One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.
This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Mortages however are a special case since they are basically mandated to be low and safe by most governments in exchange for letting banks exist. Or in the US explicitily guaranteed through freddie mac and fannie may.
You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place
The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in basis that can be depreciated again, while still not triggering any capital gains for you until you convert
> They're only deferring the tax on $70-80K, correct?
Yes, if they sell normally. But usually capital gains tax is lower than that on the income so overall they're saving.
To be explicit: They use the $70-80K depreciation to offset their rental income (which often means they pay no tax on the income for that year and several years after). They'll pay it eventually when they sell, but at a (usually) lower tax rate.
There are tricks like 1031 exchange to avoid paying taxes when they sell, but I don't know how depreciation benefits factor in to those.
First, depreciation on real property is about 27 years. 80k annual depreciation indicates a 2.2m purchase price.
Corporate capital gains don't get a special rate. They're taxed the same as regular corporate income. The 1031 like kind exchange is also very difficult to achieve as the bar is very high even under the Trump admin.
> First, depreciation on real property is about 27 years.
That's straight line depreciation. Look elsewhere in the thread and you'll see cost segregation and bonus depreciation. To give you an idea, I once invested $50K in a multifamily property and my depreciation for the first year was $18K. I never paid taxes on any of my income (but did pay more taxes when it was sold due to the lowered cost basis).
The building shell does not. But 5 7 and 15 year components (appliances, cabinets, carpet, site utilities, landscaping, fence, sidewalks, etc) are eligible, that is the point of cost seg
As another commenter pointed out, buying a home to live in gets you lower interest rates than buying for any other reason.
> but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant.
If you're referring to cost segregation, this is probably less true now than in the past. It used to cost a lot of money to do a cost segregation analysis, and made sense only for apartment complexes (i.e. the cost to do the analysis vastly exceeded whatever savings you'd get on a single house). So only rich investors who owned 20+ unit complexes would do it.
I've heard that in the last few years, many accounting firms are providing it for relatively cheap, so ordinary investors can do it now.
RE people make a big deal about depreciation as a tax benefit, but it's minor in my experience. You're effectively reducing the cost basis, so when you ultimately sell, you have to pay a larger tax on the capital gains. Overall you gain, but not by a lot.
Perhaps if you combine with a 1031 exchange, you may get a greater benefit.
As the report points out, institutional investors purchase only 3% of homes nationwide (but much higher in some cities). Regular smaller investors likely buy more homes than the institutional ones.
> institutional investors purchase only 3% of homes nationwide (but much higher in some cities).
This is crucial. People are in cities - in the day and age of corporate consolidation, less and less jobs are available, and they are increasingly in-office, and increasingly in only a select few metro areas.
Nobody would give a damn if a glut of housing was built in the middle of South Dakota or Maine or Wyoming. That's because there's very little to no jobs growth in those regions.
It's wild when you think about it: a family scrapes together a down payment and pays full freight on property taxes, while a corporate landlord can roll one property's paper losses into the next deal and keep building their portfolio, tax-deferred
Capital loss carryover is possibly what they were referring to
Unrelated note but the Homestead exemption in Santa Clara County, average sale price $2,300,000, is $7,000. To be explicit, the home’s value is reduced by $7,000 for valuation purposes.
Edit: the tax deferred part sounds like a 1031 exchange
You might be right about the 1031 exchange, but that has almost nothing to do with property taxes.
The homestead exemptions are very small or non-existent in some states, but I believe they are fairly substantial in the south. Ultimately, my point was that they are completely wrong in that I don't know of a single locality where landlords are given discounts on property taxes but owner occupied homes have to pay full freight, but the opposite is true in at least some cases. They could be talking about developer incentives for new construction, but that's not the same thing IMO and it's difficult to understand what they meant.
It's very, very hard to talk to people who have such strong, completely uninformed opinions and seem to be completely unwilling to even attempt to educate themselves on the topic. To be clear, this is not pointed at you, I'm just not willing to invest the time you did to seriously guess at what the parent poster was going on about.
You can't use unrealized capital losses (property paper losses) or even realized losses to offset property tax, you can only offset realized losses against realized gains for income taxes.
A lot of veterans live in TX because they have reduced or no property taxes, and also no income taxes. It's probably ~ 8-10% of disabled vets in my neighborhood.
What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase?
Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thing. But landlords are a special, privileged investor class to whom these rules don't apply. They can sell a house and pay no taxes on gains as long as they buy another property.
