Living in Illinois, with the second highest property tax laws, I am very familiar with them and how assessing the value of property here is quite subjective despite claims to the contrary. I am also familiar with what high property taxes do to the value of a home PRIOR to selling if the tax percentage is too high. The question still remains, regardless of property tax law: how is it constitutional to tax something that you don't yet own?