Tuesday, March 24, 2009

Obama Mega-Tax Hike to Crush Real Estate

Commonly reported as "Broad-based gains" foreclosures were up 30% for February and nationwide prices tumbled a stunning 15.5% YOY, as the U.S. real estate market buckled further. 45% of all sales were "distressed." Almost 300,000 homes got a default notice or were seized. U.S. median home price is now $165K, down 25% nationwide from the 2006 price peak of $220K, according to NAR. The only worse month in home price history was last December's 18% YOY decline. Inventories increased by 1.1 months in February to 9.7 months nationwide, January's report was 9.6 months. Sales were down 4.6% as black-box seasonally adjusted, 7% in reality. This was better than January's horrific numbers, so the month was reported as a gainer.

In a rare break from nuzzling the Washington D.C. punchbowl, NAR promised to oppose President Obama's budget proposal to eliminate the mortgage interest deduction on individuals making over $200K after rental incomes, with everything in "its formidable array of resources." Saying,
"If this proposal is enacted it will set of a new round of price depreciation, will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved."
The Obama budget imposes the elimination of itemized tax deductions for individuals with total income above $200K single and $250K married. It also sets your tax rate at 39.6% and without itemization. The new mega tax would includes rental income, wrenching income property ownership into a negative cash flow proposition for many landlords in America.

The Obama budget cites their 33% increase on capital gains and the new mega tax on real estate as fundamental to move toward universal health care coverage.

Stock holders, home owners, and landlords with gross incomes over $200K single/$250K married have until December 2009 to liquidate holdings, including IRAs and 401Ks, to avoid paying the new penalties.


  1. This is a good way to discourage private sector executive raping of american corporations and tax payers.

  2. With regards to the IRA/401K, do you mean paying a 39.6% tax after you withdraw, even if your total income in retirement is less than 200K per year?

  3. No, I mean those who are in the higher bracket with deductions will need to weigh liquidating everything in 2009.

    That's a huge amount of stock and real estate, given that the top 1% of earners pay 40% of the tax burden and account for 22% of income and so on. In other words, even if most people are not affected, most shares and properties are affected.

    So if you aren't above $200K/$250K I wouldn't get too excited, as forced selling will torpedo gains for everybody. Plus those sellers who care to extrapolate rising tax burdens that far down the road. And there are a lot of very smart low income earners who will opt to exit at a guaranteed 15% plus withdraw penalties vs paying no tax later on no gains.

    And isn't that the problem with all of this mega deflationary spending? It always tanks national wealth by more than it could ever add, even if huge debt was actually good. The Dow's current P/E of 100 or so (now censored from financial sites), means any anti-market tax policy that applies huge leverage to losses while only proposing a 1:1 revenue gain, which then goes unrealized.

    Just look at TARP I. It acutely destroyed stock prices from Dow 11,000, which most thought was agonizingly low already, starting the minute of the passing vote. It cost America $trillions more than it borrowed in lower collateral prices alone.

  4. "This is a good way to discourage private sector executive raping of american corporations and tax payers."

    They are the taxpayers.

  5. FDR, for long term, what would be your portfolio in this market. I am thinking of pushing 10% into the market. I am 100% cash right now

  6. FDR,

    Waiting for the "ALL-IN" call.

    I sense everyone is sobering up.

  7. "FDR, for long term, what would be your portfolio in this market. I am thinking of pushing 10% into the market. I am 100% cash right now"

    I think your cash will turn 50% by year's end. Hard to beat that risk/reward.

    If you want to stick a toe in long, I would place a stop market buy at Dow 8,100 with a sell target at 9,600.

    As the market drops short term, you can move your buy stop lower to stay about 250 above the fall until you catch a fill.

  8. I buy right here and sell at 8200


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