It's not special, just requires scale for it to make sense. E.g. Cost segregation studies and UPREIT transactions are cheaper on a neighborhood level. And you need enough passive income to absorb the depreciation losses
And the scale applies at every single step of the process. A citizen homebuyer is playing a oneshot game. There are few discounts to be had and every single fee is its own battle.
A corporation/PE is playing a multi-shot game. There are bulk discounts, relationships, and scale that is applied to everything from title insurance and inspections to cost segregations to filing all of the paperwork.
> There are few discounts to be had and every single fee is its own battle.
Also if you take a 10% gamble on a strategy to save 50k and it backfires and lands you with a 500k legal bill, that's just the cost of business to a big (or even not that big) company, but it'd be absolutely ruinous to private individuals.
> IIUC any landlord can use depreciation to lower their tax bill.
This is also not really how depreciation works for assets that retain their value. If you buy a building to rent it out, the cost of the building essentially a cost of doing business, i.e. a tax deduction. You pay tax on the profit which is revenue (rents) minus costs (building, interest, maintenance, advertising, etc.) Depreciation is the building, they make you take it over time instead of all at once when you buy it.
But the depreciation lowers the book value of the building, which is your tax basis when you sell it. If you buy a building for a million dollars, depreciate it down to $500,000 and then sell it for $2M, you have a $1.5M capital gain from the sale. You basically have to give back all the depreciation unless the building actually lost that much value by the time you sold it, and in practice it usually goes up instead of down.
It's really the homeowners who have the advantage here because there is a large capital gains tax exemption from the sale of your primary residence, and that's actually a reduction in taxes instead of just a deferral.
It's true depreciation reduces your cost basis and creates a higher capital gain. But the gain can be rolled into another property with a 1031 exchange, deferring taxes. I already said this in the comment you responded to.
Homeowners get a tax exemption but only up to a certain amount in gains.
> But the gain can be rolled into another property with a 1031 exchange, deferring taxes. I already said this in the comment you responded to.
They can also keep the property forever and continue renting it out, and then never realize the gain. But in both cases that means they don't get to realize the gain -- or even recover their original principal -- except insofar as they're renting it out, and the rent is taxable income.
Or option 3: get a line of credit against the property and spend it to realize the gain with no taxes. Stepped up cost basis upon death for your heirs.
Depreciation is mandatory, your cost basis declines while inflation slowly pushes up the value, which leads to a type of phantom gain. There are abilities for individuals to lower their tax bill as there are breaks. But for a Mom & Pop small landlord the tax situation can be tough.
1031 exchanges are tricky for small investors as you have to exchange into a situation with the same mortgage. A big real estate corp can borrow against their total equity, rather than taking a mortgage on the new property. So they can roll their equity into the new deal tax free. This is especially lucurative to buying cheap, rennovating and then selling to another corp.
And what isn't discussed is there is a huge amount of "carried interest" deferred profits. That tax break was intended for high risk venture capital investments but in the 80s and 90s it became used for speculative and even day trading.
https://www.pgpf.org/article/what-is-the-carried-interest-lo...
You can only deduct passive income losses for depreciation if you aren’t a real estate professional of up to $25000 and that’s only if you earn less than $100K. It starts phasing out between $100K and $150K
That may be the case but it would still be a good idea to look at regulating these run away feedback loops writ large so that people can't just play a game of whack-a-mole where they play the same old tricks in different sectors or invent whole new mediums to play the same old games afresh
Our system is far more regressive than most people realize. The poor pay more for things, don't have access to all kinds of tax breaks and cheap money, and can't afford accountants and shell companies and all the other complicated tricks you can use if you are wealthier.
I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?
> would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?
That's an easy one to fix regardless. Use a flat tax with a large fixed refundable credit. Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. But the marginal rate is the same for everyone so there aren't all these complexities and arbitrage games, and at lower incomes the credit stands in for a lot of assistance programs so you don't get all the marginal rate cliffs from overlapping phase outs.
> Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up.
This only maybe works if you count capital gains as regular income. Otherwise they do the Steve Jobs $1 salary thing.
> This only maybe works if you count capital gains as regular income.
Yes, that's how a flat tax works. It's flat, for everything.
The nominal reason capital gains has a lower rate is that the amount of the gain is calculated without respect to inflation. But that's dumb; just use the normal rate and actually do the inflation adjustment from the time of purchase instead.
not really, mate. usually people downvote replies that add nothing of substance or something similar to reddit reaction reply, you get the gist. but yes, this is a forum of rent-seeking class.
