Since shortly after Donald Trump decided to run for president, there have been calls for him to release his "yuge" tax returns.
It came up again in the debate, with him rather cleverly responding that "I will release my tax returns, against my lawyers' wishes, as soon as [Hillary Clinton] releases her 33,000 emails that have been deleted."
Trump has stated that he can't release his taxes because they are under audit. This explanation doesn't hold water and Richard Nixon actually released his tax returns while under audit in 1973. Not surprisingly this has lead to all sorts of speculation as to what devious secrets Trump is hiding in his tax return.
Republican presidential candidate Donald Trump speaks at the Shale Insight Conference, Thursday, Sept. 22, 2016, in Pittsburgh. (AP Photo/ Evan Vucci)
George Will has speculated that Trump won't release his tax returns because they might tie him to Russian oligarchs. Ted Cruz believes, or at least believed, they might tie Trump to the Mafia. Harry Reid thinks it's because he's not worth nearly as much as he claims. Seth Meyers says he's broke and others say it's because he's committing fraud.
Of course, there might be truth in these allegations.
But regardless of all of this speculation, innuendo and obfuscation, the reason Donald Trump isn't releasing his tax returns is probably for the simple reason as to how the IRS taxes his primary investment; real estate.
According to the IRS, the value of real estate is split into two parts; the land and the building. The land's value stays the same over time, but the building's value "depreciates" from the allocated price it was purchased for to zero over the course of 27.5 years for residential property (why they picked that number is beyond me) and 39 nears for commercial property.
So, for example, if you purchased a commercial building at 123 Main Street for $500,000 and the allocated price of the land was $110,000 and the building was $390,000, every year the building would depreciate by $10,000 on your tax return. After one year it would be worth $380,000, after two, $370,000 and so on.
This sounds rather technical and irrelevant expect for the fact that that depreciation counts as a loss against any profits that you have from that investment. So in the above example, if 123 Main Street has a positive cash flow of $10,000 in real numbers, according to the IRS you actually broke even because you also had a $10,000 "loss" in depreciation.
But as we all know, real estate generally goes up in value. So why does the IRS consider it to depreciate in value? The reason is the same for pretty much every capital good. If you buy a car, sooner or later, it will wear down and be basically worthless. But with investment real estate, maintenance and capital improvements are included in the operating expenses, so if a property is properly maintained, the value should increase over time.
Now these depreciation "losses" don't exist forever. When you sell a property, you have to "recapture" any depreciation you had. So with 123 Main Street, if you held it for 10 years, it would have accrued $100,000 in depreciation. If you sold it for $600,000, that would prove that the building didn't actually depreciate and you would owe taxes on that $100,000 of depreciation. At this point, you can do what's called a 1031 exchange and defer that tax again, but eventually you will have to pay it.
Now let's return to Donald Trump. Just a quick glance at Trump's assets, from the Trump Vineyards to Trump Tower to Trump Plaza, and it's quite obvious that he is heavily invested in real estate. This means that unless his accountants are brain dead, he is taking advantage of a massive amount of depreciation.
Furthermore, Trump's investments tend to be in high demand cities such as New York and Las Vegas that have the highest potential for appreciation, but generally the lowest yields. In other words, with high priced properties that don't have a huge cash flow, it's quite likely that most of and perhaps all of his tax burden is eaten away by depreciation. Indeed, this appears to have been in the past (although at that time, his company was in financial trouble as well.)
If Trump were to release his tax returns now, there would almost certainly be an uproar about how little he paid. I doubt the public and most of the media would care that this is how the law applies to everyone. And they probably wouldn't give him any credit for the loads of property taxes he assuredly has to pay.
Even still, the cover up is worse than the crime as they say, even if no crime has been committed. Trump should have released his tax returns a year ago and dealt with the fallout then (assuming, of course, that I'm right and he isn't holding them back for some other devious reason). At this point, it's probably too late for him to do so before the election given the media frenzy it would produce, even if that media frenzy is as ignorant on the matter as we all know it would be.
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