I can't believe businesses dodge capital gains tax in the first place.....it's only 15%, isn't it? Ordinary income tax for the highest taxed individuals is 40%, yet businesses can pay only 15% on capital gains and they won't even pay that.Swervo (Ned Abdul) bought it for $4.15MM: http://www.bizjournals.com/twincities/b ... lding.html
So Swervo recently sold a portfolio of downtown properties for $87.5MM. To avoid a huge tax hit, they can do a "1031 Exchange" and reinvest that money into other properties. In recent weeks, Swervo picked up the Armory for $6MM, NE Business Center for $2.2MM and now this for $4.1MM. Earlier this year he bought the former Uptown Library branch building from Lifetime Fitness for $2.5MM. That leaves a lot of potential investment (perhaps another $50-60MM) to be made in other properties, if they are looking to defer those capital gains taxes, which any sane commercial property investor would. I wonder what else Ned Abdul has his eyes on.... perhaps he'll get back into some condo conversions, if any good buildings are made available. He's got a lot of money to burn and would presumably rather spend it on deals than pay capital gains taxes
Section 1031 of the United States Internal Revenue Code
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Section 1031 of the United States Internal Revenue Code
- FISHMANPET
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Re: Downtown Minneapolis General Topics & Development Map
I too am completely shocked that when given a choice between giving up more money in taxes or less money for taxes, companies choose to pay less. Madness!
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Re: Downtown Minneapolis General Topics & Development Map
I mean it's morally wrong....I understand why they do it, I don't understand why it's allowed.
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Re: Downtown Minneapolis General Topics & Development Map
Yeah, he should just keep his money and stop investing in downtrodden real estate. I prefer the Armory as a parking ramp anyhow.
Q. What, what? A. In da butt.
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Re: Downtown Minneapolis General Topics & Development Map
I love development as much as the next person here but I don't like the idea of subsidizing million/billionaires at the expense of the average Joe. Maybe you two are the exception and like paying more taxes as a percentage than a corporation -- it bugs me, personally. Maybe if we didn't charge them any taxes they'd build a new tallest?!?! I like that rationale!Yeah, he should just keep his money and top investing in downtrodden real estate. I prefer the Armory as a parking ramp anyhow.
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Re: Downtown Minneapolis General Topics & Development Map
But this isn't tax dodging, it's reallocation and reinvestment. I don't know why should tax that when he's not realizing any capital gains.
I mean, I'm generally firmly in the category of "soak the rich" but there's a lot of nuance to the tax code especially when it comes to "where" the money should be taxed. It's not some cut and dry moral vs immoral issue.
I mean, I'm generally firmly in the category of "soak the rich" but there's a lot of nuance to the tax code especially when it comes to "where" the money should be taxed. It's not some cut and dry moral vs immoral issue.
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Re: Downtown Minneapolis General Topics & Development Map
1031 exchanges aren't tax avoidance, they just delay taxes. The idea with 1031 exchanges is that the substance of the owner's investment really doesn't change when similar business properties are swapped. Along with delaying taxes now, the tax basis in the old properties transfer to the new. Let's say a developer bought a small rundown office building for $4 million, invested $2 million in rehab, worked hard to get a stable roster of tenants and increased the property value to $11 million. If the developer sold the property he'd owe tax on $5 million in capital gains. Instead of selling the developer could buy a larger but rundown property for $12 million. The basis in the new property is $7 million ($6 million from old property and $1 million in cash).
It's smart planning strategy to have capital gains at the ready in case an investment fails. Capital losses are limited to $3,000 if there are no offsetting capital gains.
It's smart planning strategy to have capital gains at the ready in case an investment fails. Capital losses are limited to $3,000 if there are no offsetting capital gains.
