When the New York Times published documents reporting Donald Trump's massive loss in the mid 1990s, some people were aghast. But for real estate developers, this treatment of losses is nothing out of the ordinary.
Aswath Damodaran, a professor from NYU, compiled data on various industries to find the average taxes paid out by each. The Washington Post published Damodaran's findings, which indicate the average firm in real estate development paid just over 1% of its income in taxes, while the average for all industries is almost 11%.
Max Ehrenfreund exposes three specific loopholes that make this possible:
- The IRS allows developers to claim depreciation - even though the company may be pulling in money by renting out the property to commercial or residential clients.
- Since most real estate deals are financed through debt, developers can deduct the cost of interest from their income, which allows them to continually invest in new projects.
- Again, investors deal in loans from lenders, and while most taxpayers can only claim losses as large as their own investment in the business, real estate developers can claim other people's (i.e. the lender's) losses against their own income.
The argument is that these tax laws keep real estate business in play, which means they can continue employing workers and hiring contractors and investing in new projects.