Quote:
Originally posted by sgtclub
If she sold and bought a more expensive place (then her current place originally cost her), she would have higher property taxes than she currently has, but these would be more than offset by the appreciation on her first home. The delta works both ways. The lower her first place initally cost her, the greater likely increase in her property tax, but also the greater appreciation she would realize. In other words, I don't think this is a significant deterrent for most.
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One goal of any person with appreciated capital is to avoid realizing that gain and having to pay taxes on it. If one's home has appreciated in value, every incentive is to avoid a sale and have to pay taxes on the k-gain. (I.e., paper gains are more valuable than actual gains). Realizing the gain does nothing, other than to avoid any loss in the future--that's the only benefit. One can easily take advantage of teh increased value through a refinance. So, there's no "delta" to work in your favor by selling.
Prop. 13 locks in homeowners to their current homes, because all things being equal, the taxes on teh current abode are lower than the taxes on a new house. Why would one want to sell a $1m home and buy another one for $1m, when the taxes will be higher? In fact, downsizing a home probably still means an upsizing in tax bills, if one has owned the older home long enough. In many cases, the net present value of the increase in taxes may be so large that a sale makes no sense (absent exiting the market altogether).
Prop. 13 may have social benefits, but a much better targeted program could achieve the same benefits without the lock-in costs.
