If it looks like Donald Trump is only putting in only half the effort necessary to run for president – it is because he IS only putting in half of his time.
Donald J. Trump personally must log and document at least 750 hours as a “Full Time Real Estate Professional” during the fiscal year or lose tens of millions or even more than a hundred million dollars each year he doesn’t log those 750 hours. That is almost working full time for half a year.
Owning Real Estate for Commercial or Rental Purposes is Very Lucrative
It is lucrative for a simple tax accounting reason – depreciation.
When a brewer purchases hops to make beer to sell, the brewer can, for tax purposes, subtract the cost of the hops from the money made selling the beer because the hops went into making the beer. This means he made less income on the sale of the beer and his taxes are smaller.
If the brewer buys a vat to hold the beer the accounting is different because the vat is not used up every time a batch of beer is made. It might be useful for that purpose for about ten years. So the brewer can only lower his income for tax purposes by 10% of the cost of the vat each year for ten years.
Buildings don’t really get used up. They may look older, but they are still functional for a long time. The IRS says commercial buildings only last for 39 years and 27.5 years if they are residential properties (I own a building that is almost ninety years old and still is fully functional).
If I buy an apartment building for $275,000 and break even after all my expenses including the interest on the mortgage I still can reduce my personal income on my tax forms by $10,000 every year for 27.5 years. At a marginal tax rate of 39.6% that is almost $4,000 of cash in my pocket and more saved from my state tax. If you have billions of dollars of real estate it adds up. And if you pass this building on to your children when you die all gains from the increased value of the property are erased – “poof” and they can start their own 27.5 years from the beginning.
So maybe an investor makes a little bit of money, gets a huge tax shelter and a great way to pass on tax free properties to their children.
In the 1980’s smart operators created lots of tax shelters of real estate properties that they sold shares of to rich people who then made money, got money off of their taxes, etc. It was very profitable for everyone except the IRS. So the IRS changed the rules. The first $25,000 of the loss of income this way is allowed if you participate in managing the building so that the little guy with one building wouldn’t get hurt.
To get a larger than $25,000 loss on all the real estate you own, you have to be actively managing the buildings – you have to be a “A Full Time Real Estate Professional” and they made the rules about this very strict. You have to spend 750 hours every fiscal year BEING a real estate professional or all these tax advantages go “poof” AND you can’t sell the property or transfer it to your kids until you die or you have to pay 25% capital gains on the entire sale amount not just the increase in value.
Donald J. Trump is stuck.
And the Republican party is stuck with a part time candidate for President.
Oh and if you want to have some fun think about what happens when this Donald J. Trump becomes President. I am sure he is thinking about how he can be the POTUS and still be a “Full Time Real Estate Professional”.
He can’t and he knows it.