One wrinkle in the US tax code is "Capital Gains Exclusion on Sale of a Principal Residence (IRC §121)". If you sell your primary residence, you can exclude (that is, not pay tax on) up to $250,000 of gain if you’re single, or$500,000 if you’re married filing jointly, provided you meet certain conditions (own home for 2/5 years, primary residence for two years, only usable every two years).
Silicon Valley might be the best example of some of this interconnection. $3 million buys a 1950s bungalo right next to the 101 freeway.
I saw the "wealth effect" phenomenon of "hometown hero" companies in real life. I grew up in eastern Pennsylvania, and went to high school in the early 1980s with a number of kids whose parents worked for Western Electric https://en.wikipedia.org/wiki/Western_Electric , which made all the telephone equipment for the AT&T monopoly; good, honest, boring but well-paid work all over eastern Pennsylvania and western New Jersey. After the breakup of "Ma Bell" https://en.wikipedia.org/wiki/Breakup_of_the_Bell_System , it continued on through the mid-1990s before being spun into Lucent Corporation https://en.wikipedia.org/wiki/Lucent_Technologies .
I was tech analyst on Wall Street at the time. One of my friends called up and said "my father's just watched his $50,000 in Lucent stock turn into $400,000, and is about renovate their modest house and buy a Porsche ... and I'm trying talk him out of it." This wasn't an executive, but a line engineer. My friend was successful, but actually, selling it, paying capital gains taxes, and spending it might've been the best thing to do, as by Sep 2002 the stock was trading at $0.76, and his father's shares were worth $4,000.
It really showed how the wealth effect can be temporary and how retail investor behavior can be driven by sentiment rather than fundamentals. It actually scared me into always treating company-granted shares as "Monopoly money", which served me well.
I do wonder whether this works both ways, as housing prices are a near record multiple of incomes. It certainly has something to do with a growing wealth gap as the buyers of homes have never been at the bottom but the gap between the top and the median incomes and wealth has expanded.
One wrinkle in the US tax code is "Capital Gains Exclusion on Sale of a Principal Residence (IRC §121)". If you sell your primary residence, you can exclude (that is, not pay tax on) up to $250,000 of gain if you’re single, or$500,000 if you’re married filing jointly, provided you meet certain conditions (own home for 2/5 years, primary residence for two years, only usable every two years).
Silicon Valley might be the best example of some of this interconnection. $3 million buys a 1950s bungalo right next to the 101 freeway.
I saw the "wealth effect" phenomenon of "hometown hero" companies in real life. I grew up in eastern Pennsylvania, and went to high school in the early 1980s with a number of kids whose parents worked for Western Electric https://en.wikipedia.org/wiki/Western_Electric , which made all the telephone equipment for the AT&T monopoly; good, honest, boring but well-paid work all over eastern Pennsylvania and western New Jersey. After the breakup of "Ma Bell" https://en.wikipedia.org/wiki/Breakup_of_the_Bell_System , it continued on through the mid-1990s before being spun into Lucent Corporation https://en.wikipedia.org/wiki/Lucent_Technologies .
When Lucent spun in April 1996, pretty much every employee received shares at $9 per share https://companiesmarketcap.com/lucent-technologies/stock-price-history/ . By Dec 1999 it was trading at $75.
I was tech analyst on Wall Street at the time. One of my friends called up and said "my father's just watched his $50,000 in Lucent stock turn into $400,000, and is about renovate their modest house and buy a Porsche ... and I'm trying talk him out of it." This wasn't an executive, but a line engineer. My friend was successful, but actually, selling it, paying capital gains taxes, and spending it might've been the best thing to do, as by Sep 2002 the stock was trading at $0.76, and his father's shares were worth $4,000.
It really showed how the wealth effect can be temporary and how retail investor behavior can be driven by sentiment rather than fundamentals. It actually scared me into always treating company-granted shares as "Monopoly money", which served me well.
I do wonder whether this works both ways, as housing prices are a near record multiple of incomes. It certainly has something to do with a growing wealth gap as the buyers of homes have never been at the bottom but the gap between the top and the median incomes and wealth has expanded.
Another thoughtful article by Klement.