Capitol Loss

It’s 2010 and a good part of the world has been suffering from very difficult economic times.  In the United States (US) and Europe, housing prices have fallen by upwards of 40%.  When people aren’t declaring bankruptcy because they’ve lost their job and can’t pay their bills, they are either short-selling their homes to get out of the payments, or walking away from their mortgages entirely.

Granted, there are a goodly number of people who bought outside their means, encouraged by banks more interested in profits and bonuses than sensible loans.  However, the US taxation system certainly makes it hard for people who need to sell their homes in these difficult times, to catch a break.

So here you are, Mr/Ms Responsible, buying the amount of house you could afford, making your payments on time, paying your taxes, and even engaging in a few home improvements to spruce up the place.  Then fate comes knocking on the door and, for whatever reason, you need to sell.  The real estate market is still in a downturn, but you have no choice.  Next comes the bouncy real estate agent with your market analysis, hoping to finally make a few bucks to pay her own bills.  Fair warning, have the paper bag (for hyperventilating) or defibrillator handy before you open this document – it’s not going to be pretty.

After you pick yourself up off the floor, you start to take a little trip down the yellow brick road.  ‘Well, my house must be worth more than those comparables; after all, I made all these snazzy improvements, and well….I….I’m…..I’m a nice person and deserve to get back at least what I paid for the place, don’t I?’  Sorry to say it, but sometimes life just isn’t fair.  The stars that have been floating around your head are now fading as reality sets in.  ‘Yes, I need to sell, and no, I’m not going to make as much as I hoped, or even as much as I spent (don’t forget the perky real estate agent’s commission, which puts you further into the hole), but hey, maybe I’ll get a break on my taxes?’

If you sell your home for more than you paid for it, including significant improvements, you may be required to pay capital gains tax on the profit.  There are ways around it such as investing the money in another property or ensuring the profit is under the IRS dollar limit; but did you know that if you sell your house for less than you paid for it (plus improvements), you do not get a tax deduction?  (See Publication 523 at www.irs.gov )  This truly must be capitalism at its worst.

I suppose this regulation was designed to prevent people from investing in speculative ventures or buying and trashing a home for the tax break, but, like most tax laws, it completely defies logic.  Just when you need the help the most, they kick you when you’re down.

So now you have a matching lump on your forehead from the face plant you just took after learning there is no tax deduction for selling your home at a loss, to match the one on the back of your head that you received from fainting after reading the market analysis.  Might as well take that tenner that you have stashed in the secret compartment of your wallet and buy a few lottery tickets – they are about as good of an investment as anything else in these economic times, with an equal chance at an ROI (return on investment).

About musingmirror

A writer of many genres, always in search of creative inspiration.
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