Real estate roundup: AB 1771, another property tax

Imagine a 25% tax to sell your house? Assemblyman Christopher M. Ward of California’s 78th District, which stretches from Solana Beach to Imperial Beach, authored Assembly Bill 1771. It was co-authored by Assemblyman of Assemblyman Kevin Mullin from California’s 22nd District, which is South San Francisco and South San Francisco. Bay. They state that the bill is focused on investors/pinball machines. The only problem is that it targets capital gains from the sale or exchange of any qualifying asset.

Qualifying assets in this case are single-family homes. Collective dwellings are exempt and affordable housing inventory is exempt. Three categories of taxpayers are also exempt from this proposed tax. Any active duty military, deceased (an heir), or first time home buyer who uses the property as their primary residence. But all other single family home buyers/owners are going to pay dearly if this bill passes.

Here are the nuts and bolts of this proposed tax. Effective January 1, 2023, an additional tax will be imposed at the rate of 25% on the portion of a taxpayer’s net capital gain generated as a result of the sale or exchange of a qualifying asset. This tax applies to goods sold within the first seven years of purchase.

If you buy a single-family home and resell it within the first three years from the date of your purchase, you will be taxed 25% on your capital gain. If you sell your property in years 3 and 4, you will be taxed 20% on your capital gain. If you sell in years 4 and 5, you will be taxed 15% on your capital gain. If you sell your property in years 5 and 6, you will be taxed 10% on your capital gain. If you sell your property within 6 to 7 years, you will be taxed 5% on your capital gain. Only, if you have held your property for at least seven years, you are completely exempt from this additional tax.

A tax already exists when sellers make a profit of more than $250,000 for an individual owner or $500,000 for co-owners. This new state tax would be in addition to current property taxes. I get it, those numbers seem huge, and for people who aren’t landlords maybe ridiculous, but there’s always a lot of risk when you buy real estate, so a landlord should be allowed to capitalize on their risk in wherever possible.

After all, it was their money and credit that took the risk, they should be the beneficiary of the profit, not the state or federal government who had no interest in the original investment.

Real estate is a cyclical business. Some people seem to have the Midas touch. They buy low and sell high. The others don’t have the same timing. Think back to 2006. It was a frenzy in the market. Then 2008, the “Big Short” happened. It didn’t happen because one individual decided to take a crazy risk. This happened because someone outside that person’s circle decided to mess with the loan guidelines, which caused a flood of bad loans.

So “Kapo! » Real estate was in the tank! Innocent people had to sell their homes, many of which hadn’t owned them for seven years. All would have been affected by this tax. They are not investors. They are not flippers. These were individuals who were trying to build their family’s wealth by investing in real estate.

Frankly, from my point of view, even investors/pinball machines shouldn’t be penalized for the profits they make. They took the initial risk, invested additional funds in the property to bring it up to market standards, and then sold it for fair market value. They should be able to continue to stimulate the economy with their investments and receive profit for their time and risk.

We seem to live in a society that believes everyone should have the same amount of everything, especially opportunities. In a perfect world, where God was the preeminent head, is this even remotely possible? It’s like thinking everyone on the team should get the same trophy. This is what is happening today in our youth sports. Our children learn very early on the notion of equal reward despite talent or effort.

The problem is that the philosophy does not encourage the most successful, it is the opposite. People need to understand and value the commitment it takes to become the best. There is only one MVP, at the professional sports level. There is only one valedictorian (maybe more if their GPA is the same). There is only one CEO, CFO, one president, one leader.

This tax proposal aims to make things fairer by applying, once again, a stick approach to the buying and selling of goods. The authors claim that the reasoning behind the bill opens the door to more consumers buying homes, because supposedly, if the investor understands that he will have to pay exorbitant taxes on his investment, he will stay out of the market.

I don’t know about you, but I’ve realized through a lifetime of experience that anyone who is at the top of their game finds a way to overcome every obstacle in their path and achieve their goal. This invoice/fee is not going to fix what’s broken. Not just because it doesn’t just target investors, but because it’s not the answer to fixing house prices. Supply is the only solution, and even if every investor pulled out of the real estate market because of this bill, it wouldn’t add enough supply to change things. But that’s another article.

I do not want to lose sight of the biggest problem with this bill. This will affect almost anyone who buys a primary residence and doesn’t keep it for at least seven years. Suppose you buy a house to be closer to your children and grandchildren, and then your children get a job transfer to another location? If you sell your house and you haven’t owned it for at least seven years, you will pay this tax.

Or how about this situation. You and your husband of 50 years decide to downsize in order to buy a smaller house. One of you falls ill and dies. The remaining spouse decides that they want to be closer to their family. If you have owned this house for less than seven years, you will pay this tax. What about the person who gets a job transfer? Or lose his job? Or have a baby and need a bigger house? Or get married and end up with a larger blended family that needs more bedrooms and bathrooms? All of these situations would trigger the tax.

Enough is enough. If California lawmakers are serious about making homeownership more affordable or more accessible to everyone, they need to work hard and provide incentives for communities, individuals, and lenders to support homeownership for all. But this approach is difficult. It requires buy-in from everyone in the state, from residents to all levels of government.

It’s easy to stand up and take a stand against the so-called evil “pinball/investor”. This message sells to the masses. The true leader will bring people together to find a solution that will solve the problem. It will be more than a “piece”, it will be a real solution that involves a compromise on the part of all stakeholders, which can really benefit everyone. I support that!

If you agree with me, please contact your Member of Assembly, your State Senator, your local government leaders. Your voice is a vote, and it matters to them. Have your say or watch the State of California take another bite out of your life’s investment.

Kim Murphy can be reached at [email protected] or 760-415-9292 or 130 N Main Avenue in Fallbrook. Her broker’s license is #01229921 and she sits on the board of the California Association of Realtors.

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