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Re: Downtown Minneapolis General Topics & Development Map
Interesting....thanks! So the basis is what the developer puts in altogether, regardless of what the value of the asset is worth -- and he's taxed on that, and not the gains?1031 exchanges aren't tax avoidance, they just delay taxes. The idea with 1031 exchanges is that the substance of the owner's investment really doesn't change when similar business properties are swapped. Along with delaying taxes now, the tax basis in the old properties transfer to the new. Let's say a developer bought a small rundown office building for $4 million, invested $2 million in rehab, worked hard to get a stable roster of tenants and increased the property value to $11 million. If the developer sold the property he'd owe tax on $5 million in capital gains. Instead of doing that he can buy a larger property but rundown property for $12 million. The basis in the new property is $7 million ($6 million from old property and $1 million in cash).
It's smart planning strategy to have capital gains at the ready in case an investment fails. Capital losses are limited to $3,000 if there are no offsetting capital gains.
It seems like avoiding taxes if the developer/asset holder wasn't previously planning to purchase any property with any of the gains earned on prior investments, but clearly that's the way the rules are set up, so he's playing the system the way it was designed. I'm not entirely sure I understand why the government shelters the entity (the developer in this case) in the event they receive a windfall. To me, that's like having your stock portfolio double in value during the year, selling it all, and redispersing the proceeds to a new investment just to avoid having to pay taxes on capital gains (and to my knowledge that's not allowed when it comes to investments like stocks, at least not for individuals). But like you said, it's just a delay, not a total avoidance. At some point theoretically the taxes would eventually be paid. I'm not sure how they'd calculate the actual "gain" though -- would be it cumulative from all transactions (total value minus the basis) or just the last transaction?
I don't at all understand why capital losses at capped at $3,000 though -- is that to avoid reducing your taxable obligation too much or something (and therefore not owe much if any taxes)?
Re: Downtown Minneapolis General Topics & Development Map
Hey, does anyone know--is it taxes with one "x" or is it taxxes, like in "anti-vaxxer"? Thanks in advance!
Nick Magrino
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[email protected]
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Re: Downtown Minneapolis General Topics & Development Map
All investments are taxed on the net gain which is sales price less basis. Basis is the cost of the asset plus any improvements made less any depreciation expense. By law stocks are not allowed in 1031 exchanges, only physical business assets. Capital gain losses in excess of gains are limited to $3000 because the $3000 offsets all income which may be taxed at a much higher rate than 15%. Also, if capital losses were fully allowed tax collections would fluctuate mightily. In bull markets, taxes paid would be sky high and in bear markets tax collections would drop even more significantly than they already do during economic downturns.
I have an accounting degree so I could really dive into how business property gains are taxed but I'll keep with the simplification we have going here.
You may be on to something with your taxxes snark. Anti-tax loons who misinterpret isolated lines in the tax code or non-sense about the 16th amendment in arguing against the legitimacy of the income tax are as equally deranged as anti-vaxxers. They're the anti-taxxers
I have an accounting degree so I could really dive into how business property gains are taxed but I'll keep with the simplification we have going here.
You may be on to something with your taxxes snark. Anti-tax loons who misinterpret isolated lines in the tax code or non-sense about the 16th amendment in arguing against the legitimacy of the income tax are as equally deranged as anti-vaxxers. They're the anti-taxxers
Last edited by VAStationDude on July 13th, 2015, 6:22 pm, edited 1 time in total.
- FISHMANPET
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Re: Downtown Minneapolis General Topics & Development Map
Understanding marginal tax rates should be a requirement for high school graduation.
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Re: Downtown Minneapolis General Topics & Development Map
wow, does the U offer refunds?Hey, does anyone know--is it taxes with one "x" or is it taxxes, like in "anti-vaxxer"? Thanks in advance!
Re: Downtown Minneapolis General Topics & Development Map
please find out for me!!!
Nick Magrino
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[email protected]
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Re: Downtown Minneapolis General Topics & Development Map
Hey Nick:Hey, does anyone know--is it taxes with one "x" or is it taxxes, like in "anti-vaxxer"? Thanks in advance!
