If taxes was indeed the issue, Do you understand what level of government that all falls under? HInt: It is the same level of goverment that are mostly responsible for homeless people, crime, etc in the states/cities. So, which level is it it, federal, state, or local?
What level? Federal tax law.
It was a concept born out out of oil / gas well investing. It takes a lot of money to drill a successful well. When you finally have one and are now producing income, you get to offset part of your payments to recover your investment
before you pay taxes on your income stream from the well. Lets say you make $100,000 a month from a well and it cost $5,000,000 in up front costs. Until you fully recover your $5,000,000, you only pay tax on much less than your $100,000.
I am not a RE expert but from what I have heard is that the same concept applies. In fact, you can even buy a REIT and just hold it and now you have qualified dividends that can be counted as return of capital.
Theoretically the "investor" in real estate would then pay capital gains taxes when the property is sold since they since recovered their initial investment (eventually).
But wait! You
can avoid capital gains taxes on the sell of your old RE for new RE so long as you do a "like kind" exchange ....
In fact as you continue to hog real estate, building your low tax cash flows using borrowed money (leverage) you may build a sizable portfolio. Your now also "putting off" capital gains. And as final kick in pants, if you transfer your homes to a living trust near your end of life naming your children as heirs, they are not paying tax either. During your lifetime your goal is to pay little to no income tax and you are a millionaire.
So yeah, this system needs to be reformed.