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The New Unrealized Capital Gains Tax | The Death of Investing - YouTube
Channel: Epic Real Estate Investing
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There is alarming legislation
circulating Congress
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and it's got support too.
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Progressive reform like this,
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strike that.
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Aggressive reform like this
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was actually promised
on the campaign trail.
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I'm specifically referring to the
new unrealized capital gains tax.
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And if passed, it could be the
death of investing for many.
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For younger and upstart investors,
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well, investing for them
will essentially be dead
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and I'll break down what we know.
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Let's go.
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Hi, my name is Matt Theriault,
CEO of Epic Real Estate,
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where we show people how
to invest in real estate
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so they can escape the daily
grind and retire early.
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And tragically, some of the
most practical avenues available
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for people to retire early are under fire.
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You see, while all eyes right
now are on COVID-19 relief,
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healthcare, immigration,
infrastructure, climate change
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and clean energy, there's a dangerous idea
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of the new administration
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that's flying under the radar
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and I'm speaking of the proposal
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to tax unrealized capital gains,
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and this could change
everything for investors.
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Here's how.
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Currently, taxpayers are taxed
on realized capital gains.
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Meaning when you liquidate an investment,
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you are taxed on that profit
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and investment can fluctuate
in value while you own it,
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but not until you sell it,
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do you have to pay taxes on your gains.
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Well, that is all on
the verge of changing.
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You see per a new proposal,
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championed by the chair of
the Senate Finance Committee,
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Ron Wyden of Oregon.
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Then eyebrows were further
raised by some senators
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and Wall Street investors
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when the new US treasury
secretary, Janet Yellen,
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during her confirmation hearing,
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expressed support for the proposal
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in the interest of boosting
government revenues.
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Now that's already happened
and here's what else we know.
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Under this proposal,
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taxpayers, over a certain income level
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or with qualifying assets
exceeding a threshold,
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would be expected to pay taxes
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on increases in the on-paper
value of their assets
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even if the capital gain was unrealized.
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For example, if an investment
grows from $1,000 to $1,500
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in a year and you don't sell it,
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you would still have to
pay tax on that $500 profit
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even though you haven't
banked that profit.
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That presents all kinds
of problems for investors
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not to mention it would
step all over the appeal
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and benefits of investing
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if not kill the endeavor altogether
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for those looking to get ahead in life.
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Here's what I mean.
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This half-baked, unrealized
capital gains tax proposal
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would unfairly burden
younger and upstart investors
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who typically start their
investing careers, cash poor.
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You see, any profits from
their investing efforts
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could generate a significant tax bill
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without the corresponding
cash to pay for it
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thus, leaving these
investors with two options:
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1. Don't make a profit
which would be pointless, or
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2. Liquidate assets
prematurely to pay the tax.
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Both of which remove much of
the incentive to investing.
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But Matt, this is proposed
just for wealthy investors.
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Yeah, but still even if you're in support
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of the uninformed
"tax the rich movement",
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this proposal's impact
will be far reaching
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and cross class lines,
which would include,
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but wouldn't be limited
to creating a huge hurdle
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while crushing ambitions for taxpayers
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to hit a certain level of wealth.
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Translation: Don't get too big
for your britches young gun.
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Further, annually liquidating
assets to pay your tax bill
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would serve as kryptonite
to compound interest,
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the very cornerstone
that taxpayers rely on
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for their retirement.
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You see, what is a 40 year
discipline savings plan for most
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would double to produce
the same result, at least.
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Already, most people don't
make enough to save enough
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for that plan to work
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but now they won't live long
enough for it to work either.
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Yeah, but Matt, I'm saving for
retirement inside of a 401k.
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Well, I wouldn't get too comfortable
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with your tax deferred investment account.
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This administration
has plans for that too,
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perhaps a subject for a future video.
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Another issue for this proposal
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would be the complexity
evaluating non-liquid assets.
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You know, for stocks and cryptocurrencies,
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it would be fairly easy
to calculate those gains
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but what we don't know
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is how this unrealized capital gains tax
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would work for other types of assets
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like artwork, and jewelry,
collectibles, precious metals
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and real estate.
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Annual appraisals would
most definitely be required
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for this to work.
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The administrative burden of
ensuring accurate valuation
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of a diverse array of assets
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and the opportunities it
provides for gaming the system
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may and hopefully they realize
it before passing the proposal
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would outweigh the tax revenue raised.
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That's wishful thinking probably.
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And another issue for the
proposal, and this is a big one
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yet it also falls into
the unknown category,
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is how capital losses would be handled.
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If that $1,000 investment
fell to $500 in value,
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meaning an investor loses money,
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any fair tax system
would give the investor
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the ability to offset gains
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as is already the case elsewhere
in the current tax code.
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But to create an equitable relationship
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between investors and the
IRS under this proposal,
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shouldn't an unrealized capital
loss result in a refund?
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Yes, but don't count on the government
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cutting a check every year
for your losing investments.
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That ain't going to happen.
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Translation here: You take
all the risk every year
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but we'll share in your
profits every year.
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It doesn't seem like a practical plan
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nor does it seem like a good idea
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to punish the administration's
powerful Wall Street support
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by taxing their unrealized gains
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but second guessing Janet Yellen's moves
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to support the economy,
that could be a mistake.
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She's acknowledged that the
country's debt is rising
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but said the benefits of
spending more on COVID-19 relief
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far outweigh the risks
of a higher debt burden.
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Well, that's an easy conclusion to make
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when you can turn to investors
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big and small to foot the bill.
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Most are predicting that any sort
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of aggressive tax reform like this
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won't be a point of business
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for the Biden administration until 2022.
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But if passed,
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how will this change your
investing activities?
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Let me know below.
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And who do you know
that needs to see this?
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When their name comes to mind,
please share it with them.
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Oh, and if you're already subscribed,
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I pulled this video out
special for you to watch next.
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Otherwise, I'll see you next time.
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Thanks for watching, take care.
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