If you want to understand the state of these industries I highly recommend reading "How contracting because a race to the bottom"[0]. The crux of the problem is that unlicensed/uninsured firms will always undercut "quality" firms for small jobs. If you are getting a quote from a firm that actually pays workers compensation insurance it's going to be at a substantially higher price.
You can hire from a sole proprietor working on his own behalf. Since he's working for himself he doesn't need workers comp but yet can still be licensed and legally operating.
My wife and I bought a house in 2022. It's an old home (built in the late 1800s) that underwent a gut rehab by a real estate firm in 2018-19, and which they subsequently ran as an Airbnb for several years owing to the pandemic and its effects on the housing market.
By 2024, it became apparent that while the rehab squad had done a really amazing job on most of the house, they also cut corners here and there and made some costly mistakes... well, costly to us.
We needed two major jobs done on the house, both for the exterior. I got several quotes from respected contracting firms in the St. Louis area, and the best price for Job A was around USD $40k while the best price for Job B was around $20k. Those were all multi-employee firms and promised to get the jobs done in just a few days once they could get started (booked solid for 5+ months).
Long story short, we ended up hiring a local solo contractor (never has helpers) with 40+ years experience who only takes cash and is something of a perfectionist (and dare devil!). Watching him work and talking to him about his work, it's clear he considers his efforts to be labors of love and a kind of art to which he is deeply devoted. He got the work done in a timely manner and was careful to abide by all the rules of the neighborhood association related to exteriors of historic homes. He charged USD $8k and $5 for the jobs, a massive savings for us! I'm not sure what we'll do in 20 years when we'll likely need another round of work and this guy is in his late 80s.
It does. I have a Ford CMax from 2014. For years, when the SiriusXM radio software update would happen it would get stuck downloading. The geniuses at Ford decided the update should continue trying to complete even if the car was turned off. So once the download got stuck, it would completely drain my battery every single time. I'd rather have a car that moves that the latest SiriusXM update in my radio. The only fix was to pull the fuse if you noticed that it was happening.
I meant like as an individual do you have a sense? $320M in sales tax is not really very much. Because people are often upset we spend too much on transit but also upset that our transit isn't as good as, say, the Tube. Can't really have it both ways.
BART taxes are not even in the top 100 list of expenses I worry about personally.
If I am reading this correctly, Google is now required to syndicate their search text ads to "Qualified Competitors." This is important as it will allow companies to monetize AI answers and other search replacements without needing to completely build a corresponding search ad marketplace. The search ad marketplace is a somewhat natural monopoly where the revenue per auction actually grows with the number of auctions so a second search ad marketplace could never develop on its own.
This seems like an exaggeration. It was a one person company for five years, then started expanding and sold for $575M seven years later. By that time it had ~75 employees.
That provides a good case study. A single person can bootstrap a company, along with outsourcing and a ton of grit. Moving the boundaries on what tasks are automatable, at difference cost points, and different levels of experience required to figure it out probably have all shifted in favor of individuals or small founder groups in recent years.
Maybe you can stay bootstrapped longer with less capital. That seems true.
Estate tax valuations of assets should be made public, particularly the taxed value of professional sports franchises. We know that NFL teams are worth $6+ billion dollars, and seeing the billionaire owner families pay tax on 1/10th of that might infuriate voters enough to demand reform.
The supply of doctors in the US is primarily limited by the number of residency slots. Unlike many countries, foreign medical graduates can't practice here without doing a residency. I think the number of residency slots is kept low by the federal government (which funds them) and also by physician organization lobbying.
Exactly, just like the number of homes is artificially limited by zoning, permitting, etc. It's all artificial scarcity and it's for life's essentially--which is why I said it's a scam because it seems intentional.
This is why it is dangerous to think that the best scientific theories always prevail and that science is a meritocracy. The people invited to give talks are usually well known or have connections with the program committees. There is also an element of bias since the people on the organizing and program committees will invite speakers whose research is consistent with their own work.
I don't think anyone with even the slightest awareness of scientific philosophy or history actually thinks that though. Everyone knows that there are social factors involved to varying degrees in different fields, and that paradigms and research programs often only shift when the old guard in a field dies. The scientific method is a directional force guiding this messy social enterprise in the general direction of truth but if anyone thinks science as an institution is purely meritocratic they haven't thought about it hard enough or done the required reading.
