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Posted

https://www.investmentnews.com/ultrarich-are-aware-of-tax-loophole-on-unrealized-gains-40747

This is supposedly some potential legislation, coming up in 2022, that is to keep guys like Red McCombs, Warren Buffett, David Murdoch, and the like from entering into variable prepaid forward contracts, where they accept a huge sum of money on stock holdings and agree to divest the stocks to the purchaser at a later date to manipulate their tax bracket. Which, I believe is a loophole that needs to be closed by the SEC or FTC.

However, investors, small businesses, farmers, ranchers, high valued property owners in desirable urban locations, and others who have valuable assets, but not a lot of cash flow will be liable for a substantial tax bill.

https://www.realclearmarkets.com/articles/2021/01/25/beware_of_a_biden_tax_on_unrealized_capital_gains_657597.html

Hopefully this legislation never makes it to the Floor, or the threshold is raised above the $3.5 million proposed.

CHIEF

 

Posted (edited)
20 minutes ago, CHIEF said:

https://www.investmentnews.com/ultrarich-are-aware-of-tax-loophole-on-unrealized-gains-40747

This is supposedly some potential legislation, coming up in 2022, that is to keep guys like Red McCombs, Warren Buffett, David Murdoch, and the like from entering into variable prepaid forward contracts, where they accept a huge sum of money on stock holdings and agree to divest the stocks to the purchaser at a later date to manipulate their tax bracket. Which, I believe is a loophole that needs to be closed by the SEC or FTC.

However, investors, small businesses, farmers, ranchers, high valued property owners in desirable urban locations, and others who have valuable assets, but not a lot of cash flow will be liable for a substantial tax bill.

https://www.realclearmarkets.com/articles/2021/01/25/beware_of_a_biden_tax_on_unrealized_capital_gains_657597.html

Hopefully this legislation never makes it to the Floor, or the threshold is raised above the $3.5 million proposed.

CHIEF

 

The thresholds in the Wyden proposal, which is the only one really discussed, are $1M annual income or $10M in assets (not sure if it's capital gain assets or all assets) for three consecutive years.  Those people would then annually have to mark their assets to market and pay taxes on gains, presumably offset by losses.

That places them firmly in the upper portion of the top 1% of Americans.

I don't think I have a problem with any of that.

Prepaid forward contracts are utter bullshit and the kind of financial douchebaggery that encourages eat the rich sentiment.

Ordinarily, I would agree that the taxation of unrealized gains is highly problematic and it would fuck me running.

But as I said on the wealth tax thread, when capital gains income gets high enough (as in way beyond funding any reasonably lavish lifestyle), I have no problem taxing it as income, and little problem taxing it without realization.

Edited by TwiceHorn
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Posted
3 minutes ago, TwiceHorn said:

The thresholds in the Wyden proposal, which is the only one really discussed, are $1M annual income or $10M for three consecutive years.  Those people would then annually have to mark their assets to market and pay taxes on gains, presumably offset by losses.

That places them firmly in the upper portion of the top 1% of Americans.

I don't think I have a problem with any of that.

Prepaid forward contracts are utter bullshit and the kind of financial douchebaggery that encourages eat the rich sentiment.

So it is based off of income and not assets? Are you gonna get to take deductions for assets that were subject to devaluation? I'm just starting to delve into this. My cousin has a dairy within 20 minutes of Ft. Worth, it was my great-grandparents, it would probably be evaluated at about $20 million, but the immediate family probably splits up $350k a year, in good year probably $150k most years. It's in an LLC, but I would hate for him to have to sell it.

CHIEF

Posted (edited)
  1. What about doing away with the stepped up cost basis at death on stocks above certain levels??
  2. Should there be limits on the amount deductions allowed for annual gifts to charities of highly appreciated assets with large unrealized gains??

 

 

Edited by LTtxfan
Posted

Why not just a fraction of a percent charge (0.1% or something) on each stock transaction over $50,000?  That is supposed to generate half a trillion dollars per year. You can exempt retirement accounts and it wouldn't change much.  Easy to administer and calculate.

Posted
1 hour ago, CHIEF said:

So it is based off of income and not assets? Are you gonna get to take deductions for assets that were subject to devaluation? I'm just starting to delve into this. My cousin has a dairy within 20 minutes of Ft. Worth, it was my great-grandparents, it would probably be evaluated at about $20 million, but the immediate family probably splits up $350k a year, in good year probably $150k most years. It's in an LLC, but I would hate for him to have to sell it.

CHIEF

Yea if it’s in land assets as well, as someone that will be making good money but not upper 1% money, I’d be fucked.

Posted

How about we just close whatever loophole this is, instead of creating a new and complicated regime of taxation to be revised/tracked/gamed?

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Posted (edited)
1 hour ago, CHIEF said:

So it is based off of income and not assets? Are you gonna get to take deductions for assets that were subject to devaluation? I'm just starting to delve into this. My cousin has a dairy within 20 minutes of Ft. Worth, it was my great-grandparents, it would probably be evaluated at about $20 million, but the immediate family probably splits up $350k a year, in good year probably $150k most years. It's in an LLC, but I would hate for him to have to sell it.

CHIEF

"The proposal completely exempts middle-class workers and their families and includes specific exclusions for retirement accounts
and family homes and farms." 
 

"anti-deferral accounting would not assess tax on gains from nontradable assets until the asset is sold or transferred."

