lots of ways… for example if they are seniors Prop 60 and Prop 90.

great way to leave your kids properties too. when you die, they get to keep your property tax basis. so prior to that, exchange to a home a more expensive home to lock in the old tax basis , then they inherit it.

that’s probably why there’s a big devidd in CA home owners and non home owners. Existing home owners have so many advantages to just keep rolling properties into more properties. not just for them, but for their kids.

Hence why some people will keep accumulating and never sell.

even better now that inheritance tax for most of us has been eliminated .

sink or swim. it’s not that hard to figure that one out. the great wealth inequality divide is about to get a lot worse.

FLU, are you referring to an 1031 exchange?
Josh

[quote=barnaby33]FLU, are you referring to an 1031 exchange?
Josh[/quote]

no, I was referring to seniors exchanging properties and keeping their tax basis.

If you are wondering about keeping property tax basis on inheritance, that’s prop 58 and prop 193.

the former is what happens when parents transfer to kids.

the later is what happens when grandparents transfer to kids.

CA and our Federal government disproportionate ly rewards property owners versus everyone else.

1031 exchange is good in that it allows you to avoid paying any depreciation recapture and capital gains on rental properties if you sell and buy something else. So a lot of people borrow against it, sell and exchange property with something and carry the debt over while freeing up cash. There are rules for the exchange, and they aren’t exactly easy. but if you call pull it off, good.

Separate tax laws governs what happens when you die and your kids inherit the property.
Basically , upon death, all sort of depreciation recapture and the property’s cost basis gets reset upon transfer to your kids. So If the house you bought for $100k is now worth $500k, your kids “cost basis” is now $500k so if they sell right away, they owe zero capital gains. Also, if it was a rental, all of the depreciation recapture you normally would have to pay ends up being reset to $0 for your kids… Hence why a lot of people never sell property unless they are in financial distress….If you need money, borrow against it….

Now before, one thing your kids might be subject to was inheritance tax if your estate was large enough. But that was what a living trust was for if you are a joint couple… Using I believe a bypass trust, you can double the amount excluded from estate taxees..

However, with the recent changes to estate taxes by the GOP and Trump, for most people in practice, there no longer is estate taxes since the upper bound on that exemption is $10million i think. lol…and for some of us abitious enough to exceed that, I think there are ways to double that that exemption too as a joint couple..

of course all these rules can change … if the financial situation of the majority of people in this country continue to decline, home ownership in CA increasingly get more difficult for most people, and the property ownership is concentrated is a small percentage of the population….Enough people will be pissed and put something on a CA ballot that would then have a good chance of passing….if in doubt, consider CA the rent control bill on November’s ballot lol…

1031, as most people use it for, in practice is for tax avoidance, not deferral.

It’s only a deferral if you eventually sell a property while you are alive.

But if you never sell, it’s a tax deferral until you die (which for your purposes is a tax avoidance, given the way our tax laws are structured)…And when you die, your kids owe none of the capital gains or depreciation recapture that you would have had to pay if you sold at the time of death….

Because the way “step-up” cost basis and depreciation recapture resets upon your death, your kids does not inherit any capital gains taxes or depreciation recapture that you use to owe while you were still alive. It all gets reset at the time of your death and when they inherit.

So even if they inherit the property and sell the day they got it, they will owe $0 in capital gains (even if you never paid a cent on capital gains while still alive)…Also, they will owe $0 on depreciation recapture, even if you never paid any of that too while still alive…

While alive, if you need money, and borrow against the equity, that’s not a tax event either, since a loan taken out on the property does not incur a tax hit.

So while alive you pay no capital gains and depreciation recap. And when your kids inherit your property, they pay no capital gains and depreciation recap…They get to keep the property tax bases you had due to all the nice CA propositions…….AND…as icing on the cake now, they owe no inheritance and estate taxes…lol……And you borrowed money against it, to use it for whatever purposes, also not a tax event…In practice, this is legalized tax avoidance.I just call it how it is.

It’s probably one of the many ways how the rich(er) keep getting rich(er)….Non-property owners get the shaft… and this started way before this administration…….That’s the fundamental lesson I didn’t learn until I was in my 30ies. Had I known earlier, I would have gotten involved in real estate a lot earlier…

Sink or swim.

[quote=gzz]The book claims:

“The real class divide is not between the upper class and the upper middle class: it is between the upper middle class and everyone else.”

The reality of income and wealth statistics say otherwise.

And for political power, the permanent part of the 2017 tax bill raises taxes on most of the upper middle class and greatly lowers it on the 1%, and even more on the 0.1%.

It does seem like that top 20% or so, those with degrees from selective colleges or stable small business ownership, are pulling away from the rest in some ways. But this is just a much smaller phenomenon as the extremely rapid and dramatic increase in income and wealth at the very top.[/quote]

Yes…. but the author argues that the professional class, as gatekeepers, is enabling it. I have the book but haven’t yet read it.