Different River

”You can never step in the same river twice.” –Heraclitus

January 2, 2006

Jewish Carnival

Filed under: — Different River @ 9:51 pm

The latest edition of Havel Havelim is up at Shiloh Musings.

There is a weekly carnival of Jewish and Judaism-related posts; the name is Hebrew phrase that is usually translated as “vanity of vanites,” the repeated phrase in the Book of Ecclesiates (Hebrew: Kohelet) — especially in Chapter 1. And it is, of course, a play on the name of the original “Carnival of Vanities”, started over three (!!!) years ago.

The latest edition should answer Adam’s request for a “Carnival of Channukah.”

Tax Benefits for “Shacking up”

Filed under: — Different River @ 3:09 pm

Apparently, the IRS — or maybe the Congress that wrote the tax law; it’s unclear in this case — thinks it’s a good idea for couples to live together before they get married. Such a good idea, in fact, that married couples who lived together before they got married get a tax benefit not available to married couples who wait to live together until they get married. In fact, by marrying without living together first, one can even lose a tax benefit one would have had by remaining single!

Here’s the story: If you sell a house that’s your primary residence for more than you paid for it, you don’t have to pay tax on the first $250,000 of gain if you are single, or the first $500,000 if you are married (filing jointly). However, there are requirements for defining “primary residence,” and also, you can only take the exclusion once every two years, regardless of your marital status at each point in time.

Now, here’s the benefit for illicit co-habiters:

Either spouse can meet the ownership test. For example, the IRS says it’s OK if you owned the home for the last two years, but you just added your new husband to the title when you got married six months ago. Since you owned the residence for the requisite time, as joint filers you have no problem meeting the ownership test even though your husband wasn’t an official owner for that long.

However, both husband and wife must pass the use test; that is, each must live in the residence for two years. But the shared use doesn’t have to be while you file jointly. If you and your now-husband shared the home for 1½ years before tying the knot and then six months as newlyweds, the IRS will allow you to claim the exemption. But if he didn’t move in until the wedding day, you’re out of tax-exclusion luck.

Furthermore, marrying can deprive you of the exemption altogether, if you marry someone who’s “done it” before (i.e., sold a house within the last two years — what were you thinking?):

And while you’re learning about your new spouse, make sure you find out all about his or her previous home-sale history. “The two-year eligibility rule applies to both spouses, so full home disclosure is another financial area you need to consider when getting married,” says Trinz. “You need to find out what you’re getting.”

Right. So in addition to making sure your future spouse didn’t fool around with other people before getting married (and pick up any diseases), you have to make sure he/she didn’t fool around with any real estate agents and pick up any home-sale tax exclusions!

Under this couple requirement, if either spouse sold a home and used the exclusion within two years of the sale of any jointly-owned property, the couple can’t claim the exclusion. That means if your new husband sold his townhouse a month before the wedding, then you’ll have to wait two years after that property’s sale date before you can dispose of your shared marital residence tax-free.

So if you marry the “wrong person,” you lose the $250,000 exemption you would have had if you stayed single (with or without co-habiting). But if you marry the “right person,” your exclusion doubles immediately — provided you co-habited that person for at least two years first!

Remember this next time someone tried to convince you that the tax code encourages “traditional marriage” …

Economist vs. the Media, Economist Wins

Filed under: — Different River @ 12:56 pm

Don Boudreaux reports how Milton Friedman made Charlie Rose look like a fool:

Milton Friedman was the guest on Monday [12/26] night’s The Charlie Rose Show.

Here, for example, is Friedman responding to the oft-expressed concern that foreigners holding dollars and dollar-denominated assets is dangerous for America because foreigners might ‘dump’ these assets.

MILTON FRIEDMAN: Why – who — how would they dump it?

CHARLIE ROSE: They would sell it back.

MILTON FRIEDMAN: Sell what?
MILTON FRIEDMAN: Why – who — how would they dump it?

CHARLIE ROSE: They would sell it back.

MILTON FRIEDMAN: Sell what?

CHARLIE ROSE: The interest on the debt that they have. The dollars they have.

MILTON FRIEDMAN: To whom? To whom would they sell it?

CHARLIE ROSE: Your point is that there is no buyer.

MILTON FRIEDMAN: Well, there are buyers, of course there is always a buyer. At what price?

CHARLIE ROSE: But wouldn’t that be destabilizing?

MILTON FRIEDMAN: Who would lose money? Who would lose money on that kind …

CHARLIE ROSE: Wouldn’t that be destabilizing? Wouldn’t that suggest a lack of confidence in the American economy?

MILTON FRIEDMAN: Yes, it might. But the people who would lose by it would be the foreigners who held that and who dumped those dollars.

CHARLIE ROSE: Well, then are they in a frozen position then, so that they – they have no flexibility?

MILTON FRIEDMAN: They are not in a frozen position. They are in a position they want to be in, because that’s why they are holding these assets. Because they are afraid of risk, of political risk.

CHARLIE ROSE: What happens if they would allow …

MILTON FRIEDMAN: And in general, let’s suppose foreigners start dumping their assets here. They would dump them at distressed prices. They would have no …

CHARLIE ROSE: Once it started (INAUDIBLE) would begin.

MILTON FRIEDMAN: And who would buy them? The people at home, here, the people in the United States, who had confidence in the United States. So what you would have would be that the assets would go from weak hands to strong hands. It isn’t going to happen, because there is no reason for foreigners to dump the dollars.

CHARLIE ROSE: But nothing is certain, is it? I mean, certainly in economics …

MILTON FRIEDMAN: Of course not. Nothing is absolutely certain. But you can be pretty damn sure of what is likely to happen and what isn’t.

CHARLIE ROSE: What might — but argue the other side. What might cause someone to say we’re holding too many dollars and – and we don’t think it’s healthy.

MILTON FRIEDMAN: There is only one thing that would cause them to do that, and that’s if we engage in inflation.

Almost everything you hear in the mainstream media about international trade and other cross-border economic issues is wrong. And quite a lot of what you hear about other economic issues is wrong, too.

Welcome, Visitor 50,000!

Filed under: — Different River @ 11:14 am

Welcome to the person who made the 50,000th visit to Different River!

And, of course, to all the people who made the 49,999 visits that made the 50,000th visit possible! ;-)

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