"Indexing Capital Gains for Inflation" Where have I heard that?

[David Krulac]

Yesterday August 20, 2019 the President of the United States said that they were considering Indexing Capital Gains for Inflation.  and that they had heard that it was a good idea.  He didn't say where he heard it, but the idea seemed so familiar!

In my Bigger Pockets Podcast #82, I brought up the concept that Long Term Capital Gains SHOULD be indexed for inflation, in discussion with @Josh Dorkin and @Brandon Turner.  As I stated then much of the capital gains tax is a tax on inflation, which real estate investors have no control over.  It is a hidden tax that few people or investors are aware.  It has more of an impact on investments owned for long periods of time, like many years, or properties held during times of high inflation.  Between 2000 and 2008 some of the properties that I personally owned increased by 400%, and that was in Pennsylvania, so I'm sure that in other growth areas of the country the inflation rate was significantly higher.

I have a settlement tomorrow on a property i bought in 1994, and rented to one tenant for 24 years. (but that's another story).  I paid $100,000 when i bought and am selling for $326,000.  How much of the $226,000 capital gain ($326,00 minus $100,000) was due to the inflation over that years since 1994.

According to an internet search, between 1994 and 2019 there has been 73.1% inflation, therefore of the $226,000 capital gain, $165,206 was due to inflation, and leaving $60,794 as "pure" capital gains minus inflation.  Instead of paying a capital gains tax on $226,000, the tax would only be on $60,794.

Besides paying less tax which would affect every real estate investor who sold a property for more than they paid, the effect would be having less money go to Washington and more money being pumping back into the economy.  Less taxes and more economic stimulus, is a win-win in my book.

The only question now is did the read my letter or did he heard my Bigger Pockets Podcast #82?