[eadmund]

Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever).

What reason do you have for wanting it to be illegal, other than not liking it?

[bdangubic]

How is it not realized? When I can use it as "realized" to borrow against it? When it comes to paying taxes I go "sorry Uncle Sam, this is fictitious, I don't really have this" but then I head over to the bank and go "look at my brokerage accounts, I have ALL THIS MONEY, lemme borrow against this now all-of-sudden realized money..."

[WillPostForFood]

Home equity loans also taxed as realized gains?

[bdangubic]

You are paying property tax on that money you are using for that HELOC.

If I bought a house at $300k, I owe $250k and house is now worth $750k the County will be slapping me with $10k/year property taxes whereas before I was paying like $3k. My gains are realized each year via property tax assessments :)

[jjav]

> My gains are realized each year via property tax assessments :)

You are confusing two very different things. You'll realize the gains (and have to pay taxes on) your house value increase only when you sell it. The fact that you were paying property taxes on it all along while owning it has nothing to do with that.

[JumpCrisscross]

> My gains are realized each year via property tax assessments

This strongly depends on jurisdiction. In many (today I learned, not all) assessed value is explicitly different from market value.

[bdangubic]

The fact is though if you live in America are paying property taxes on your home, you are NOT hiding from the IRS the fact that you do - you are not saying "sorry, I don't really own this home and I won't be paying anything to you until such later time when my ownership will be revealed at the grand sale at which point I'll pay some taxes"

With "unrealized" stock gains you are doing just that - hiding ownership so you don't have to pay taxes while enjoying the perks of the ownership when it suits you

[JumpCrisscross]

> if you live in America are paying property taxes on your home

I own in Wyoming. My property's assessed value is like 1/10th the market rate. My neighbour--just checked!--who owns a property like ten times my size, across two plots, and far more lavish than my own has an assessed value similar to mine. The real estate records even have a line item for "actual value" separate from assessed value.

Not familiar with the specifics, but I know California and New York similarly have assessed values that are entirely unmoored from what the property is actually worth.

[0xBDB]

You do not pay property taxes to the IRS, or report the value of your property to them unless you sell it. Federal property tax is unconstitutional. It took an amendment for the feds to be able to do income tax, which has been broadly interpreted to include things like capital gains and income taxes.

[mixmastamyk]

Property tax raises are capped in CA by Prop 13.

[WillPostForFood]

Also, totally irrelevant to the capital gains tax you may owe the federal govt when you sell you house.

[eadmund]

> How is it not realized?

Because of the definition of what realized income is. Borrowing is not income.

You mention below that you own a Washingtonian condo and a Virginian home. Let’s imagine that they are both $100,000 and that you have no other money or debts. Your net worth is thus $200,000.

You go to your bank and say ‘I would like to borrow against the value of my assets please,’ and they say, ‘certainly, here is $90,000.’ Your bank account now goes up $90,000, your condo is still worth $100,000 and your home is still worth $100,000. Your net worth is still $200,000 (not $290,000) because you also now have $90,000 of debt. You did not realise any income, even though your bank account is now full of money, because your debt account is now negative.

‘But I am paying property taxes!’ you might say. Sure, property taxes are a form of wealth tax, and there is no similar tax on stocks — but that is irrelevant to this discussion (although it could be relevant in a different one).

To illustrate why, let’s use another example. You still have the Washingtonian condo and the Virginian home, and they are both still worth $100,000 apiece. This time, you only borrow $45,000 against the value of the condo. That money moves from a bank on Washington to your bank account in Virginia. Do you owe Virginia income tax on that money? No, because it’s not income. But Virginia is not getting paid any property taxes for the property backing that loan! Irrelevant, again because a loan is not income.

Likewise, you can imagine owning another property in some state or country without property taxes at all. You borrow against it, is that loan income? Nope.

Now, let’s imagine the counterfactual, where loans count as income. You go to buy your $100,000 condo, put down $20,000, borrow $80,000, spend all $100,000 on the condo — and now you would owe income taxes on that $80,000. Gosh, that doesn’t seem fair. You had $20,000, spent it all borrowed the rest, and now you own a condo, owe property taxes and owe income taxes on $80,000, even though you have no money.

Does any of this help you understand? Owning an asset is not fictitious, it’s just not income. An income tax is levied on income, so an asset is not relevant to an income tax (relevant to an asset tax, of course!).

[gpderetta]

Well, taxing borrowing as income is not what is being discussed here though.

It would be workable to make borrowing against an asset at a certain value equivalent to crystallizing any gain on that asset, pro-rated on the amount borrowed: you own a 2M house, that you paid 1M. You borrow 500k against it, it would be as if you sold 1/4th of it and you would pay CGT immediately on the 1/4th of (2M-1M); the basis would be adjusted so that when eventually you sell the house you pay CGT only on the yet-unrealized gain.