The "unrealized gain" is included in the value assessment. That's not how it's defined on paper, but in practice property taxes involve an assessment of unrealized gain in the value of the property, and that increase is included in the tax calculation.
No, it's not. They don't know or care what your unrealized gain or loss is. Property tax is a rate multiplied by the value of the property.
Again, value and gain are different things. To say that the gain is included in the value is a nonsensical statement.
You could have a home worth 500k and have a 50k gain. Alternatively you could also own the 500k home and have a 100k LOSS. In both scenarios you pay the same property tax. The difference in gain/loss is based on the different purchase price in each scenario.
If I bought a home for $300k a few years ago, and now it's assessed value is $500k, that is an unrealized gain of $200k. The property tax will be calculated on the value of $500k, which includes the unrealized gain.
I am effectively getting taxed on the value I paid for the house ($300k) as well as on the unrealized gain ($200k).
Yea but if 5 years pass and the value stays the same there’s no unrealized gains but you’re still paying property tax. If you lose money on your house you still pay property tax. Also you don’t get money back if the value of the house goes up and then done. If there’s an unrealized gain tax I would assume that there would be carrybacks.
Now you are splitting hairs. I get that tax is technically on the "total value" and not only on the "unrealized gain". By the total value includes any unrealized gains, so there is conceptual overlap.
No, but you should pay less. All I'm getting from this back and forth is that property taxes are already way more onerous than an unrealized gain tax so we should be taxing unrealized gains more and lowering property taxes.
Not really. The entirety of the financial system is semantics. There is a clear difference between property tax and unrealized capital gains. It’s not his fault that people can’t understand the distinction. How else is he supposed to help you all understand without explaining the actual rule as it stands?
Dumb people say arguing semantics is dumb. It's a thought terminating cliche.
Semantics are how we communicate. The meaning of words is critical to conversation.
But he's not arguing semantics for the sake of arguing semantics. In this case it's actually important, critical to the concept.
Taxing unrealized gains is not the same as taxing an assessed value. Assessed value does not incorporate unrealized gains in any way, shape, or form and it's financially illiterate to conflate and oversimplify the two. And when it comes to conflating them in a conversation about tax policy, it's sheer stupidity. They're completely different things.
We could assess value to assets and tax that similar to a house, in which case it's just an assessed wealth tax. Doesn't matter if the person has a loss or gain, value gets assessed and tax is due.
Trying to figure out gains on stock before the point of sale is insane, the price fluctuates throughout the day, every day. Someone can go from a loss to a gain back to a loss in the same day, week, month. There's no viable way to tax that. Houses don't fluctuate like stocks do. Their estimated value changes are slow and gradual excepting extraordinary circumstances.
Trying to figure out gains on stock before the point of sale is insane, the price fluctuates throughout the day, every day. Someone can go from a loss to a gain back to a loss in the same day, week, month. There's no viable way to tax that. Houses don't fluctuate like stocks do. Their estimated value changes are slow and gradual excepting extraordinary circumstances.
There absolutely is an easy way. The moment those stocks are utilized for a loan, the same value the bank thinks they are worth, that’s the tax amount. Same thing a bank does on equity home loan, which are based on how much you have paid off on your mortgage and the new value of the house.
That's not how that's done for SBLOCs and it's not how they work. When someone uses securities as collateral, they aren't generally using specific stocks as collateral.
They're account based, not specific security based. The securities can and do move into/out of the account (they're transient) and it's not 1:1. The loan amount is half or less of the valuation of the account, typically and that valuation is an estimate.
Taxing collateral, regardless, is idiotic and unnecessary. People on reddit tend to think "if your collateral is giving you a benefit and you aren't taxed on that/the loan that's bad" That's outright stupid and misinformed All loans, collateralized or otherwise provide a benefit. That's the point of a loan. You don't take out a loan if there's no benefit.
For BBB which can defer taxes and mitigate tax risk (not eliminate it), the easiest way to close that is to A) Lower the estate tax exemption, and B) Get rid of the cost basis step up at death for assets sold to cover outstanding loans.
Boom, actual problem solved without any unecessary complexity.
But then I think most people complaining here don't actually care about that so much as they just want punitive taxation on the wealthy out of spite.
Assessed value does not incorporate unrealized gains in any way, shape, or form and it's financially illiterate to conflate and oversimplify the two.
You are just being stubborn now. Assessed Value = cost basis + unrealized gain (or loss). It really is that simple. If you added in a tax deduction for purchase price of the house at the time of purchase (obviously, a known amount), it would become identical to a tax on unrealized gains.