It's a single x in American English but double x in British and Canadian English.
Hope this helps!
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Re: Downtown Minneapolis General Topics & Development Map
Let me take a step back and see if I can understand all of this.....
-I questioned the tax codes that seemingly shelter the ultra-wealthy (leaving the middle and lower classes exposed)
-Then I (daringly) asked for some insight towards the intricacies of accounting tax codes (info that should have been implied, apparently)
The responses I've received so far are:
-how can I question the morality of a developer?
-developers can reinvest in our city and develop more if we limit their tax obligation
-corporate tax accounting is something learned in high school, and it's something that's implied to all of you (because you have zero questions about some of the codes)
-asking questions is frowned upon, because I should either inherently know everything or research it if I don't know it....instead of just prodding further
Is this about right? Don't feel like you have to hold back or anything....I need to be taught a lesson on how to conduct myself on urbanmsp (apparently).
-I questioned the tax codes that seemingly shelter the ultra-wealthy (leaving the middle and lower classes exposed)
-Then I (daringly) asked for some insight towards the intricacies of accounting tax codes (info that should have been implied, apparently)
The responses I've received so far are:
-how can I question the morality of a developer?
-developers can reinvest in our city and develop more if we limit their tax obligation
-corporate tax accounting is something learned in high school, and it's something that's implied to all of you (because you have zero questions about some of the codes)
-asking questions is frowned upon, because I should either inherently know everything or research it if I don't know it....instead of just prodding further
Is this about right? Don't feel like you have to hold back or anything....I need to be taught a lesson on how to conduct myself on urbanmsp (apparently).
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Re: Downtown Minneapolis General Topics & Development Map
I feel like you're reading between the lines a bit too much and taking this a little harshly. Of your four "responses" you said you got, I only got one of them in my reading (seanrichardryan saying developers can reinvest in our city and develop more if we limit their tax obligation). I do not see the rest. Granted maybe FishManPet was referring to you with his statement about marginal tax rates being a high school requirement, but I thought it was more just a general comment about people's lack of understanding. And while I have no idea what Nick is talking about, it doesn't seem to be either of the others you talked about.
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Re: Downtown Minneapolis General Topics & Development Map
Yeah my comment was a note on people's general lack of understanding, coming from VAStationDude saying that people frequently grossly misunderstand the tax code when making anti-tax arguments.
Re: Downtown Minneapolis General Topics & Development Map
I think min-chi-bus raises some very good but complex points on how taxes and government incentives are used to shape urban development. It is terribly complicated and very few people actually understand how it works. I have personally known 6 Mpls City Council Members and Mayor Rybak. Not one of them truly understood these complex issues when they got to office. They learned and had city staff tax lawyers explain the ins and outs of financing and deferred tax policy.
There are huge issues around companies paying their fair share of taxes and from a city funding stand point - much of the quality of living (schools, utilities, roads, parks, police) relies on the revenue generated by property tax. And yes, there is a moral facet to this issue. Mayor Rybak had spoke about citizenship and he has been recognized nationally for his commitment.
There are huge issues around companies paying their fair share of taxes and from a city funding stand point - much of the quality of living (schools, utilities, roads, parks, police) relies on the revenue generated by property tax. And yes, there is a moral facet to this issue. Mayor Rybak had spoke about citizenship and he has been recognized nationally for his commitment.
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Re: Downtown Minneapolis General Topics & Development Map
The heart of the matter is that Corporate profits are taxed when they are realized, not when they are created. Reinvesting profits isn't really the realization of them.
I mean, would it be the worst thing in the world if corporate and personal rates were so high that companies just plowed all that money back into pie in the sky research or something? I don't really know: http://www.slate.com/blogs/moneybox/201 ... taxes.html
I mean, would it be the worst thing in the world if corporate and personal rates were so high that companies just plowed all that money back into pie in the sky research or something? I don't really know: http://www.slate.com/blogs/moneybox/201 ... taxes.html
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