Fair Taxes

Well I've been sitting on my hands and biting my tongue for about 3 months and finally I decided to weigh in. 

We hear a lot from our President and in his campaign about instituting fairness in taxation.   Some of my young friends have expressed nearly rabid opinions to me about how unfair things are.   As I mentioned in a previous post, fairness is a difficult thing to define or measure.     So instead of doing that, let's have a simple case study - me.

It is no secret that the last several years have been extraordinarily difficult for real estate.   Homeowners, real estate brokers, builders, people in the construction industries have all suffered tremendously in this economy.    I for one have been barely scraping by for the last 4 years.    My job has no base salary.   I am only paid if there is a lease or sale by commission only and there is no guaranteed minimum wage. 

During that period of time, I never recieved any government assistance of any kind.   And in fact, being considered self employed, I would not even be considered eligible for unemployment benefits unless I was unable to make any money at all for an extended period (which I beleive is one year.)   To survive the economic calamity, I had to exhaust my savings and I had to borrow to the maximum amount possible against my home.  Still I was luckier than many.  I never had to declare bankruptcy and I never had to have my home in foreclosure.  

Now, I am thankful to be having my first good year in four years.   Still, I am a long way from recovering.  I have much larger debts to pay off and I would need probably another 4 good years to be back where I was before all of this began.  

With this good fortune also comes  an increase in taxes.    In a way, I am grateful that I am back to where I can even consider taxes a problem BUT my issue is that taxes should be reasonable.   Although I am having a good year, I definitely cant be considered one of the wealthiest in the country.   Say whatever you want, but I am telling you from my personal experience that our current tax structure kills growth.

Getting past the rhetoric and into some hard numbers to illustrate my point.    Consider the following taxes, I have to pay:

• Federal Income Tax - rate approximately 28%
• Medicare, FICA, SSA taxes PLUS self employment tax - approximately 15.5%
• State Income Tax - rate approximately 6%
• Local Income Tax - rate approximately 2.2%
• State Sales Tax - 6%
• Property Tax - Approximately 1% of the assessed value (this is low because these taxes just increased)

Looking at the income portion only, the combined governments are claiming 51.7% of my income in taxes.     The property tax on my home is approximately another 1 to 2% of my income, bringing the total forward of now nearly 54% of my income.   

Next there is 6% sales tax.  There is tax on my energy bills.  There is tax on my phone bills.   There is tax on gasoline.   There is tax on my insurance bills.    There is tax for licensing my car.   There is a tax for having a pet.   There is a tax on healthcare.  Now with Obamacare, there is tax for not only healthcare but also for health insurance. 

The bottom line here is that it is EASY to get to 60% of your income going to taxes.  In fact, it really isn't too hard to get to 70% when you consider all the ways that the government(s) tax(es) you.  

How is it fair to have to send two thirds of your income to the government and only be allowed to keep one third for your family?    How can we claim that we are promoting growth when someone has to make three times the amount that they lost just to break even?

I am not an anarchist.  I beleive that the government serves an important purpose.  So I am not advocating no government or no taxes.   HOWEVER, there is something wrong when the government wants to cry foul and vilify people who are paying taxes.    If the government is having to take 60 to 70% of a citizens income and STILL can't balance its budget, that government is spending too much.  

I hear the news and the current administration attacking the Tea Party movement.   I would not identify myself as a member of this movement but I have to come to their defense.  For all of the President's talk about fairness, I would say that the very underlying principle of the Tea Party is really about fairness.   There ought to be a reasonable limit on government spending and there ought to be a reasonable limit on the maximum amount of taxes (all taxes) that an individual should have to pay.    

Stepping off my soapbox.   Just my opinion. 

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

BTW - I also offer advice and opinions on Real Estate.  In fact, I am a Commercial Real Estate Broker and I specialize in Commercial Real Estate.  I handle Office, Industrial, Retail, Investment and Commercial Land properties.  I help Landlords, Tenants, Buyers, Sellers and Investors in Sales and Leasing properties.    I would love to help you as well.

