I was gratified to see that the reaction of the editors of the New York Times to the non-revelations in President Trump’s tax returns resembled mine:
The government allows income to be sheltered from taxation for hundreds of different reasons, but real estate investors have long enjoyed a particularly sweet set of loopholes. A homeowner can write off the interest payments on a mortgage loan, but the owners of commercial buildings get a host of other benefits, too. It’s relatively easy for real estate investors to use past losses to offset income, to defer income and to avoid reporting some kinds of income. Best of all, the law lets investors claim a building is depreciating in value — a theoretical loss of money — even as the actual value increases.
“I love depreciation,†Mr. Trump said during the 2016 campaign.
Moreover, the formidable complexity of the tax code makes it difficult to tell when wealthy taxpayers have crossed legal lines. For the rich, taxation often becomes a kind of structured negotiation between the taxpayer’s experts and the government’s experts.
However, their prescription differs from mine. They’re satisfied with the tax code and the structure of the tax system. Rather than fixing the problem at its root they want more IRS agents doing audits and enforcing violations.
Will that actually accomplish anything other than creating more positions for federal employees? Or producing more business for tax accountants and tax attorneys?
The reason that very rich people, particularly very rich people who invest in real estate, can get away with deducting so much depreciation is the structure of the income tax. Nibbling away at the edges won’t accomplish anything. The problem is structural or “systemic” to employ the word they’re using these days.
I’m stunned at the naivete. Real estate has different flavors. Personal, and….. commercial real estate, which is a business. You have revenue and expenses, including depreciation. This is not unique to real estate. All businesses do this. But as depreciation reduces the tax basis in an asset, it is ultimately paid for in capital gain upon sale, unless the assets value declines commensurately. Its a timing issue.
This is separate and apart from arguments about simplification of the code, which I wholly applaud, but understand will not happen for reasons outlined by Dave in a previous thread.
What is happening is, as I have noted, kindergarten level in its commentary. Its pure politics for the ignorant.
The IRS knows how much on average each income cohort pays in tax each year, regardless of what the income streams are or what rate they are taxed at. We need to eliminate the capital gains tax and business tax, eliminate ALL the deductions except maybe for the children, adjust the personal income tax level to make up the shortfall, then streamline the 1040 so that an elementary school kid can fill it out. This is your income, therefore this is your tax. Send the check payable to the US Treasury.
Most of the tax code is f**kin social engineering or carve-outs for political preferences or sacred cows. Social engineering via taxation is just nuts. I guess it comes from too many people in government thinking regular citizens can’t wipe their bottom without detailed instructions and safety regs and guidelines in place.
Think of all the income and time people would save being able to do their own taxes and not having to farm them out to an accountant.
I’m with Tars. I spend at least $5K each year for tax prep. The return is about an inch – inch and a quarter thick……………and impossible to follow.