Conference nyoss1::market_investing

    How was it possible to avoid capital gain taxes on the original
    sale?  The IRS doesn't care what other finanical arrangements
    (e.g. loans) you may make at the time you buy or sell.
    
    In this case, they saw your father buy for $X and sell for $(X+Y)
    and I'd think they would have wanted their cut right then, unless
    it was an installment sale or some other method whereby the legal
    ownership wasn't transfered.
    
    If there's a method, I'd sure like to know it!
    
    		-John Bishop

    Since he held the mortage, its accounted for as an installment sale.
    So the capital gain has been pro-rated over that time. Since the early
    payments are mostly interest, the the gain was small. Of course there 
    was the interest income, but this was offset by interest expense
    on another property purchased. 
    
    So the incomes washed leaving little tax liability.  until now....

     Well, he realized a gain and now he has to pay the tax on it.  Whats 
the big deal?  I believe the only way to actually avoid, rather than defer,
a gain, is to die.  Then the basis of real assets is 'stepped up' to 
their value when you die.  It doesn't do the owner of the assets much 
good, but its a better deal for the inheritors.  [Is estate tax due on the 
stepped up basis rather than the original basis?  In that case there is no 
escape.] 

    
    Hmm, when I bought a property from someone who gave me a 50k second
    mortgage, his tax advisor told him he still had to pay capital gains on
    the whole amount, including the 50K note amount. He was quite upset at
    the time as he thought the 50K part of the gain was tax deferred. I'd
    see a CPA or tax attorney who specializes in real estate.
    

    RE .3 There are many people in this country who earn 10 times what
          the average person earns and pay little or no taxes.
          If there is a legal way to avoid or defer the tax, why not take
          advantage of it?  
    
    RE. 4 Interesting that the seller paid a tax on the full amount.
          A CPA set up the structure of the note and prepares the
          tax return each year. So far, there have been on legal issues
          with this tax reporting. Perhaps its timing, this was set up in
           1980. The laws may have changed since then.
    

>    RE .3 There are many people in this country who earn 10 times what
>          the average person earns and pay little or no taxes.
    
    Surely there are "some" people for whom this applies.  On the other hand
    the top 5% income earners pay 46% of all income tax.  The bottom 50% 
    earners pay 10% of all income tax.  (Source: _The Economist_, May 1992)
    
      John

	Re. .6
    
	> Surely there are "some" people for whom this applies.  On the other 
	> hand the top 5% income earners pay 46% of all income tax.  The bottom 
	> 50% earners pay 10% of all income tax.  (Source: _The Economist_, 
	> May 1992)

	But what percentage of the total income belongs to the top 5%? And what
	to the bottom 50%?  If the top 5% earners earn more than 46% of the 
	total income reported, then the above rhetoric does not hold. Ditto
	for the bottom 50%. 

.7> But what percentage of the total income belongs to the top 5%?
    
    Good point, I'll see if I can get those figures.
    
    On a related note, 56% of all federal housing subsidies go to the top
    20% of all income earners, mostly in the form of mortgage deductions
    at that income level.  That may seem patently unfair, 56% of the money 
    going to 20% of the richest, but as .7 notes that may be WELL under 
    the proportion of income earned at the top.
    
      John

RE: .4

   I think that the mortgage has to be the first mortgage for it to be 
considered an installment sale (and qualify for tax deferal).  The second 
mortgage is considered a normal loan.

Brian

P.S.  I am not an accountant.  Check with a professional if you need to
find out what actually makes it an installment sale.

    RE: .7
    
    According to the Statistical Abstract of the US (1990), in 1987 the top 5%
    paid 43% of all taxes while earning 25.6% of adjust gross income.

Re .10
    
>    According to the Statistical Abstract of the US (1990), in 1987 the top 5%
>    paid 43% of all taxes while earning 25.6% of adjust gross income.

25.6% of adjusted gross income is a meaningless statistic.  What adjustments
were made?  To be truly meaningful, it has to be gross income, no adjustments.
Are they giving out that statistic?

-- Andrew

    AGI is wages and salaries (90% of AGI for the middle class, 48% of
    income for the rich) plus interest, dividends, pensions, annuities,
    NET business income, rents, royalties & capital gains, less adjustments
    for IRA's, Keough's, alimony, etc.  
    
