TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, October 14, 2018

NY Times: Jared Kushner Paid No Federal Income Tax For Years

New York Times, Kushner Paid No Federal Income Tax for Years, Documents Suggest:

Over the past decade, Jared Kushner’s family company has spent billions of dollars buying real estate. His personal stock investments have soared. His net worth has quintupled to almost $324 million.

And yet, for several years running, Mr. Kushner — President Trump’s son-in-law and a senior White House adviser — appears to have paid almost no federal income taxes, according to confidential financial documents reviewed by The New York Times.

His low tax bills are the result of a common tax-minimizing maneuver that, year after year, generated millions of dollars in losses for Mr. Kushner, according to the documents. But the losses were only on paper — Mr. Kushner and his company did not appear to actually lose any money. The losses were driven by depreciation, a tax benefit that lets real estate investors deduct a portion of the cost of their buildings from their taxable income every year.

In 2015, for example, Mr. Kushner took home $1.7 million in salary and investment gains. But those earnings were swamped by $8.3 million of losses, largely because of “significant depreciation” that Mr. Kushner and his company took on their real estate, according to the documents reviewed by The Times. ...

The White House last year championed a sweeping revision of the nation’s tax laws that expanded many of the benefits enjoyed by real estate investors, allowing them to reap even larger deductions.

“The Trump administration was in a position to clean up the tax code and promised to get rid of some of the complexity that certain taxpayers use to their advantage,” said Victor Fleischer, a tax law professor at the University of California, Irvine. “Instead, they doubled down on those provisions, particularly the ones they have familiarity with to benefit themselves.” ...

Thirteen tax accountants and lawyers, including J. Richard Harvey Jr., a tax official in the Reagan, George W. Bush and Obama administrations, reviewed the documents for The Times. Mr. Harvey said that, assuming the documents accurately reflect information from his tax returns, Mr. Kushner appeared to have paid little or no federal income taxes during at least five of the past eight years. The other experts agreed and said Mr. Kushner probably didn’t pay much in the three other years, either. ...

“If I had to live my life over again, I would have been in the real estate business,” said Jonathan Blattmachr, a well-known trusts and estates lawyer, now a principal at Pioneer Wealth Partners, who reviewed the Kushner documents. “It’s fantastic. You get tax deductions for things you don’t pay for.” ...

The tax code affords real estate investors great leeway in how they calculate their depreciation — flexibility that often is used to inflate their annual deductions. Among the tactics used by many developers: Their tax advisers prepare studies arguing that much of a property’s value is attributable to things like appliances and parking lots, which under the law can be depreciated more quickly than the building.

Such strategies are almost never audited, tax professionals say. And the new tax law provides even more opportunities for property investors to take larger deductions.

Developers might have to pay capital gains taxes if they sell their properties. But the Kushners, like others in the real estate business, often avoid that tax, too, by using the proceeds of sales to buy more properties within a certain time window. ...

Last year’s tax legislation eliminated that benefit for all industries but one: real estate.

New York Times, How Jared Kushner Avoided Paying Taxes

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It appears from this that Jared Kushner paid no taxes because he had negative income. The NY Times just doesn't believe in businesses being able to deduct costs like depreciation, or investors being able to offset capital gains with capital losses. Am I right in that interpretation?

Posted by: Eric Rasmusen | Oct 14, 2018 12:50:20 PM

Neither did anyone else in his business.

Posted by: Mike Livingston | Oct 14, 2018 12:51:48 PM

So, big story. /sarc/ ... According to "confidential financial documents," the tax preparers for the President's son-in-law included in his tax returns legal deductions, that were never changed and were extended when Obama made permanent the Bush temporary "tax cuts for the rich."

If the preparers had not included the deductions, the depreciation (which will have to be recaptured upon sale whether or not previously claimed) would be permanently lost and the preparers subject to malpractice claims.

Anyone who claims to be a tax expert and doesn't understand the concept of depreciation and how it works in the Code should reconsider being quoted as an expert. It makes them and the Times look even more stupid.

Posted by: Woody | Oct 14, 2018 2:25:06 PM

Depreciation? Never heard of it. Sounds like a tax dodge to me. Will the evil tax planning never stop? Man, those NY Times reporters are really hip!

Posted by: Abe Carnow | Oct 14, 2018 2:42:08 PM

Great time for real estate professionals. They also qualify for the QBI deduction if they have income.

Posted by: Factotum | Oct 15, 2018 7:09:01 AM

The Times calls it a tax saving “maneuver” that Mr. Kushner and his company “took” depreciation deductions for “significant depreciation” deductions. This isn’t a tax savings maneuver. It is simple ordinary tax compliance.
Mr. Kushner reported the property at its cost, indicated it was depreciable and depreciation was claimed over the regulatorily prescribed life of the property. Such reporting was 100% true and because he files returns like everyone else under penalties of perjury, he so accurately indicated the facts on his returns.
Had the depreciation he “took” not been so reflected, Kushner would have been penalized by having his adjusted cost basis in the property reduced by the amount of the unreported depreciation because it would have been “allowable” even though not “allowed.” [This legal result was experienced by President Nixon when the Joint Committee on Taxation re-determined his taxes for the 1960s in the 1970s. Nixon had failed to claim depreciation on part of his Fifth Ave. apartment in NYC where he’d had a home office from which he did legal work. The Joint Committee increased his gain on the sale of the apartment by the amount of the unclaimed depreciation.]
Is this kind single-entry bookkeeping result the Times’ notion of tax fairness?
Finally, in claiming depreciation to avoid the single-entry bookkeeping result, Kushner did not get “tax deductions for things (he didn’t) pay for.” Depreciation deductions are paid for in advance when the depreciable property is purchased. Only later after the payment has been made is there depreciation. Until one pays for property and cost is established, depreciation is now allowed.

Posted by: Joseph W. Mooney | Oct 15, 2018 12:47:40 PM