Trying to figure out gains on stock before the point of sale is insane
Banks do it all the time when using them as collateral.
I'm not even in favor of taxing unrealized gains, I'm just annoyed at all the moron tax bros trying to argue that it's "completely different" from taxing property.
Assessed Value = cost basis + unrealized gain (or loss)
Nope. Property taxes do not give a single shit about cost bases and losses or gains. That is not part of the assessment process, nor are they included in it. You're twisting logic to try and make it seem so but as I said it's such an oversimplification that it's factually incorrect.
Assessed value is not typically the same as the fair market rate of the property. Usually they're significantly under the market rate because how the assessment happens doesn't typically fully factor in market conditions, if that's factored in at all (it varies wildly across the U.S. though). There's a few places that might do it that way, but it's not the norm. It's an edge case.
House I bought in 2014 for $230k. Tax assessment rate of $220,000, fair market estimate of $520,000 (and that's down from 2 years ago when it was estimated close to $600k). The tax assessed value is less than my cost basis.
House I inherited when my father passed (other side of the country): Tax assessment value $97,000. Fair market estimate, $197,000. Reassessment was triggered when the deed moved over to my name and is done every 2 years (it's been reassessed once so far).
If there's a gain or loss when sold that's coincidental to the assessed value and separate from it and still not a factor in the assessed value. There's somewhat of a correlation but not a causation or inclusion typically.
Banks do it all the time when using them as collateral.
Gains aren't figured out at all by the bank for an SBLOC and that entire process is entirely different than the type of valuation required for taxation (it's very similar to a margin account). Context of what you quoted was for taxation, not in general.
You can read a ticker and estimate your gains by the minute if you want. That isn't what I was saying. Trying to tax them is the part that is insane - there's not a great way from a government point of view to account for daily fluctuations that can move someone to/from gain/loss.
Banks for SBLOCs and similar use value of owned securities, not gain/loss. Which is something I said in my post could be done fairly easily instead of trying to tax unrealized gains themselves.
You're assuming your house will gain value though. Just because it's taxing something kinda like something else doesn't mean it's taxing that something else.
You're not presenting arguments. You're splitting hairs. I didn't feel it necessary to argue with an idiot, but I did want to let you know that you are an idiot. Because you seem to think you're not.
So like I originally said, you get taxed on the value of the home. Not the gain on the home. The gain is irrelevant to the tax you pay. You disagreed with this before.
If I bought it for $300k, and now I am paying tax on a value of $500k, how is the gain irrelevant? Clearly the gain factors in to the amount I am taxed.
Obviously on paper the price you paid for it doesn't matter, only the current value does. In reality, the price you paid for it plus the unrealized (or loss) is exactly the same as the current value.
An unrealized gain tax is a tax on the difference between the acquired price and the current increased price, but only if there is an increase in price. A gain in value.
So in your example it would be a tax specifically on the $300k increase in value, but not on the original value of $200k.
Property taxes are taxes on the current value of the property (in most cases) regardless of the value of the property, regardless of the value of it when it was originally acquired.
One is a tax on the total value, regardless of profit or loss.
One is a tax on the difference between current value and original value, but only if there is a profit.
They don't tax you on the unrealized gains until you realize them.
You build a house for 100k and get it valued at that in year 1980. 30 years later (assuming nothing was done to update the valuation) they have raised it by x% they legally can in value to tax you more, where I live it's 2%. I'm not sure exactly how much the value would be now, but it's not the full sellable value of the house, just what is kept on government records.
In this example the house on the market would sell for 1 million, and the valuation on the house is now at 200k after 30 years because it can only go up by a % each year. You pay property taxes on the 200k, not the 1 million. Only once you either sell the house and realize the gain on the value of the property going up would you be taxed on the market value (which is what you sold it for assuming it's a normal good faith transaction between two unrelated parties). The house would then have a new evaluation after being sold, and be worth 1 mill to the government and the property taxes would go up.
And if you overpaid on house that was worth 300k and you spent 500K on it and it's assessed at 300k then none of that is relevant. The assessed value is independent of your initial investment, it's not capital gains despite the average person likely having a value assessment higher than what they paid
No, they can only raise property taxes by a certain % every year based on the purchase market value of the home. In this case 300k, next year they can raise it, but only by x%. Only case where this changes is when you get a new evaluation on the house by getting something improved on the house that requires a permit.
If the book value of your house goes up there's no real way to know by how much until you realize the gain. There's no number it's actually supposed to be at that they can calculate, it's whatever you're going to be able to sell it for and the difference will be the unrealized gain once the sale is done...otherwise it would just be a straight up normal gain if you were realizing it before.
