I’m sure you have seen or heard on television about the widening gap between the rich and the poor. The usual figure is that 1% of the population controls 90% of its wealth. The last time income inequality was this bad was late in the 19th century during the Robber Baron Era. In other countries, this sort of income inequality has led to revolutions.
The question is how did this income inequality occur? I can give you an example from my own life. Before I became disabled, I owned rental properties. My purpose in owning them was to provide me with a retirement income. I plan to sell them and live off the proceeds. I could see that my increasing disability meant I would no longer be able to manage them. I could have hired a property management company to do that, but there was only one in my area. It wasn’t that good. I was selling at the start of the real estate boom – more about that later. I sold a four-unit rental property for approximately 25% more than I paid for it. Its value was in the six-figure range. I assumed I would have to pay income taxes on the gain I realized. I went to my accountant fully expecting a good-sized tax bill. She told me I wouldn’t have to pay any taxes on the 25% profit I made, but I could actually deduct money on my next tax filing. “Why,” I asked. She told me I had lost money on the sale of the property. I think you can understand my confusion. I had sold it for 25% more than what I bought it for. I thought I had made money, but I was told I lost money according to our tax laws. After she tried to explain why unsuccessfully, she said this, “You have to remember that tax laws were made by the rich for the rich.” I made more money on that property than many people make in an entire year on their jobs. I not only had to pay zero in taxes, but the sale would further reduce my taxes because of the deduction I could take on “the loss.” Is that fair? I don’t think so. It is, however, how the rich get richer and the poor don’t. Before I go, I promised to say something more about the real estate boom. The couple who bought the property had problems and split up about a year after they bought it. As part of the divorce settlement, they sold it for a little more than twice what they had paid for it. I assume they got a tax deduction too.