ALSO - I am sure that my Managing Broker would appreciate me stressing that the opinions expressed here are my own and do not necessarily represent the opinions of Commonwealth Commercial Real Estate, its employees or brokers.    I am happy to hear comments either pro or con and you may feel free to post them if you would like.   I am not however happy to have hateful or inappropriate comments and I will exercise my right to delete those which I deem so.  

Another Commercial Real EstateTax Trick

Seems like there is always more to learn.  I attended a conference on Monday and learned a new accounting trick for commercial real estate.   There is a procedure known a Cost Segregation which can allow you to reallocate some of the cost of the building in a way that can allow you to accelerate the depreciation.

Actually this trick has been around for a while but it is not widely known.   It is the result of a decision regarding HCA from I believe 1997.     The IRS then clarified the decision with a ruling in 2004 that specified what was necessary and acceptable to make these determinations.    Until this time, it was only practical for very expensive real estate transactions.  

Bottom line here is that this can lead to big tax savings.   

If you want to know more about Cost Segregation or other Commercial Real Estate issues, give me a call.   I specialize in Commercial Real Estate and handle Office, Industrial, Retail, Land and Investment properties.   I work with Landlords, Tenants, Buyers, Sellers and Investors.    

Have a great day!

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

dmccoy@ccre.biz
Ofc: (502) 379-6005
Cel: (502) 905-5274

The Fairness Issue

In President Obama's State of the Union Address, the President called for fairness. How could any of us oppose fairness? To do so would seem almost anti-American. My question to Mr. Obama is, "who gets to decide what is fair?"

Several years ago, my first wife and I had dinner with 2 other couples. One of the couples ordered very expensive dinners with appetizers, desserts, drinks before dinner and fairly expensive wine. We on the other hand had no alchohol, no appetizers, no dessert and modest entrees. When the check came, the other two couples decided that we should all split the check evenly. Our bill was more than $100 more than it would have been. Was that fair?

At one point or another, I would bet that you have been in a similar situation.   Certainly, I think that we need to consider the fairest way to divide expenses BUT there is also the issue about whether or not it is fair to have certain expenses in the first place.   It is pretty easy to be generous when you are spending someone else's money.  We should be wary of those who would run up expenses for which they know they will not be personally responsible.  It is equally unfair to spend way beyond the budget and then cry foul because those who have to pay it object when you demand a payment way beyond what was expected .

If you think that the issue of fairness only applies to the wealthy, you should think again.  Consider energy costs.   Right now, the United States has large reserves of oil and gas, which our government will not allow us to mine.    Instead we are reliant on imported oil and gas.    Is it fair to expect our citizens to pay more for fuel? Is it fair to send these jobs to other countries when we have millions out of work here?

My point is that one should be careful claiming a superior moral position on fairness.  We should be wary of anyone making policy which by definition creates a preference of one group at the expense of another.

Just my opinion.  Have a great day.

BTW - If you would like an opinion on real estate, I provide opinions on that as well.   I specialize in Commercial Real Estate and help Buyers, Sellers, Landlords, Tenants and Investors.   I handle Office, Industrial, Land, Retail and Investment properties.   Heck, I can even set you up with someone to help with residential real estate.   Give me a call.  I would love to help.

ALSO - I am sure that my managing broker would appreciate me clarifying that the opinions expressed here are my own and do not necessarily represent those of Commonwealth Commercial Real Estate, its brokers, agents, or employees (other than me, of course.)   If you would like to offer a different point of view, or even a supporting point of view, you may feel free to make a comment.  You should not however feel free to make inappropriate or offensive remarks.   Should I see any such remarks, I will exercise my right to delete them.

Thanks for reading!

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

ofc: (502) 379-6005
cel: (502) 905-5274
e-mail: DMcCoy@ccre.biz

The Tax Issue - How much should taxes be?

