A friend recently was telling me about a condo he is in the process of taking back due to a default on the mtg he carried back when he sold it a few years ago. He is quite sanguine about the situation because, he said, he paid only $35,000 & can sell it now for $200,000. I asked him when he bought it & he said in 1969. So I went to an on-line inflation calculator & found out that it takes 202,000 2009 dollars to = 35,000 1969 dollars. So even if he is right about its value, in real, inflation-adjusted dollars, its worth about what he paid for it. He has had no real gain. But, the IRS will say that he has had a cap. gain of $165,000, which this year would mean a tax of $33,000, incl. US & State of CO. (I'm not going to get into depreciation recapture.)
This is not taxation, this is theft. The gov causes inflation by printing too many dollars, but does not let us adjust our cost basis in computing cap. gains taxes. The result is that we are taxed on illusory "profits." This has to qualify as a RICO (Federal racketeering) violation, don't you think?
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