this post was submitted on 24 Aug 2023
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Many landlords don’t even pay taxes on the money they DO make.
They can depreciate a property to offset their income, even though the property is going up in value. The catch is that they have to pay taxes on more of the money they get from selling the property. But if they don’t sell, potentially no taxes for decades. And if they leave it to their kids in their will, no taxes there either and the kid’s cost basis in the property is the market value at the time they received it. So they can start the depreciation all over again.
This is how my non-expert self understands it anyway. It’s part of what draws some people into real estate.
Sound like basic Henry Georgism.
More than that. You can depreciate the building (but not the land) to offset tax on the income but the bill eventually comes due because by depreciating it you're lowering your cost basis. For example you buy a property for $150k. If you depreciate it long enough it's worth $0. If you then sell it for $350k you have to pay tax on all $350k, not just the $200k gain in value.
However If you intend to use the proceeds from that sale to buy another investment property or properties you can do a 1031 exchange to roll your adjusted basis into the new property. Thus even when you sell it you don't have to pay the tax.
As you might, expect tax laws are written to benefit constituencies that politicians value highly. Wealthy donors are among those constituencies.
Some places do have an estate tax (inheritance tax?), but there are often many ways around it and as such class still exists in the UK (say) with its 40% estate tax.
I've also heard that the tax can result in an enormous bill to a family that suddenly has a single expensive illiquid asset. Far be it from me to shed a tear for people inheriting over a million dollars or whatever, but it does mean you give up your modest family home in an area whose land value has gone up.
There's an argument going on elsewhere in the thread whether you'd prefer the government be your landlord, which: a) Yes, in my country. Flat yes. The rate of public housing to demand is quite poor though, but it does exist. And I've lived in worse, more expensive, private rentals. b) Cuba has a "rent to buy" system which funds new housing while also meaning that you still build equity on a home over your lifetime. So the government is your landlord but not permanently. And Cuba has less homelessness than much much richer countries. (and c) I'm fine with living in a grey commie-box, but whatever)
At least here in Australia, I'd at least want to see landlords politically disempowered. It's actually quite hard to find any politician that doesn't get passive income from owning homes, let alone their portfolio growing in value due to asset appreciation.
Let's be clear, in the UK, parents can almost always leave behind over a million pounds worth before any tax starts kicking in. Not to mention the thousands of easy loopholes.
Yes
Haha, in the US it’s more like $25 million for a couple. Though I see that in 2026 it’s slated to drop to only $14 million per couple.
Once the property is fully depreciated, the trick is to do a 1031 exchange to buy a new one, and then you can depreciate the new one.