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As an accountant, obviously I find the NYT article yesterday fascinating. There is so much to comment on, but this stands out as just a painfully stupid statement. If you go into a store to break a $20 bill, and get back a 10 & two fives, nobody would say you paid that store $20.
Lots of sudden experts on depreciation, so a quick primer on depreciation:
1. Simply put, depreciation is the loss of value of an asset. Annual depreciation is calculated as (Purchase price-salvage price)/estimated life.
1. Simply put, depreciation is the loss of value of an asset. Annual depreciation is calculated as (Purchase price-salvage price)/estimated life.
2. Cars are an intuitive example. A 5 year old car is worth less than a brand new car. If you bought a new car for $25000, and you thought you could sell it in 5 years for $5000, your annual depreciation is (25000-5000)/5, for $4000 per year.
3. That& #39;s a real loss. At the end, you have $20,000 less than when you started.
4a. Real estate depreciation is more complicated. Generally, real estate goes up in value. However, there& #39;s still depreciation. An example: You buy a brand new house for $100,000 (because you don& #39;t live in CA like I do). In 10 years, it& #39;s worth $200,000 & you decide to sell.
4b. BUT after 10 years, your kitchen is totally shot. Outdated, appliances failing, countertops cracked. It& #39;s going to cost you $20,000 to return it to like-new condition so you can get top dollar selling the house.
4c. If the house is a rental, you could& #39;ve been depreciating that $20,000 loss in value in the kitchen. ($20,000-0)/10 - $2,000 per year. Even though the house has gone up in value $100,000 over those 10 years, you don& #39;t claim that as income because it& #39;s unrealized
4d. When you sell it, you DO declare a profit. This is why real estate makes an excellent tax shelter: You get to declare the non-cash expenses, but don& #39;t have to declare the non-cash increase in value until later. Deferring taxes is good (for the individual taxpayer, anyways).
5. Donald Trump owns a lot of real estate, and that& #39;s why he gets to declare massive depreciation expense. But, again, depreciation is REAL loss of value, even if there& #39;s no cash loss and even if it will later be offset by capital gains when the asset is sold.
6. In corporate accounting, we often talk about Net profit or loss, which would include depreciation, and also EBITDA, which is Earnings Before Interest, Taxes, Depreciation, and Amortization. That removes non -cash and non-operating expenses.
7. Many of Donald Trump& #39;s businesses reported negative EBITDA, which means they lost real money on operations. This is not smart tax planning, this is failing in business.
8. The stuff about consulting fees paid to Ivanka are likely tax fraud.
9. The stuff about declaring a massive loss by walking away from his Atlantic City casinos, but then later getting a benefit from those casinos& #39; bankruptcy, is likely tax fraud.
9. The stuff about declaring a massive loss by walking away from his Atlantic City casinos, but then later getting a benefit from those casinos& #39; bankruptcy, is likely tax fraud.
10. His upcoming, personally guaranteed balloon payments on loans are a major issue. He is massively over-leveraged (in other words, he borrowed way more than he can afford to pay back).
11. ...But they might be a major issue for the people holding the loans, not him. The man has declared over $200 million dollars in debt forgiveness. He does NOT pay his bills, but that& #39;s not new information.
Sorry for spamming your feed with boring accounting stuff. I& #39;ll stop for a while.
