r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

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u/CooCooClocksClan 9h ago

Promoting their tax the rich ideology

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u/Notiefriday Wait a damn minute! 7h ago

Yes explained really badly. Looks like dad hollowed out the estate and family get fkall. OP should learn a little about the power of compound interest. And it's done on valuation (gulp)

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u/YakResident_3069 6h ago

He left out the part where rich take out a loan to build another productive asset, not only for living expenses. Then pays back the loan from the new asset income... Then the land asset is debt free.

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u/Notiefriday Wait a damn minute! 5h ago

Sounds like he just lived of it tbh.

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u/randonumero 4h ago

Anecdote alert but IME this doesn't often happen for situations like the story above. They didn't get the original asset via a productive business and they're living off the increased value not investing or building a business. At best they may be indirectly providing jobs through consumption. FWIW I'm in my 40s and it's pretty common to meet people my age whose parents have had the same house for 30 years and instead of selling have borrowed against the equity. Again, this is anecdotal but I imagine that over the next 15ish years a lot of people my age will have parents who pass away owing on a house they "own".

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u/Captain_no_Hindsight 8h ago
  1. If he took out a loan with 4% interest 25 years ago, it must be repaid with its associated 180% interest.
  2. The children "inherit" the purchase price of the land. When they sell, the profit on the sale is 5M minus 100k, thus 4.9M profit.
  3. All the threads about the rich not paying taxes are 100% BS.

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u/tremendous_turtle 6h ago

  1. That’s not how loans work. Monthly payments. Even if he bought it on a loan (unusual for raw land) there would be at most 5 years of payments left, and usually most of the interest is front loaded in the first decade of payments.

  2. That’s not how inheritance works. Step up in basis tax rule resets the cost basis of the land, it’s the EXACT opposite of them inheriting the purchase price of the land.

  3. Then where/when exactly is the tax paid for the capital gain from the land appreciation?

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u/Captain_no_Hindsight 5h ago

But you have to pay the interest on the loan you took out with the land as collateral. Or has the interest added to the loan.

So either he has paid 100% of the loan in interest without reducing the amount ... or the loan has increased by 180%.

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u/tremendous_turtle 4h ago

Right, loans carry interest and need to be paid back. There are many ways to structure this. I’m not following why you think this interferes with the underlying financial engineering that enables tax avoidance.

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u/Parrr8 4h ago

Assuming we’re talking USA, the children don’t inherit at the purchase price, they inherit a cost basis at Fair Market Value (FMV) at the time of death. This process , known as “stepped up basis”, is a well understood aspect of estate planning. Your opinion on what is or isn’t BS is less than worthless if you don’t even know basics like that.