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View Diary: Shocker: Huge Companies Cost U.S. Billions Exploiting Tax Break Designed For Farmers Swapping Horses (86 comments)

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  •  My mom uses this (4+ / 0-)
    Recommended by:
    Ian Reifowitz, Sylv, WheninRome, Joe Bob

    My parents decided to invest their savings in real estate.  Over the nearly forty years they build up a small stable of rental properties, and my mom now lives on the proceeds modestly.  Because she cannot take money out without paying hefty capital gains taxes she is also a renter.  Now sometimes particular properties lose value or particular rentals markets become less solid.  This my parents and now my mom periodically trade their properties for others.  For example, she moved from the Bay Area to Tucson, which enabled her to get a better return since California real estate has gone through the roof.  Now, the key fact is that she could not have done this without the in kind trade treatment. Furthermore, no one with retirement savings that are invested would be effectively prevented from moving to a better asset.  Businesses would be similarly hamstrung.  It may have started with horses, but it now supports any number of other businesses as well.  With this tax treatment, my mom would likely have been wiped out a long time ago.  

    Hay hombres que luchan un dia, y son buenos Hay otros que luchan un año, y son mejores Hay quienes luchan muchos años, y son muy buenos. Pero hay los que luchan toda la vida. Esos son los imprescendibles.

    by Mindful Nature on Mon Jan 07, 2013 at 08:44:55 AM PST

    •  Like I said, I have no problem with small business (5+ / 0-)

      using this. But the article describes large corporations doing this. There are certainly ways to write the code so that it reflects the business income of the person using it. Your mom is using it the way it was envisioned for farmers, I'd say.

      •  I don't think you did a good job of explaining (3+ / 0-)

        the abuses of it.

        For example, you talked about a farmer exchanging good farmland for poor farmland and then pocketing the profits. That's not possible as I understand the rules. The properties have to be of like value. You could use it to exchange your 20 acres near the city at prime $$ per acre for say 200 acres out in the country, but the total price has to be similar and they both have to be used for farming.

        The whole point of this is that you can't pocket profits made during the exchange.

        What you can do is change property of similar value that is actually more desirable... for example, you might exchange a $200,000 house that rents for $500 for a $200,000 house that rents for $1,000, or you might exchange a $20k racehorse whose career is over for a yearling whose career is just beginning.

        Fry, don't be a hero! It's not covered by our health plan!

        by elfling on Mon Jan 07, 2013 at 09:04:03 AM PST

        [ Parent ]

    •  Wiped out is probably overstating the case (2+ / 0-)
      Recommended by:
      Ian Reifowitz, MJ via Chicago

      She'd pay capital gains on part of the sale, but she'd have the proceeds. It would make it harder for her to reinvest in real property nearer to her.

      The real effect without these rules would be that people would be less likely to make the exchanges - that is, your mom either wouldn't have moved or maybe she would have moved but left her investments behind and put them in the hands of an absentee manager. The manager would benefit from higher fees and likely from less oversight, and your mom would have less control over her investments with them physically far away. She'd be more vulnerable to fraud and her tenants might get less value for their money.

      So it's not really the case that taxpayers lose from her use of the provisions - it's real estate management companies, maybe.

      If she ever sells before her death, the capital gains will be calculated based on her original investment, which seems very fair to me.

      Fry, don't be a hero! It's not covered by our health plan!

      by elfling on Mon Jan 07, 2013 at 08:57:24 AM PST

      [ Parent ]

      •  The probem is that it means you can't swap (2+ / 0-)
        Recommended by:
        Ian Reifowitz, marina

        assets that aren't doing well for ones that are.  When I say moved, I mean she swapped the properties in the Bay Area for ones in Tuscon.  She's actually moved back to the Bay Area.

        The issue is of course that property values in the Bay Area increased faster than rents, which meant as a practical matter than if she ever refinanced, which she had to once, there'd be no more income for her from the properties as the rents no longer covered more than the financing.  Thus, her income would have droppped to close to zero and in some instances the properties gone underwater, such that forclosure would be inevitable.  Believe me, we looked long and hard at this, and if she'd not been able to do this kind of swap, she would pretty much would have nothing by now.  In any event, without the swap, she'd be locked into the particular properties in perpetuity.  Bear in mind also that the same would be true for your stocks, etc thta once you buy them, then the arithmatic for moving to better investments becomes much more difficult.  Since this is how many (most) people save for retirement, there would be pretty significant and far reaching consequences to any such move.

        Long story short, it's a much more complicated than it looks at first blush.

        Hay hombres que luchan un dia, y son buenos Hay otros que luchan un año, y son mejores Hay quienes luchan muchos años, y son muy buenos. Pero hay los que luchan toda la vida. Esos son los imprescendibles.

        by Mindful Nature on Mon Jan 07, 2013 at 09:29:27 AM PST

        [ Parent ]

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