Tax loopholes benefit Real Estate Investors | Financial Buzz

Tax loopholes benefit Real Estate Investors

Loopholes in US tax code allow rich real estate investors to stack up considerable losses on personal income tax returns. These permit individuals to take advantage of such losses to eliminate multiple years of their future tax liability they accrue on other sources of income. Such benefits compel the formation of real estate businesses and then taxed as limited liability companies or partnerships. The former is popularly known as LLCs and not as taxable corporations.

Exceptions and loopholes

Multiple exceptions to tax rules exist for real estate professionals. These rules generally restrict the benefits of deductions linked to losses applicable to other variety of investors. The real estate industry has a powerful grip in Washington, permitting it to latch on to special benefits which were originally designed to assist investors and developers to recover from past tough downturns.

Republican Presidential candidate knows this- and has thus proposed a number of changes to tax code. However, his campaign mentions nothing about the action he is supposed to take if he gets elected. All his plans involve the restriction of many provisions enjoyed by real estate industry. If certain circumstances exist, then Trump and other real estate owners could take significant losses on properties even if those assets were fully leveraged through loans. This is possible even though a number of rules passed by Congress prohibit tax windfalls for those business owners whose loans were renegotiated or written off.

Avoiding income

Although experts concede that debt forgiveness can be counted as a kind of taxable income, they also say that here exists a number of methods for wily real estate investors. One of those techniques is to postpone the event indefinitely. A most obvious solution to avoid debt forgiveness by shifting the amount owed on losing property to the winning one. The investor, by using this technique, can show losses to be used against any other income while continuing to be the owner of the cash cow.

It is clear that Trump benefited from such laws. His companies posted net operating losses amounting to $916 million. It was about 1.9 percent of all the NOLs that were claimed by a number of persons in 1995. The ironic thing is that Trump has not done anything illegal. This policy of permitting deductions from the net operating losses spanning over many years have garnered minimal amount of controversy until now.

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