    This number seems to reflect the full income of most people, except
    of course for those who report large capital losses, etc.   However, 
    in 1986, for example, the average rich person reported $62,000 in
    sales of property & other assest, net gain less loss.
    
    But, the AGI should not include interest income in Fed-tax-free investments.
    
    Mr. Statistics, 1986

    
    AGI is a meaningful figure. Most of the tax-advantaged deductions which
    distort income figures come after the AGI calculation. The notable
    exception is real-estate deductions, which come from schedule E, and
    appear on page 1 of the 1040 as losses. These depreciation-related
    losses distort AGI, but other than that AGI is meaningful. 
    

re .13:

And, as .12 points out, investments that provide tax-free income (e.g. munis).

    Per .10, it thus appears the richest 5% of the country earn 25% of the
    income and pay 43% of the taxes.
    
    So much for the Helmsley theory ("rich people don't pay taxes").
    
    Must have been a real eye-opener for the Looney Lefties, who probably
    figured the rich to earn 43% of the income and pay 5% of the taxes.
    
      John

    
    And this shift toward more progressiveness occurred by LOWERING
    tax rates! 
    
    This is the great hidden truth that no one in the media wants to 
    publicized. LOWER Tax Rates cause the rich to pay more in taxes 
    (collectivly). I guess it doesn't sell newspapers. 
    

>>>    And this shift toward more progressiveness occurred by LOWERING
>>>    tax rates! 
    
>>>    This is the great hidden truth that no one in the media wants to 
>>>    publicized. LOWER Tax Rates cause the rich to pay more in taxes 
>>>    (collectivly). I guess it doesn't sell newspapers. 

I don't understand this statement.

If we lower the tax rate enough, only the rich will pay taxes.

Suppose we lower the tax rate so that only households with, say, $200,000 in
annual income pay taxes. Then those people (let's call them "the rich") will
pay taxes. That means the rich will pay 100% of the tax burden. Since I'm not
rich, I won't have to pay anything.

Everyone should be happy, right? The rich are paying more in taxes
(collectively). In fact, they're paying for everything!

Vicki Meagher

Gains vs Loss...

I plan to sell my house in 1993.... 

I will turn 55 in Sept. '93 so I would like to defer the closing until then.
However, if I can not orchestrate that, and have a good/firm offer well before
then that I don't want to lose, I wonder if I can also sell my motorhome (our
"2nd home" for tax purposes) and incur a capital loss to offset some of the 
house's gain?

If so...., how would that effect a purchase of a newer/costlier motorhome?

    
    	Re: .18
    
    	I'm reading between the lines here, but I take it that you don't
    have any offers outstanding right now and that maybe you haven't even
    put the house on the market yet?  If so, given how long the average
    piece of real estate is sitting before being sold, it might be until
    Spring (or maybe even the Summer) before you get an offer.  Add the
    traditional 6-8 weeks before closing and you might end up missing the
    September date by just a couple of months.  If you have a lot of profit
    wrapped up in the house and the buyers are really eager to move in, how
    about just renting the house to them for the month or two it takes to
    push the closing into September?  Sheeze, even renting it to them for
    $1/month could be a big win for you if you can get the closing pushed
    into the $125K exclusion zone.
    
    							-craig

	Craig, I agree that it would likely take some time to sell the
	place, so I do plan to put it up for sale early.  But I am also
	concerned that someone will come along "early" and make me an 
	offer.

	I only briefly considered "renting" until the close.  I have
	heard many stories about "adjustments" to the sale that the new 
	tenents want as they live in the house and notice shortcomings.
	Also, once in the house, I can play hell getting them out if they
	elect NOT to close.  They can make all kinds of demands upon me
	to obfuscate my evbiction efforts.

	Hence, my question...  can I play the motorhomes capital loss off
	against the homes gain?  We're not talking King Kong bucks here,
	but since this will be a big part of my retirement plans I'd like
	to know my options.

	

    
    	Re: .20
    
    	Yeah, true, it could be messy.  My apologies for not answering the
    question that you actually asked...  I can't actually answer it,
    however, since I don't know if there are any special rules dealing with
    the capital gains/losses of things officially classed as second homes.
    Sorry.
    
    							-craig

Unfortunately, a "capital loss" on personal use property is never
deductible.  The only time there is a tax consequence from the sale of
personal use property is when you sell it at a gain.