Today, I may well lose some friends I made in my last post but I suspect that I regain some friends I lost as well.  I waited a while before posting this because I was hoping to get some additional input.  As we enter a time where the nation will be debating our tax issues, I think that the appropriate questions should be, "what should our overall tax rate be?"

Over and over, as I read about taxes, it would seem that history has repeatedly demonstrated that, contrary to what one might expect, federal tax revenue has increased following tax cuts.    And so it would seem that prudent tax policy would dictate that any time you need more federal tax revenue, you should cut the tax rates.    I am sure that some would jump to embrace this strategy but if pressed, I think that even the most ardent  tax opponent would have to concede that this strategy could not work forever.   If it could, why would we even be concerned about having taxes at all or about the amount of our federal government's spending?    Logic would tell us that if the tax rate were zero, then we must be getting less tax revenue that if the tax rate were positive.

For both of these to be true, we have to assume that somewhere along the spectrum lies an optimal tax rate.    This rate would be the point where if you raise the rate, you actually decrease total tax revenue OR if you lower the rate, you would decrease total tax revenue.    It may well be that this rate is not constant and it may depend on several other factors.    In fact, if I had to guess, I would think that the optimal rate would be determined in part by what the public at large feels is reasonable and supportable.

In my mind, if our government is being responsible, this is the question that they have to address.  Once determined, all of the other questions can then begin to be addressed.   We would then know where to set our taxes and also where to set our spending.   While I suspect that in our current situation, this is not the case, it may well be that our Federal taxes should be increased.  It may also be true that our Federal taxes should be cut.  But it seems to me that the road to financial responsibility of  our nation should begin with this question.

Just my opinion.    Let me know what you think.  

Thanks, all and have a great day.

By the way, if you need an opinion about real estate, I would love to be of assistance.   Give me a call or shoot me an e-mail.  I am licensed in Kentucky and Indiana and specialize in commercial real estate.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Parkway
Louisville, KY

PS - I am sure that my managing broker would appreciate me stating that these opinions are my own and not necessarily those of Commonwealth Commercial Real Estate of any of the others who work here.   

The Tax Issue - Promoting Class conflict

It would appear that the next great issue in Washington will be about raising taxes.   Our President and his supporters want to raise taxes.  The President wants to garner support for this position by promoting class conflict.  He claims that he has no intention of raising taxes on the ordinary citizens, he will only raise taxes on the wealthy.   He goes so far as to define the wealthy as those making $250,000 per year or more, which includes 2% of the US population.   To further this agenda, claims are made to indicate that the wealthy do not pay enough taxes and certainly there are at least undertones that the wealthy somehow have been cheating ordinary Americans, or at least that ordinary Americans have been having to carry the load on behalf of the wealthy.

Is that a fair claim?    One of the claims is that all of the tax cuts have cut taxes for the wealthy but not for the ordinary Americans.    I suppose this is true but of course, if you are already paying no income tax, you cannot expect your taxes to go lower.  It only makes sense that a tax cut would only affect the 53% of Americans who are paying federal income taxes.   So, if it has no effect on us, why should we be be angry that the wealthy are getting a break.   It seems a little like being mad that someone who bought your dinner, used a coupon at the restaurant.

I am not necessarily against taxes per se.   It may be that we need to review our tax system but I am opposed to vilifying law abiding citizens and promoting class conflict in order to promote this agenda.

Just my opinion.  

By the way, if you need an opinion about real estate, give me a call.  I am a commercial real estate broker and would love to help you if I can.   Have a great day, all.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Debt Ceiling Debate

Perhaps I shouldn't wade into political waters, but the state of the economy affects real estate and especially commercial real estate.   Accordingly, these issues are very important for my profession. 

Listening to the coverage of the US Debt Ceiling Debate, it seems to me that the media coverage as well as the President of the US want to assign the blame for the impasse at the feet of the Republicans for not caving to the President's demands.   The President has repeatedly stated how desperately important it is to raise this Debt Ceiling and indicated that it is irresponsible not to do so.   He even threatened not to pay Social Security and our troops if the Debt Ceiling is not raised and then tried to assign the blame for this on the Republicans. 

