Arguably capital gains should be paid earlier so it’s a sunk cost. Being able to put it off is market-distorting. It’s hard to come up with a fair way to do it though.
Maybe a requirement to save money in advance based on market price, like payroll deductions? Then once you actually sell, you might even get a bit of a refund, encouraging turnover. But that would affect people with cash-flow problems the most.
And the biggest problem is that many people don’t want to sell and will resent any attempt to encourage it. Because encouraging turnover is equivalent to penalizing people who stay.
There is no “natural” way to do this, anything can be considered a market distortion depending on your point of view.
For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. (I forgot what it was, though.)
I think being able to put off capital gains on assets like homes and start-up stock is necessary for the tax system to not do awful things like force people to sell a home because it becomes too valuable or bankrupt someone who has stock options in a company that reaches a high valuation but has untraceable stock.
The land tax advocates would say that people who own valuable real estate should sell, they are hoarding valuable property.
My scheme (which I’m not too serious about) would not force bankruptcy in the stock options scenario because you could give up some stock options to get your money back. Or possibly get a very low interest loan since it would be fully collateralized by the forced savings.
> For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage.
You might be thinking of the federal-level 1031 exchange [1]. California’s particularly distortive Prop. 13-based market has led to a separate Prop. 60 tax base exchange mechanism that might also fit what you saw [2].
Maybe a requirement to save money in advance based on market price, like payroll deductions? Then once you actually sell, you might even get a bit of a refund, encouraging turnover. But that would affect people with cash-flow problems the most.
And the biggest problem is that many people don’t want to sell and will resent any attempt to encourage it. Because encouraging turnover is equivalent to penalizing people who stay.
There is no “natural” way to do this, anything can be considered a market distortion depending on your point of view.
For large residential buildings in California, I’ve heard that apartment owners will essentially swap buildings for some kind of tax advantage. (I forgot what it was, though.)