Taxation and the middle class

[jeremyroman]

And therein lies the rub.

If somebody was that well off to be able to buy multiple condos or single-family houses, the extra capital gains tax is not hurting them in any way.

But they were part of the reason why housing got so outlandishly expensive by participating in the speculation to buy multiple extra properties like that.

Zero sympathy. Let's go back to the high marginal tax rates on the rich from the 1950s and 1960s. (And, no, "capital flight" doesn't really happen.)

Um,  you are off base.  My wife and I purchased a couple of condo units that we rent out.  This was done as retirement investment for her as she does not have a pension plan through work.  We are by no means wealthy.  We live in a semi, we made choices to not keep buying up on our residence in lieu of purchasing investment properties for her future.  I know many people that have done this.  The only people that are going to be hurt by this is the people like myself.  People who own many condos units for rent have them owned under a corporation.  Therefore they don't pay tax in the same manner, they will be just fine and unaffected by this tax grab.

I don't think "zero sympathy" is fair here, but having substantial ownership of at least three homes is more than a lot of people have. On the one hand, this change will be a setback -- though since you presumably intend to sell it in retirement (i.e., with substantial room below the maximum marginal tax bracket), it probably amounts to a significant but not devastating impact. For example, if a single condo has appreciated from $300,000 to $600,000, then this change results in an additional 17% inclusion on the last $50,000 gain (above the $250k limit in one year) -- i.e., an additional $8,333 of taxable income, which is at most $4,460 in additional tax (at least $3,747). On the other hand, this doesn't wipe out the substantial windfall that the housing market appreciation has delivered the past several years, and has harmed the retirement prospects of many others. I expect this could be softened further (or eliminated entirely, e.g. in the case of 50% ownership and a gain of less than $500k) if the ownership is split across multiple household members, but I am not a tax accountant. Still, of course this change does affect people who are not in the yacht-owning class.

For corporations this applies on the first dollar of capital gain, though of course corporations have some additional tax planning tools to mitigate that somewhat (mainly in the form of deferral).

It's also probably the case that the fact that so many people have done this (putting their retirement savings into multiple residential investment properties, with the expectation of outperforming other investments) has bid up the cost of housing and is a contributing factor to housing affordability. That doesn't mean that individuals/families involved deserve to be "punished" in a moral sense (everyone is largely following everyone else's general wisdom that it's a prudent thing to do, which has paid off handsomely for decades), but it might not be the incentive structure that is in the interest of the public as a whole.