WASHINGTON — Donald Trump may have President Reagan and Congress to thank for shielding real estate from the crackdown on tax shelters 30 years ago.
Trump's $916 million net operating loss that the New York Times identified on his 1995 taxes — a loss that could have enabled him to avoid paying federal income taxes for 18 years — might have stemmed from poor business practices. For that, he would have only himself to blame.
But in claiming and then recouping that loss through the tax code, experts said, Trump took advantage of the way real estate can be depreciated and interest deducted, even as the value of holdings increases. In that way, future net income can be reduced — in Trump's case, for many years.
“We allow very generous write-offs for real estate investors, and in particular, real estate developers," said Steven Rosenthal, a tax lawyer and senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. As a result, Trump “gets much more generous write-offs than other investors.”
The Internal Revenue Code allows net operating losses to be carried back three years and forward 15 years. That's allowed because it can be impossible to get the full tax break for a loss in one year, or even several.
“There’s a totally legitimate reason why the tax law allows individuals to write off their losses over a number of years," said Leonard Burman, the Tax Policy Center's director.
For a successful business, one year's losses would be erased by gains in other years without the array of deductions and depreciation allowances permitted by the Internal Revenue Service, even after the 1986 overhaul of the tax code.
Bob McIntyre, director of the liberal group Citizens for Tax Justice, said the depreciation allowance allowed Trump to "take losses that really weren't losses," which could enable him to pay no income taxes. "Maybe this will make Congress rethink it," he said.
While Trump allies such as New Jersey Gov. Chris Christie and former New York City Mayor Rudy Giuliani claimed Sunday that Trump had a fiduciary duty to shareholders to pay as little taxes as possible, several tax experts noted the losses were claimed on his personal, not business, taxes.
"If I’m allowed a deduction and I take the deduction, it’s difficult to see that as an ethical problem,” said Daniel Shaviro, a tax professor at New York University School off Law. Even so, he said, "it's a tax-optics problem."