>I don't think anyone with even the slightest awareness of scientific philosophy or history actually thinks that though.
I don't know, this whole 'marketplace of ideas' thing is still very popular in politics and media (perhaps not academia; but what does academia count for in a neoliberal world?)
Not true in any field I have been associated with. Many, if not most conference review processes use blind reviews. Conferences are not full of "invited" speakers. Maybe one or two plenary sessions at the beginning, but the rest submitted their own papers and went through the blind review process. Certainly true in the best EE, CS, and ML conferences. I've served on program committees for international conferences. Around 100 papers selected typically, only two invited papers.
Most of the physical sciences have open conferences so anyone can submit without peer review. If a session has an invited speaker they are invited because the organizer knows their work.
This is such a weird denialism. Let me ask you something: if you go look at the top 100 cited researchers do you really think their enormous citation counts come from the brilliance of their work? Or is it just possible it's something else?
I'll tell you first hand, my advisor who is among those top 100, accretes citations like a black hole because he/she is famous, sits on committees (at uni and a national lab), speaks in front of Congress etc etc etc. and thus gets invited to be a coauthor on a billion papers a year (and not because of his/her brilliance).
Also if you think program committees and reviewers don't know who wrote a paper when the same group has been submitting to the same top conference every year for over a decade then I have a bridge to sell you.
Speaking as a failed scientist (I was “dishonorably discharged” with an MS from a top US institution) I will tell you that the brilliant people around me knew that paper citations don’t correlate exactly with the impact of work within. Certainly didn’t feel fair. But I can also say the system is way more meritocratic than medicine or finance
> This is why it is dangerous to think that the best scientific theories always prevail and that science is a meritocracy.
This is because people form trapped priors and so some scientific advances come "one funeral at a time", but it's equally dangerous to think that science won't or cannot form clear consensus on observable, factual matters or that if there isn't always meritocracy, then there must be none.
Science is the only reason we can even have this conversation right now, after all.
At this point, I’d ask what you mean by meritocracy here. Is the (supposed) lack of meritocracy in the awarding of accolades the same as a lack of meritocracy when it comes to the recognition of the actual science done? Clearly from your comments, while these scientists didn’t win the Nobel prize, their work certainly got the recognition it did and made the impact it’s supposed to have.
This whole thread is a cesspool of bait and switch and moving of goalposts surrounding the idea of meritocracy. Has the Hacker News community always been so dogmatic about such topics, or is this a recent trend I’m observing in the last few years?
Douglas Prasher didn’t make it in academia, he was a shuttle bus driver until Roger Tsien hired him back as an associate after prizes were won.
I don’t know what kind of goalposts you’re thinking about, but doing nobel prize work but not being able to have a career in science is evidence that people fall through the cracks of this supposed meritocratic structure.
The fact that prizes were won and he got hired back because of that are both evidence that merit is recognized. You made points that contradict your own stance.
The comment of mine you were replying to describes an example of the moving of goal posts; conflating the merit of the issuing of accolades with the merit of recognition of work allows one to fallaciously reject the notion of merit altogether if one of these definitions of merit fails. Yet clearly, they are not the same thing.
For what it's worth, meritocracy is not a topic that I have a concrete stance on (yet). However, the top comments for this topic lacks nuance, and resorts to the kind of motte and bailey arguments I remarked about earlier. Imagine trying to have a productive conversation about anti-corruption, only to get remarks like "anti-corruption has failed with respect to my specific conception of anti-corruption in some specific scenario, therefore anti-corruption as a whole is a terrible goal or ideal". Given how broad the notion of "anti-corruption" can be, someone's specific conception of it in some scenario doesn't (necessarily) represent every conception or instantiation of the notion of anti-corruption. It's in this broadness where nuance can be found, and unfortunately, I don't find that in the top comments.
"Sometimes people do good work and don't win major awards" is hardly a rebuttal to the notion that meritocracy exists, because it's not some binary state. To say there's no such thing as merit, you have to say that recognition of merit is on average directionally wrong.
Given the huge technological advances of even just the past few decades, that's a pretty hard sell.
Well, we went from talking about whether the best 'scientific theories' were recognized to whether certain individuals won certain awards, so it's hard to do anything but broad strokes.
I'm not here trying to refute the idea that sometimes people get passed over undeservedly, I'm refuting the all too common idea that this means that meritocracy is binary and anyone ever getting passed over means that merit doesn't exist and cannot be recognized.