First home, second home, car, boat - whatever.  If you make money on the
sale, the IRS is there with its hand out.  If you lose money, then (just
maybe) they might feel bad for you but they don't allow the loss as an
event on your tax return.

For a capital loss to be deductible, it has to be from the sale of
*investment* property.  You can also deduct losses from the sale of
business use property, but IRS classifies those transactions in a
different category entirely...

On the birthday date issue:

I don't think that the actual date of your birthday and the actual date
of the closing matter, as long as they fall in the same tax year.  As
best I recall, the question on the form is worded something like:
"Is the taxpayer at least 55 years of age in the year of sale?"
I would have to check to make sure, but (maybe) your concerns about the
closing date are unfounded.  I will try to dig out the rulebooks and
see how this works...unless somebody else reading this knows for sure?

On the final part of .18:

I don't recall there being any rules about rolling profits from "second
homes" into replacement second homes.  I think that only applies to your
primary residence.  Again, I'll have to check to make sure, but I think
if you sell your "second home" at a gain, you have to handle that event
in the year of occurance.  So, I don't think that the sale of your
motorhome at a "loss" will have any effect on your taxes *or* your next
purchase of another motorhome.

SteveSov

> On the birthday date issue:

>I don't think that the actual date of your birthday and the actual date
>of the closing matter, as long as they fall in the same tax year.  As
>best I recall, the question on the form is worded something like:
>"Is the taxpayer at least 55 years of age in the year of sale?"
>I would have to check to make sure, but (maybe) your concerns about the
>closing date are unfounded.  I will try to dig out the rulebooks and
>see how this works...unless somebody else reading this knows for sure?

If that's true, I'd be a happy buckeroo!  

>>I don't think that the actual date of your birthday and the actual date
>>of the closing matter, as long as they fall in the same tax year.  As
>>best I recall, the question on the form is worded something like:
>>"Is the taxpayer at least 55 years of age in the year of sale?"
>>I would have to check to make sure, but (maybe) your concerns about the
>>closing date are unfounded.  I will try to dig out the rulebooks and
>>see how this works...unless somebody else reading this knows for sure?
>
>If that's true, I'd be a happy buckeroo!  

    Don't count on this.
    My understanding differs, but I'm not sure.
    Call the IRS or get info from a knowledgable tax professional.

<<< Note 191.24 by VMSDEV::HAMMOND "Charlie Hammond -- ZKO3-04/S23 -- dtn 381-2684" >>>

>>>I don't think that the actual date of your birthday and the actual date
>>>of the closing matter, as long as they fall in the same tax year.  As
>>>best I recall, the question on the form is worded something like:
>>>"Is the taxpayer at least 55 years of age in the year of sale?"
>>>I would have to check to make sure, but (maybe) your concerns about the
>>>closing date are unfounded.  I will try to dig out the rulebooks and
>>>see how this works...unless somebody else reading this knows for sure?
>>
>>If that's true, I'd be a happy buckeroo!  

>    Don't count on this.
>    My understanding differs, but I'm not sure.
>    Call the IRS or get info from a knowledgable tax professional.

Lasiter (sp) sez I must be 55 or over when the deal is closed.  

    	The problem:  I bought a 2-family house in 1981 and lived it half
    of it until 1986.  I then bought my current (single-family) house and
    kept the 2-family as an investment.  A few months later the 1986 tax
    law changed the capital gain tax rules and my potential tax on selling
    the 2-family almost doubled.  After retiring the mortgage, I'd have
    little left.

    	Is there anything in the 1993 budget/tax changes that would make a
    difference?  I had heard that there would be some favorable treatment
    of long-held capital gains, but no specifics.  Or was this just wishful
    thinking?

    		David

    
    
    - 191.24
    
    	Couldn't the birthdate be 53 years for $125,000 exclusion -
    	that is, 53 + 2 (years grace period to roll-over to next 
    	primary residence purchase)?  Of course, you have to wait
    	the 2 years until you reach age 55.
    
    	This is the scenario that my husband and I face (he turns 53
    	this May).  If we sell our house this year, we want to rent
    	for awhile.  We do not know if we want buy another house or take 
    	the exclusion at age (his) 55.  Or, we may want to take the ex-
    	clusion when he turns 55 and later on buy a house.
    
    	I would appreciate any info. on this.
    
    	Thanks,
                                           
    	Eleanor