"Tradable assets are assets for which there is a readily ascertainable value, including actively traded property. For example, tradable assets include personal property traded on an established financial market as defined under Treas. Reg. Sec. 1.1092(d)-1. Generally, all other capital property that is not tradable property is considered nontradable property."

https://www.finance.senate.gov/imo/media/doc/Treat Wealth Like Wages RM Wyden.pdf

Wyden generally knows what he's doing.

Edited by TwiceHorn
Posted
48 minutes ago, GRHorn said:

How about we just close whatever loophole this is, instead of creating a new and complicated regime of taxation to be revised/tracked/gamed?

1234

Posted

eliminate benefit of "long-term" CG

implement wealth tax.  set it at whatever threshold the very-rich fight over (5M, 10M, 50M, IDGAF).

done

Posted
1 hour ago, Parliament said:

Wealth taxes in other countries have not done well.  Lotsa rich people moved offshore.

you dont get rid of traffic lights because you cant catch 100% of red light runners.... 

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Posted (edited)

This isn't really a wealth tax.

It's a new set of "taxable event" or realization rules that make growth/income from a class of assets taxable on an annual basis.

Most of us earn the majority of our income, and it is taxed annually in the usual fashion.

The very wealthy often escape taxation because their "income" comes in the form of capital appreciation of assets.  Yet they can still "realize" paper gains through loans and prepaid forward contracts without incurring taxation.

An alternative, I suppose, would be to tax as income events lending using appreciated capital assets as collateral, but that might have even more unintended consequences.

Edited by TwiceHorn
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Posted
11 minutes ago, TwiceHorn said:

This isn't really a wealth tax.

It's a new set of "taxable event" or realization rules that make growth/income from a class of assets taxable on an annual basis.

Most of us earn the majority of our income, and it is taxed annually in the usual fashion.

The very wealthy often escape taxation because their "income" comes in the form of capital appreciation of assets.  Yet they can still "realize" paper gains through loans and prepaid forward contracts without incurring taxation.

An alternative, I suppose, would be to tax as income events lending using appreciated capital assets as collateral, but that might have even more unintended consequences.

wealth tax would use some sort of mark to market thereby eliminating the "loophole" of structures and taxable events.  (very generally speaking of course)

Posted
19 hours ago, LTtxfan said:
  1. What about doing away with the stepped up cost basis at death on stocks above certain levels??

 

 

1) If the estate tax kicks in then I think the step up makes sense and that is at 11M. Under that It feels like the step up is ok. 

Posted (edited)
5 hours ago, 52-80 said:

wealth tax would use some sort of mark to market thereby eliminating the "loophole" of structures and taxable events.  (very generally speaking of course)

Yeah I suppose the mechanism is the same or very similar more or less.

But I see a wealth tax as simply a tax on accumulated assets, without regard to origin or previous taxation as income, whereas this tries to impose an income tax on assets that "bury" their income.

For example, a person could accumulate a sizable estate from earned income and invest it in income-only investments, like CDs, or money markets, or bonds held to maturity, or bond funds, and those assets would still be taxed under a wealth tax, but wouldn't be taxed under this regime, except as ordinary income.

Edited by TwiceHorn
Posted
1 hour ago, hornbri said:

1) If the estate tax kicks in then I think the step up makes sense and that is at 11M. Under that It feels like the step up is ok. 

I believe step up in basis occurs whether estate tax is imposed or not.  That is, even if the estate is in excess of the exemption, assets in the estate receive stepped up basis in the hands of heirs or beneficiaries.

I could be wrong, but I don't think so.

Posted
18 minutes ago, TwiceHorn said:

I believe step up in basis occurs whether estate tax is imposed or not.  That is, even if the estate is in excess of the exemption, assets in the estate receive stepped up basis in the hands of heirs or beneficiaries.

I could be wrong, but I don't think so.

So if you are already paying tax on the 15M value (for example) then we SHOULD allow the step up basis since they paid tax on the full value of the asset. 

Posted
19 hours ago, GRHorn said:

How about we just close whatever loophole this is, instead of creating a new and complicated regime of taxation to be revised/tracked/gamed?

BlackElatedHarpyeagle-size_restricted.gi

Posted (edited)
16 minutes ago, hornbri said:

So if you are already paying tax on the 15M value (for example) then we SHOULD allow the step up basis since they paid tax on the full value of the asset. 

I believe the Wyden plan addresses that somehow, but I couldn't quite figure that out.  But yeah, if you are paying taxes on gains as they accumulate, basis has to be adjusted, I'd think.

Edited by TwiceHorn
Posted (edited)

If the values decline (e.g., bear market) do you get to use the loss to reduce taxable income or is this heads you win, tails I lose?

Edited by ftf82
Posted
19 minutes ago, ftf82 said:

If the values decline (e.g., bear market) do you get to use the loss to reduce taxable income or is this heads you win, tails I lose?

I would assume so.  Probably with loss carryforwards for a year or two.

Posted
5 hours ago, TwiceHorn said:

I believe step up in basis occurs whether estate tax is imposed or not.  That is, even if the estate is in excess of the exemption, assets in the estate receive stepped up basis in the hands of heirs or beneficiaries.

I could be wrong, but I don't think so.

Yeah, cap gains taxes are different from estate taxes...

No cap gains taxes at death due to stepped up basis on stocks/equities should be taken away.  The assets are easier to liquidate to pay taxes, and it's an easy way to generate more revenue for the U.S. Treasury.   

 

Posted
6 hours ago, ftf82 said:

If the values decline (e.g., bear market) do you get to use the loss to reduce taxable income or is this heads you win, tails I lose?

bunny.jpg

 

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