Media coverage aside, logic tells me that if there is no agreement, it must also mean that the President has also not been willing to agree to the terms of the opposing side.   We are told that the issues at hand are the level of the Debt Ceiling, the reduction of spending, and tax increases.    The President tells us that he thinks raising the Debt Ceiling is imperative, so they are in agreement there.   The President also tells us that he believes that getting spending under control is imperative, so they seem to be in agreement there.   The one remaining issue then is tax increases.

Taking this all together, it sounds to me like the President is saying that he is willing to let the US government default and allow social security recipients and soldiers to not be paid in order to demand tax increases.    If that is the case, I feel like I must be missing something.   The President indicated that the consequences were so dire that it would be completely irresponsible not to simply agree to something to allow the Debt Ceiling to be raised and yet he is not agreeing.  

The President seems to be saying that the state of the budget is so bad that only the tax increases will allow it to be under control.  And yet, all of the information available indicates that the increases desired cannot possibly balance the budget.

I cannot claim to know the President's mind and perhaps he is getting different information from the rest of us, but given that the tax increase is the issue preventing a deal and given that the tax increases could not begin to balance the budget, the President's motives for this demand become suspect.  This leads me to wonder if the President is holding the country hostage to try to make political gains at the opposing party's expense.   Hopefully, I am wrong, but in my humble opinion, the promotion of class conflict to attain political advantage is not a courageous or helpful policy.

(stepping off my soap box)

Have a great day!

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

PS - I am sure that my principal broker would appreciate me noting that these are my opinions only and do not necessarily reflect the opinions of this firm or its other agents and employees.

Delinquent Property Tax Bills

In yesterday's Courier Journal, 21 pages of delinquent property tax bills were published as a Legal Notice for their sale on July 21, 2011.    The public at large then has the opportunity to purchase tax obligations from the County Clerk in exchange for a Certificate of Delinquency which attaches a tax lien against the property.  In this way, the County is able to collect the delinquent taxes for their expenses and the purchaser is allowed to charge 12% interest against the debt until it is paid.   Not too bad in a world where we get 1% or 2% on our savings accounts.

Of course, the problem is that you have to collect the money.   If you are unable to collect, and the property owner fails to pay their property tax next year, you get priority to buy the next year's obligation as well.   This would allow you to bring a foreclosure action against the property in order to have the debt satisfied.  Having a tax lien against the property would put your obligation at the top of the line in satifying the debt and also would provide for you to collect reasonable and necessary legal fees.       

If this sounds like it might be of interest to you, I'm afraid that it is already too late for this year.   In order to buy the Tax Delinquency Bills, you have to register at least 60 days before the sale, which would make yesterday's notice in the paper about 24 days too late.     With the sale schedule for July 21, the last day to register would have been May 22.    

Maybe next year.

Have a great day.  It looks like it is going to be a great one and be sure to let me know if you need any help with your real estate needs!  

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Is the 1031 Tax Exchange Dead?

In the good old days, some of us can remember that real estate was considered a very good and safe investment.   It generally held its value well and some people felt like you really could not lose money on real estate.    In those times, there was a tax incentive known as a 1031 Exchange that was designed as to encourage people to reinvest their profits on real estate into new ventures.    In doing so, the property owners could defer their taxation while the economy would retain these profits as new investments.   

Enter the sub prime mortgage crisis which culminated in 2007 and 2008 ultimately contributing to a world wide recession.   Suddenly real estate prices were declining rapidly erasing years of wealth accumulation.   With many investors seeing prices less than what they paid for the assets, 1031 exchanges have declined tremendously.

Looking into my crystal ball, I would say that it would be premature to write off the 1031 exchange.   If real estate prices stablize as expected in the next year or so and price begin to rise again, those people smart enough and with enough resources to invest in the down period will be able to use it again.

Have a great day, all.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Parkway
Louisville, KY  40299