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Most of the rich use Trump’s reported tax methods: Experts

Reuters September 28 | Updated on September 29, 2020 Published on September 29, 2020

‘Tax breaks devised by Congress help real estate sector and investors in terms of capital gains’

US President Donald Trump has denied an expose by The New York Times saying he effectively paid no income tax for most of the past two decades, but experts said the methods it was reported he employed to reduce his bill are commonly used by wealthy property developers to file zero-liability tax returns.

Also read: Trump paid $750 in income taxes in 2016, 2017: NYT

In addition to real estate tax breaks, Trump could also benefit from a broad flexibility available to the super-rich to report personal expenses, such using their own private jets and holiday homes, as deductible business costs, they say.

“It would be very common for my wealthier clients in the world of real estate to report losses or to break even,” said Robert Keebler who runs a tax advisory firm in Green Bay, Wisconsin, which serves high net worth clients.

“It’s not something cooked up in some law firm, it’s something Congress devised,” he said of the tax breaks enjoyed by the real estate sector and investors with capital gains.

Deduction in purchase value

Real estate investors are allowed to deduct around 4 per cent of the purchase value of their buildings from their rental income each year, even though buildings do not usually drop in value. This means they can report tax losses while earning fat profits.

Tax campaigners have long argued the tax break was a giveaway not needed to spur real estate investment and should be abolished.

Outside of the real estate sector, or in cases of real estate tycoons whose buildings no longer offer big depreciation deductions, something the Times said might apply to Trump — it is a maneuvre that becomes more difficult to achieve.

Wealthy people for the most part pay taxes, said Annette Nellen, professor of tax at the College of Business, San Jose State University. She said that if Trump did not enjoy big depreciation deductions — applied against his earnings from his TV show The Apprentice and licensing his name to developers around the world — it would have been difficult to pay no tax whatsoever.

“You would think he had some income to pay taxes on,” she added.

The White House did not immediately respond to an e-mailed request for comment.

Also read: Biden has upper hand over Trump in expectations game for debate

In a series of Twitter posts, the Republican president responded on Monday to the New York Times report. “I paid many millions of dollars in taxes but was entitled, like everyone else, to depreciation & tax credits,” he wrote.

The US has not published individuals’ tax returns since a brief period in the 1920s so it is impossible to know how much wealthy people typically pay in tax.

The tax records published in 2012 by then presidential candidate Mitt Romney were a rare insight into the tax affairs of the wealthy.

The documents revealed he paid an effective federal tax rate of 14 per cent on $14 million of income. That result was largely because of the low tax rate applied to capital gains and dividends something successive governments had confirmed in the hope that it may stoke business creation — but not aided by the business structure or potential deductions someone like Trump enjoys.

debt repayments coming due over the next few years. (Reporting by Tom Bergin; Editing by Tom Lasseter and Alistair Bell)

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Published on September 29, 2020
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