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A New York Times story based on Donald Trump’s coveted tax data shows that he avoided paying income taxes for most of the past two decades and paid only $ 750 the year he was elected president.
That doesn’t mean he’s not a billionaire.
By pairing money-making companies with spectacular money losers, the Trump Organization has been able to protect the profits generated by office properties and “The Apprentice” from tax collectors. It’s an improved version of the formula implemented by America’s homeowner class for decades. But tax losses are different from operating losses, and the new data doesn’t necessarily show that your business empire is heading for a crisis, even if you have sizeable debt.
“Your tax return at the end of the day shows the income and the deductions that are claimed against that income. That’s it, ”said Thorne Perkin, president of Papamarkou Wellner Asset Management. “It doesn’t necessarily show net worth.”
The newspaper report outlined the scope of Trump’s tax cut strategies, such as deducting his daughter’s consulting fees and hairstyle, which resulted in paying far less than poorer Americans. While the report raises questions about the legality of some of the moves, the new details do not affect the Bloomberg Billionaires Index’s estimate of her wealth. Your net worth is based primarily on the value of your office and business property, minus any known debts. The index estimated her net worth at $ 2.7 billion as of August, $ 300 million less than in mid-2019, affected by falling prices for certain types of real estate.
Trump office properties include commercial space at Trump Tower, a lease at 40 Wall Street in downtown Manhattan, and a 30% interest in two office towers jointly owned by Vornado Realty Trust. Taken together, the assets are valued at around $ 1.9 billion, and the portion of Trump’s debt that weighs on them is roughly $ 670 million, meaning they make up nearly half of his net worth.
The financial records of its golf courses in Europe have long shown that after including items like depreciation, they run in the red. Tax data obtained by the Times reveals that Trump’s American golf courses function in a similar way.
Depreciation is crucial for real estate investors. Depending on the type of property at hand, they may write off a portion of its value over a useful life predetermined by the Internal Revenue Service. That allows investors to claim property tax losses even when they are putting money in their pockets.
“He wants to show as many losses as possible from his deductions,” said Perkin de Papamarkou. “That is a big part of the advantages of real estate investing.”
The president’s son, Donald Trump Jr., refuted the Times report on Tuesday, acknowledging that Trump took advantage of depreciation, tax credits and other provisions of the tax code.
“He’s paying tens of millions in taxes; now he’s not going to pay more” than he needs to, the president’s son said in an interview on Fox Business Network. “And by the way, you’re following the tax code that people like Joe Biden, who’s been in DC for 47 years, have written. He is playing by their rules. Joe Biden is taking advantage of the same loopholes. “
The Times in a Monday story also revealed that when Trump paid taxes it was for cash from his role as head of “The Apprentice” and not as a real estate developer. He earned $ 197 million from the show and $ 230 million from branding, talks, and licensing deals thanks to the fame the series brought. In addition to borrowing against Trump Tower and selling stocks and bonds, he invested some of that money in golf courses that were losing money.
Loans in possession
The tax documents described by the Times are not enough to draw conclusions about the profitability of Trump’s empire. But even if your golf courses are losing money, they contribute comparatively little to your fortune bill, about $ 430 million before debt. Golf course prices have come down after years of declining interest in the sport. The younger generations are just not coming to terms with it as quickly as their older ones are leaving it behind.
Trump has long been asked to reveal a roadmap for his assets and liabilities. In 2015, then a candidate for the Republican Party presidential nomination, he released a financial statement listing the lenders behind their loans, the ranges of their outstanding balances, when they were issued and when they must be repaid.
The fact that several mature in the next few years is not unusual in commercial real estate, where most loans have a duration of five to ten years and are regularly refinanced. Unless there is a serious deterioration in the performance of your properties, it is likely that your portfolio can be refinanced before the loans are due.
Although Trump has carried out this balancing act for years, his re-election could make it difficult to obtain new loans if potential lenders do not want to face the possibility of foreclosing a sitting US president. On the contrary, Trump is involved in a variety of court fights that could accelerate once he leaves office and complicate refinancing. The Covid-19 pandemic can also take a lasting toll on your property values, making future loans more onerous.
His biggest financial vulnerabilities remain his hotel in Washington, where the pandemic has slowed business, and Doral, a sprawling golf resort in Florida. It has obtained nearly $ 300 million in personal guarantee loans from Deutsche Bank AG against these properties. Debts are due in 2023 and 2024, based on your personal financial disclosure.
Space to borrow
But Trump, whose previous career included a series of bankruptcies, also has a safety valve: office property.
When he refinanced the Trump Tower in 2012 with a $ 100 million loan, it was appraised at $ 480 million. A 2015 refinance of 40 Wall Street obtained a loan of $ 160 million with an appraisal of $ 540 million.
That left both properties relatively under-leveraged for Manhattan real estate, suggesting a newly learned financial conservatism on Trump’s part or an apprehension on the part of the lender, Ladder Capital. Ladder, who specializes in commercial property loans, is Trump’s second-largest lender after Deutsche Bank.
An August assessment of the buildings by the Bloomberg Billionaires Index, based on current net income and prevailing capitalization rates, was less optimistic, valuing them at $ 365 million and $ 375 million respectively. But as long as the pandemic does not affect office values, properties could have much more debt if Trump needed them.
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