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From: johnson@saturn.UUCP (Mark Scott Johnson)
Newsgroups: net.taxes
Subject: Re: Houses, Death and Taxes
Message-ID: <1861@saturn.UUCP>
Date: Fri, 18-Nov-83 17:25:59 EST
Article-I.D.: saturn.1861
Posted: Fri Nov 18 17:25:59 1983
Date-Received: Mon, 21-Nov-83 02:18:25 EST
Organization: Hewlett Packard Labs, Palo Alto CA
Lines: 29

What you say about deferring taxes until death thru rental properties is
basically correct.  Real estate is the Congressional sacred cow.  A fews
points, however:

1.  It unlikely you'll NEVER pay taxes on the income from the properties.
Rent is taxable income, after all.  With time your depreciation deductions
will evaporate, so you're likely to start making profits on paper at some
point.  Even "tax free" property exchanges don't avoid this problem.

2.  The disposition of the houses at your death is immaterial.  The IRS will
assess them at their full current market value and calculate the estate taxes
accordingly.  Yes, your heirs will have their inheritance diluted.  But the
estate-tax rate is generally lower than the income-tax rate and has a sizeable
deductible.

3.  By not paying taxes now, you have more capital to invest and, thus, you'll
leave a larger estate.  (This is the main argument for putting money into IRA
and salary reduction programs.)

4.  In some sense, your heirs will be paying your accumulated income taxes at
the time of your death.  You either pay the IRS now, or you pay later; there
really isn't any free lunch.  The prevailing wisdom on taxes is "defer, defer".
There is some gamble to this, of course.  Who knows how Congress will change
the tax laws?  But just because you pay taxes now doesn't mean you won't pay
them again later.  After all, estate taxes are charged on your total net worth
at death, even on money you've already paid income taxes on!  So you might as
well defer.  It can't be worse than not deferring--even for your heirs.
-- 
Mark Scott Johnson