If you don't hold that idea then good, we don't have to argue.
It should come as no surprise that if you develop a new theory and then proceed to burn it and all evidence of its existence that no one is going to hear of said theory. If you care about your theory prevailing, you need to go out and make an effort to communicate it. Science is meritocratic in the sense that even the small guy has a chance of fighting the machine as eventually things need to be defended on their technical merits. After all, Galileo was able to defeat the Church which was the largest country in Europe at the time. I think its dangerous to conflate meritocracy with not being required to communicate.
> Galileo was able to defeat the Church which was the largest country in Europe
The Church is not a country and never was? And Galileo was forced to recant then spent the rest of his life under house arrest. The Church defeated him.
> Science is meritocratic in the sense that even the small guy has a chance of fighting the machine as eventually things need to be defended on their technical merits
Nobody who has followed the shenanigans of scientific institutions in the last decade believes this anymore, sorry. Modern science consists of credentialed charlatans plying entirely fraudulent claims and those being accepted, over and over, with no end in sight, and everyone who tries to point out the problems in The Science end up being cancelled or burning out because the employers of said charlatans are the modern Church. They simply do not care if their people tell the truth or not.
Just addressing the Galileo part, but as was recently linked in hackernews [1][2], Galileo was wrong (in the sense that he was arguing for an already discredited theory, and that the theory he was arguing against was also already discredited).
Using Galileo as the standard of the suppression of free thought is sorta painting the Church as overzealously standing up for good science, not highlighting the Church as an enemy of truth.
The Papal states were literally a country, although surely not the largest in Europe. Galileo did not live there but rather in the Duchy of Florence (later Grand Duchy of Tuscany); however, as a Catholic he could still be tried by the Inquisition, which was essentially the Interpol of heresy.
It's true in the same sense as the efficient market hypothesis or saying that the truth will prevail. It just tells you nothing about the timing of it.
Which is why it is especially important to have different expectations regarding newer science with little data and testing. But that's still where all the active research is going to happen.
My brother is a contractor in the Bay Area and he told me that PG&E will not allow the installation of 220 volt EV charging infrastructure in new construction or a home remodel unless the homeowner can prove they already own an EV. Add to that the issue of people who live in apartment buildings and condos and I don't see how we can scale up consumer demand quickly enough.
How does PG&E have the authority to regulate the instalation of EV charging? Do you mean they won't install a higher amp service panel like 200A instead of 150A?
If that's the case, it's not that crazy or unusual. While you used to be able to pay to upgrade your service panel, if everyone on the same block or segment of the grid all wants the higher service panel then it will require upgrades to the existing electrical lines and sub stations.
It makes a lot of sense to limit installing larger service panels to customers who will actual use it rather than haphazardly over provision the grid. But you can still easily charge an EV at 50A on a standard 150A or even 100A panel.
Either way, charging an EV on a 150A panel can still be pretty easy depending on what else is there. People think you need a 60A circuit to charge an EV, but even charging at 12A at 240V will give you well over 100 miles of charge overnight. My charger uses 32A and finishes charging my normal days in a little over an hour.
It's cheaper and easier to install a smart panel than to upgrade your service. You probably only need >100A service if you run your oven, dryer, aircon & car charging simultaneously. A smart panel will ensure that never happens. A cheaper alternative to a smart panel is the "Dryer Buddy" and competitors.
> My brother is a contractor in the Bay Area and he told me that PG&E will not allow the installation of 220 volt EV charging infrastructure in new construction or a home remodel unless the homeowner can prove they already own an EV.
How can they do that? Could you just say you want to install an electric dryer in your garage (or even buy a used one off of CraigsList and literally do it for a week)?
The problem is using too many of these high energy devices at the same time you are charging the vehicle. We need smart meters which can turn off vehicle charging or hot water heating while the dryer or kitchen stove/oven are in use.
Do you know what the story is with that prerequisite? Speaking for literally everyone, I'd rather have charging infrastructure I can't utilize quite yet than a car I can't charge to use quite yet.
Not directly related to cars, but PG&E is unable to handle the incoming requests for electrical system upgrades[1]. Many older houses don't have the electrical panel capacity and they need engineering signoff from the utility.
Subject and writer are idiots. Any electrician worth their master license would not have installed a 125A panel in 2019 unless this woman lives in a converted cottage. Also unless this woman is running a grow house or has a 4000 square foot home they intend to heat with resistive heating she will never use 300A service.
