[brianfitz]

This would also affect most home owners. They purchase a home, it goes up in value, and they refinance or take a second loan rather than sell the property. The wealthy do this as well with property, art, and securities. Trying to tax unrealized gains (like a home that has appreciated in value) would be a new mess of tax legislation with holes you could drive a semi-truck through.

[PaulDavisThe1st]

We already have special treatment for capital gains in the form of a primary residence. No reason that couldn't continue.

[nunez]

Then wouldn't tax law reform on unrealized cap gains drive the wealthy to buy more houses instead?

[brianfitz]

The special treatment is at the time of sale. My comments were in response to taxing the appreciation at the time of a new loan (such as taking a second mortgage).

[drdec]

The idea is to treat a loan against an asset with capital gains as a sale. So one would have to pay taxes out of the loan and then you get a stepped up basis.

The exact rules could be tweaked to keep it from being a burden on families taking a second mortgage, e.g. if you borrow less than a certain amount in the tax year perhaps the rule doesn't apply. Use your imagination.

[telchar]

This sort of wealth tax probably would be targeted at amounts over a $5-50M threshold so it would never hit the primary residence of anyone except billionaires, who could surely pay cash.

[brianfitz]

So we’ve created one loophole. What if I buy multiple properties below the threshold? Is the limit per household? If so, does this apply to people heavily leveraged with little net worth who own many rental properties? The rent is income, but they often make improvements to the homes and take a cash-out refinance to pay for the cash down payment on a new property. If we do this to homes, and the wealthy move their money to a new place, such as venture capital, do we try and re-price those illiquid assets each year? If one IPO’s and they take a loan against the stock to buy a home, do you give them their previous year’s mark-to-market payment back to them if the stock goes down the following year and they get a margin call? I’m just going through a few scenarios but this would quickly inflate the tax code to an almost unmanageable state without creating just as many more new loopholes. Imagine trying to grow a startup and being worth X on paper with no actual gains or money in the bank. If you don’t include it, it suddenly becomes a tool for someone else to use within the assets you’ve excluded. If you don’t exclude it, you may force an early sale of promising new businesses to their competitors to cover a tax bill on the unrealized gains.

[drdec]

> The rent is income, but they often make improvements to the homes and take a cash-out refinance to pay for the cash down payment on a new property.

This is pretty much the situation that the tax is designed to combat - people using their assets to increase their wealth without paying taxes. So yes, if you did that, you would need to pay taxes on the new money in the refinance. I don't see an issue if that makes this business model unprofitable or untenable.

> If we do this to homes, and the wealthy move their money to a new place, such as venture capital, do we try and re-price those illiquid assets each year?

There's no need to price anything. You value the assets put up as collateral as the amount of the loan they are securing.

> If one IPO’s and they take a loan against the stock to buy a home, do you give them their previous year’s mark-to-market payment back to them if the stock goes down the following year and they get a margin call?

Nope. It's just like selling and immediately re-purchasing.

> Imagine trying to grow a startup and being worth X on paper with no actual gains or money in the bank.

Ok, but nothing happens unless you borrow against it. I'm not sure what scenario you are imagining here.

[hansvm]

> There's no need to price anything. You value the assets put up as collateral as the amount of the loan they are securing.

People take out loans for much more or less than the value of the collateral. Do we ban that, or do we open up another tax/laundering loophole by letting the official value of a property diverge arbitrarily from a hypothetical sale value?

[telchar]

The taxable amount would be the loan amount, not the value of the property. The loan is trivial to value. If the property later sells for less than the loan amount then it would be a capital loss that could be carried forward from there.

[reedjosh]

And the tracking of all transactions over $10,000 used to be a reasonable limit.