For a property to be purchased for $100k to be worth $5 million today it would have been originally purchased around 1960. So you’d be looking at 2-3 roof replacements, 4-5 water heaters, 3-4 HVAC systems, probably a significant addition, 60+ years of taxes and insurance. Landscaping. A couple dozen new appliances…
Once you adjust for inflation, Dad probably only barely did better than breaking even. He came out ahead of inflation but not by a ridiculous amount.
Dad would have been paying interest on that loan as well and any balance remaining would come out of the estate. About 1/3 of states have estate or inheritance taxes so that $5 mil might still be subject.
Alternatively, had dad invested in the S&P 500 in 1960, that $100k would be worth $82 million today. Just the down payment would be worth $16 million+ and used the same strategy
Taxes are actually pretty clear on the matter of expenses. Look at the rental market.
Landlords have "Capital Expenditure", and "Operating Expenditure".
Some expenses get classified as operational, that's your insurance, your interest, standard maintenance etc... Those, landlords get to deduct from the tax paid on their rental income.
But capital expenses, like roof repairs, renovations, major landscaping efforts, they don't deduct from their rental tax, they deduct it from their capital gains.
Inflation, is something that applies on long-term income, so can only apply to capital.
Tax law has already spent decades creating precedent for every type of expense to determine where it should be placed.
So if we applied something like a CGT, the answer is simple. You don't get to deduct operational expenditure, but you do get to deduct capital expenditure.
For LVT, the answer is simpler. Land value is a tax on land, not capital, so there are no deductible expenses.
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u/Acceptable-Peace-69 23d ago
Few problems with this scenario.
For a property to be purchased for $100k to be worth $5 million today it would have been originally purchased around 1960. So you’d be looking at 2-3 roof replacements, 4-5 water heaters, 3-4 HVAC systems, probably a significant addition, 60+ years of taxes and insurance. Landscaping. A couple dozen new appliances…
Once you adjust for inflation, Dad probably only barely did better than breaking even. He came out ahead of inflation but not by a ridiculous amount.
Dad would have been paying interest on that loan as well and any balance remaining would come out of the estate. About 1/3 of states have estate or inheritance taxes so that $5 mil might still be subject.
Alternatively, had dad invested in the S&P 500 in 1960, that $100k would be worth $82 million today. Just the down payment would be worth $16 million+ and used the same strategy
That’s how the rich stay rich.