The concern that changes in the Tax Law will at least initially adversely affect certain specific markets and industries, like the real estate market, are, in my opinion, excessive and, to be honest, not a concern that should be taken into consideration by lawmakers.
First of all - People buy, or SHOULD buy, real estate because (1) it is a good investment, and (2) they can afford the purchase. Tax benefits, while certainly a consideration, should never be the sole, or primary, motivation for any investment decision. Any corresponding tax benefits are certainly welcomed, but merely “gravy”.
Real estate is a good investment because it “appreciates” perhaps more consistently then stocks or mutual funds, and because it can provide a good “dividend” in terms of net rental income. However, it does require much more personal involvement on the part of the investor.
While I do agree a person should hold on to an investment before selling until the long-term capital gain requirements are met to realize substantial savings on the gain from a sale, this should NOT be done if it is anticipated that waiting to meet the holding requirement could materially reduce the net gain realized due to a drop in the investment’s price.
As I have been saying for years - The first criteria for evaluating any transaction, strategy, or technique you are considering should always be financial. Taxes are second. Never let the tax tail wag the economic dog.
And second – the one and only purpose of the Internal Revenue Code is to raise the money necessary to fund the government. Period.
It is my firm belief, shared by many, that the Tax Code must NOT be used for social engineering, to redistribute income or wealth, to deliver social welfare and other government benefits, to encourage or discourage certain economic decisions (other than savings, investment, and growth), or to provide exclusive benefits for specific industries, business activities, or classes of taxpayers.
One of the basic principles of sound tax policy, identified by the Tax Foundation, is –
“Neutrality: Taxes should not encourage or discourage certain economic decisions. The purpose of taxes is to raise needed revenue, not to favor or punish specific industries, activities, and products.”
I have made a similar argument in response to the claim that the GOP tax law changes will substantially reduce charitable contributions (see “THE REPUBLICAN TAX PROPOSALS – EVEN MORE COMMENTS”).