The New York Times published a report on President Donald Trump's taxes on Sept. 27, 2020 at the close of his first term. It spotlighted legal, financial, and political risks as well as a history of startlingly low tax payments.

Trump paid no federal income tax for 11 of the 18 years that reporters examined, according to the report. He paid $750 in taxes in 2016 and again in 2017. He also reportedly pumped cash into money-losing businesses and incurred hundreds of millions of dollars in debt through personally guaranteed loans.

What can we learn about U.S. tax law from the complicated picture of President Trump's taxes that emerged from the report? The rules apply to all taxpayers but the strategies are complex and largely affect those with significant incomes. There are also some gray areas.

U.S. Tax Law and Real Estate

Donald Trump 澳洲幸运5官方开奖结果体彩网:avoided income taxes while earning more than $427 million from “The Apprentice,” licensing, and endorsements between 2000 and 2018.

Tax law affords special rules and benefits to real estate professionals, defined as those who are actively engaged in the real estate business. These advantages are typically unavailable to other individuals who don't earn money in this field. They permit developers like Trump to claim losses from real estate to offset income from other sources.

The revelations cast a light on the special 澳洲幸运5官方开奖结果体彩网:write-offs available to business owners and other wealthy individuals, particularly real estate professionals whose 澳洲幸运5官方开奖结果体彩网:tax planning can result in tax liabilities that are lower than those of average-income taxpayers.

Tax-law rules on depreciation permit the cost of constructing a building to be deducted as a loss over 27.5 years for residential realty and 39 years for commercial buildings even when the building’s fair market value is increasing over time. Trump's properties are held in 澳洲幸运5官方开奖结果体彩网:"pass-through" entities, a standard industry arrangement for avoiding corporate taxation and enabling an individual to report an entity’s income and 澳洲幸运5官方开奖结果体彩网:deductions on a personal tax return.

Tax law also permitted taxpayers to 澳洲幸运5官方开奖结果体彩网:carry back or 澳洲幸运5官方开奖结果体彩网:carry forward 澳洲幸运5官方开奖结果体彩网:net operating losses (NOLs) until 2020.

President Trump claimed losses of $915.7 million in 1985 that likely offset decades of TV, branding, and investment income estimated at $600 million, according to the Times. He paid taxes of $70.1 million from 2005 through 2007 but the NOL rules allowed him to then carry back NOLs to these years and receive a refund of the full amount.

Tax-Reduction Strategies

The Times report described several operational and transactional tax claims that𒈔 presented substantial audit issues for President Trump and his business organizations.

Casino "Abandonment" Loss

The $70.1 million refund obtained for the period from 2005 to 2007 appears to be attributable to the carryback of approximately $700 million in business losses claimed for 2009. These losses were likely based on a claim of complete abandonment of the Trump Atlantic City casino business.

This would have been allowable if President Trump had received nothing in return for giving up his interest in the business. Bankruptcy proceeding records indicate that Trump received 5% of the successor company’s stock, however. This would have disqualified any abandonment loss and limited his deduction to a $3,000 loss for the year.

Consulting F൩ees vs. Employee Compensation vs. Gifts

Unspecified "consulting fees" point to another strategy that can reduce business income and taxes. The Times found that some of these fees were likely paid out to his daughter, Ivanka Trump. It was a questionable arrangement given that as an employee of the Trump organization, she shouldn't have been paid as a consultant given that she was an employee of the Trump organization.

Consultant fees aren't subject to withholding taxes from the payor, unlike employee compensation. The fees must be reasonable, market-value amounts to be deductible. The Times pointed out that such a payment raises questions about whether some consulting fees were de facto asset transfers that should have incurred a gift tax.

Business vs. Personal Expenses

Not all of Trump's business expenses are explained but the Times article identified items that might be nondeductible personal expenses. It noted that the IRS might disallow deductions for aircraft used for personal travel and grooming costs for TV appearances on that basis.

The Times also questioned whether the total paid to attorneys included fees that weren't directly related to business operations. This could run afoul of IRS rules because deductions for legal fees are reported as a lump sum.

Residence vs. Investment

The Trump Seven Springs residential estate in Bedford, N.Y. also bears consideration. Forbes previously reported that President Trump's son Eric Trump described the property as a personal residence. President Trump has characterized it as an investment and deducted property taxes worth $2.2 million as a business expense.

The discrepancy in how the estate has been characterized is important because deductions for local and state taxes for both income and property are subject to a ceiling of $10,000. This limit didn't begin until the 2018 tax year, however, and it's due to expire after 2025 unless Congress takes steps to renew it.

Valuation of Conservation Easement

The Times report also examined a 2015 charitable deduction of $21.1 million for a conservation easement that gave up the right to develop some of the Seven Springs estate. This deduction is meant to reflect the decrease in a property’s fair market value after the donation.

Tax experts debate whether some conservation easements increase real property values, particularly when they protect the natural attractiveness of the donor’s remaining land. The value claimed for the Seven Springs’ easement drew scrutiny from the New York attorney general.

The IRS Audit

President Trump's tax returns have resulted in a years-long audit battle with the IRS. A partial cause of this lengthy fight may be the interplay of loss carrybacks and carryforwards that require exceptional extensions of the statute of limitations.

The Times reported that the refund of $70.1 million was eventually referred to the Congressional Joint Committee on Taxation (JCT) for review by the Committee’s nonpartisan expert professional staff as required by law. The question of whether JCT staff, the same group that in 1974 reviewed President Nixon’s taxes and found certain deductions improper, may challenge the refund and demand its repayment remains unsettled.

President Trump's audit remained unresolved as of May 2024 and the IRS is prohibited by federal law from commenting on any taxpayer's information.

The Bottom Line

President Trump earned hundreds of millions of dollars, according to the Times report, over the past decades, most from "The Apprentice" and licensing fees. The Trump real estate business produced enormous losses at the same time, however, with a few exceptions. Apparent inconsistencies🤪 between his tax return losses and his federal fiℱnancial reports of annual income in the hundreds of millions raised both reputational and legal issues.

President Trump may face enormous liabilities in a diminished financial position. He would be held personally liable on personally guaranteed loans worth $421 million. The Times estimated that his federal tax liabilities could exceed $100 million.

The Times report also drew ꦯsignificant attention to the opportunities the tax code offers to wealthy business owners to avoid taxes lawfully. These opportunities are largely unavailable to average taxpayers and may generate support for tax reform in the years to come.