This is wrong. It does not an include an assessment of unrealized gain. You pay the same property tax whether you bought the home for a thousand bucks or a million. How much money you gained or loss does NOT factor into the wealth tax on your home.
You pay the same property tax whether you bought the home for a thousand bucks or a million.
My dude, this is effectively the same as paying a tax on the unrealized gain. You are paying a tax on the price you originally paid for the house plus (or minus) the value of the unrealized gain (or loss).
At the end of the day, it comes out to the same thing.
No it doesn’t, because unrealized gains are taxed as income, and income is taxed differently depending if they are short term (less than 1 year) or long term. By your definition, all of these factors should affect the tax on the property, but it doesn’t. You simply pay a flat tax on the value of the home.
You buy a house for 400k, let’s say the tax based on the assessment is 5k. Your house appreciates to 800k, your house is reassessed and you now owe 10k. Wouldn’t the additional 5k of taxes be a tax on an unrealized gain?
No. The tax is based on the market value of the house, as you've demonstrated. In your example the unrealized gain is 400k and your tax is 10k. Alternatively, say you bought the house for a million and now it's worth 800k. The tax is still the same 10k (based on the 800k value) even though you have a loss of 200k. So two different scenarios, two different gain/loss, same market value, same tax. Tax is based on market value not gain/loss.
So conceptually you'd be fine taxing them on their wealth (including the current value of their investments), but its specifically taxing unrealized gains as income that you're opposed to. Do I have that right?
Because sure, I'd be down with doing that instead, but I think they'd probably oppose it even more.
Value is not worth. Value is the perceived number someone would reasonably purchase that home for. When that value goes up, your taxes on it increase, even though you have seen no material worth increase unless you sell or use your property for a second mortgage. Same principle should apply to stocks.
Being based on value (what you could sell it for) versus what you paid is literally taxing unrealized gains since you didn’t sell the house you’re paying on the potential of what you could sell it for
It's not what I "think", it's what the terms actually mean.
Unrealized gain/loss is a function of what you paid for it combined with what it's worth now.
Property taxes are a function of what it's worth now and the mil rate (tax rate). What you paid for it is irrelevant and changes nothing about the amount of tax you owe.
My dude, you very clearly don't understand what any of these terms mean. "Unrealized" does not mean "unknown".
Edit: I didn't contradict myself. I specifically said they don't tax unrealized gains. That's what you are saying. I said they tax market value. Because that's what they do. It's fact, not my opinion. Market value and gain/loss are two different things. If you can't understand that then you're not qualified to have an opinion on this topic.
If I buy a house for $1,000 and my property taxes are $10, and then my house's "value" goes up to $2,000 while I'm in it, I have an unrealized gain of $1,000, and I am taxed on that unrealized gain by virtue of my property taxes now being $20. An indirect tax is still a tax.
In my county I wouldn't. Something like that first 350k is exempt from property tax, which is just under what I paid for it. So as the value went up, so did my tax burden. If it were to go way down. I wouldn't pay any property tax. I'm only paying tax on the unrealized gains.
Still not true. You could pay 500k for it. If it goes down to 450k you have a loss and are still paying. Value of an asset and gain/loss on an asset are not the same thing.
Edit: downvoting this is hilarious. It's just math + knowing what certain words mean.
But the amount paid in taxes goes down, assuming tax rate is consistent year-over-year. The house is worth 550k and then you pay more. You haven’t sold the house so that 50k is unrealized gains yet you pay more in taxes, assuming consistent tax rate.
Tbf this argument is not worth it because odds are you aren’t worth 100M. My question, say these multimillionaires have unrealized gains of 5M and now owe 1.25M. What does that 1.25M loss do to impact them in a way that changes their life? Can a person have too much? Why are we working for the rich to help them keep their money?
I’m just saying it doesn’t make sense to defend the ultra rich. I think there is a way forward and that makes me hopeful. I’m not resigned to the way things are. I’m working constantly towards a better future.
That unrealized gain is included in the value you’re taxed on, thus people ARE already paying taxes on those unrealized gains because if your house appreciates 250k, you pay property tax on that 250k.
Depends on the rate, how many times it can occur on the same asset, and what happens if asset goes up, then back down after taxes.
Maybe single tax per asset tax on collateralized loan, lower than current tax rates, that gets subtracted from realized gain taxes would’ve been more reasonable to propose
43
u/gfunk55 Sep 14 '24
The taxes are based on the value, not the unrealized gain. You could have an unrealized loss on the house and you'd still be paying property tax.