1. First of all, I thought flippers traditionally are cash buyers, no? At least they have to be if we’re talking foreclosures….
2. Even if they were to take out a loan, it wouldn’t be reported as mortgage interest deduction on schedule A. Again it would be investment interest expense on schedule E.
3. Flippers that take out a loan to flip a specific property isn’t paying *that* much interest anyway if the flip is really a flip. Maybe 1-3 months?
4. And I have a question. How can you tell a flipper from a non flipper/investor?
Seems to me you’re just asking for arbitrary restrictions on investments and or speculation…
So let me get this straight.. You’re suggesting that someone that speculates and earns money should be taxed for income. But someone that speculates and loses money should eat the costs…
How is this different from the reverse of this scenaro: a bank that earns money keeps the profits, but a bank that takes heavy losses, the government and taxpayer ends up picking up for the loss (sound familiar)?
And let’s take this one step further. Why stop at just flipping houses? Why not make this rule apply to all investments, including money you put into bonds, stocks, mutual funds, everything…
Everytime you earn a profit, you pay taxes on it. Every time you lose money, you can’t use it to offset your gain… That would also “discourage” speculation, (as well as sound investing) would it? When was the last time you lost money on a bad debt or bad investment? Did you write it off or not? Or have you had a perfect track record of never losing any money on any of your investments?
Seems to me, in the suggestion you are making, it’s government wins if you profit, government wins if you lose.
Uh, ok… I’m glad you’re not a politician and I’m glad this idea is not very popular…[/quote]
No, not all flippers are cash buyers. Even those who appear to be cash buyers are often leveraged; some use money from other RE (mortgaged after purchase), some pool funds that come from the other investors’ houses or are borrowed/collateralized in some other way.
Of course, I’m talking about people who are borrowing in order to flip. And as SK noted, flippers are supposed to add any mortgage/loan interest to their cost basis upon sale.
What I’m trying to say is that, totally IMO, speculators and investors (not just flippers) should not be allowed to “invest” in basic necessities or finite natural resources (that are in high demand) and, at the very least, our tax code should not encourage this. I’m not concerned about what they lose, as they shouldn’t be allowed to speculate/invest in high-demand finite natural resources at all, IMO.
We certainly shouldn’t be loaning govt-backed money to these investors, either.
Stocks, bonds, etc. are different because nobody *needs* these things in order to survive, and their are not finite natural resources. This is why I have no problem with people investing in these assets. It’s the commodities and real estate markets that end up creating real problems because of the finite nature of these assets, and the fact that they are basic necessities for survival (see my note above about rentier capitalism and feudal societies before saying that people can rent instead of buy).
