Monday, October 3, 2016

Tax Depreciation

I wrote about taxes twice this past week, so I might as well write about Donald Trump's taxes. In case you don't know, the New York Times released part of Trump's 1995 tax return, which shows that he could go about 20 years without paying taxes.

What's going on?

To put things simply, certain taxes can carry over from one year to the next. If Trump has over 900 million dollars in the "carry over from year to year" bucket, then yeah, that's probably going to last him for quite a while.

The problem is that only part of the tax return was released. So we don't know what the 900 million loss is. It could be capital loss carryover, or it could be depreciation. The money can be from stocks, or it can be from real estate. It could be an actual money loss, or just a paper loss. There are lots of possibilities.

Let me use a real-life example. I'm thinking of buying a $1,000 computer for my YouTube business. There are two ways I can deduct that on my taxes. I can either say I lost $1000 this year, or I can split it up over 5 years (the life cycle of the computer). So, for the next five years, I start off with negative $200 for my YouTube business. Basically, it comes down to "get a bigger tax break now" or "get a smaller tax break, spread out over many years".

It's possible that Trump did something like that. In fact, it'd be surprising if he didn't do that, seeing as he buys expensive real estate which gets used for a lot more than five years. And if he maximized the tax break, like an RPG player stacking a bonus, then yes. It's 100% possible, and 100% legal, for him to have set things up, so he wouldn't have to pay any taxes for over a decade. The downside being that he had to put himself almost a billion dollars in the tank, in order to make that magic happen.

1 comment:

Stephanie said...

Michael, thank you for explaining this. I couldn't understand how Trump was able to not pay taxes for so many years. Now I do.