There was some discussion over on The Corner yesterday between Ponnuru and Stuttaford regarding taxes, specifically, the capital gains tax. I find myself straddling the fence on the subject. Suppose, for the sake of argument, that I buy a house for $100,000 and then sell it for $150,000. There are lots of folks who think that I’ve just pocketed fifty grand and need to share a portion of that windfall with Uncle Sam. This might be true, IF there hasn’t been any inflation AND I haven’t poured any money into the property.
In most cases, however, flipping a house involves spending money to prepare it. In my case, just holding onto an older house involves a constant flow of cash. If I own the above-mentioned house for ten years, and during that time I spend more than $50,000 on it (for re-modeling, upgrades, roofing, plumbing, landscaping, etc.), then it is hard for me to see how that difference between my purchase price and my selling price represents a net gain that the government needs to tax, especially if I can document every penny that I’ve spent on the property.
On the other hand, I’m all for phasing out the mortgage interest deduction. It provides a perverse incentive to buy more house than I need and to keep the value of that house financed rather than owned in equity.