The government wants a chunk of this!

The feds demand a chunk of your profits with their taxation shell game

Jay Brodell
3 min readAug 11, 2021

By Jay Brodell

The U.S. capital gains tax is nothing more than a levy on inflation. Plenty of property owners will find this out when they cash in on the booming real estate market in many parts of the country.

The rules are complex, and anyone paying any kind of taxes needs to consult a professional. The sinister nature of the capital gains tax, though, is political not mathematical.

Capital gains is a tax on the current sales price of an asset minus the so-called basis, which is the original value adjusted for costs, depreciation and some upkeep. Clearly a piece of land purchased 20 years ago may not have increased in value at all but simply is being evaluated in today’s inflated dollars. Still, the owner is obligated to pay a tax on the financial winnings ranging from zero to 20 percent, depending on other income.

This means that the U.S. federal government has been an uninvested and silent partner in the real estate deal.

Consider the individual who purchased 10 acres 21 years ago as a potential site for a few houses. The owner never got around to developing the site, and the property sold last year for $140,000. Because the former owner paid just $40,000 for the property, the tax is on the $100,000 capital gain. U.S. inflation since the year 2000 has been about 46 percent. In 2000 dollars the property sold for about $96,000, not the $140,000 in 2020 dollars.

Yet, the owner is on the hook to the federal government for the entire $100,000 capital gain. That’s because the federal tax law is not indexed to inflation. So the government profits from its excessive spending that increases inflation.

Depending on the property owner’s other income, the tax rate could range from zero to 20 percent. The zero rate applied to those with relatively small annual income.

If the property owner sold his principal residence instead of undeveloped land, an exemption from capital gains tax applied. The amount is $250,000 for a single taxpayer and $500,000 for those filing jointly. In other words, no tax would be assessed on these amounts if the owner had lived in the dwelling for at least two of the last five years. That seems like a windfall, although the current property bubble has pushed many homes into the million dollar range with some of the increase being subject to capital gains tax.

Capital gains tax also is levied on the sale of many other assets. The U.S. Internal Revenue Service lists gold, silver, stamps, coins, gems, stocks, bonds and household furnishings. Collectibles are subjected to a flat 28 percent capital gains rate.

Consider the case of an individual who purchased 10 ounces of gold in 1997 for $3,500. If sold today, the transaction would bring $17,386. Did the 10 ounces of gold really increase in value $13,886, or did the value of the U.S. dollar decline that much? Regardless, the seller faces a capital gains tax on the $13,886.

Certainly the U.S. Congress knew what it was doing when lawmakers failed to include an inflation adjustment clause in the latest legislation.

In all fairness, U.S. tax law allows deductions for capital losses, but taxpayers better not include the actual depreciation on that 1998 rusting personal car. Owners of improved properties, like rental homes, apartments or commercial buildings also are allowed to make deductions on their current tax form for estimated deduction. That’s one of the advantages of real estate investing. Officials stand by to recapture and tax the depreciation deductions at the time of any sale.

Massive federal spending under the current administration can only jack up inflation, thereby increasing the capital gains tax haul.

Brodell is a long-time reporter, editor and newspaper owner. Published Aug. 10, 2021.



Jay Brodell

Brodell is a long-time daily newspaper owner, editor and reporter as well as a tenured college professor. Email him at