I wrote this in the MAGA thread, in response to “Holy smokes–the POTUS has $400m in debt coming due in the next four years?” I thought it belonged here too.
No offense…but I think you guys know almost nothing about personal finance and taxes. (Note - nothing I say here should be construed as a defense for Donald Trump’s continued presidency, re-election, or ability to run the country.)
DJT has assets worth almost $4 billion. If he has $400m in maturing debt–that’s nothing. That’s 10% of his capital structure. Sure–he has to come up with some way to pay it back–but if he can borrow the money (which I’m quite sure he can)–problem solved!!! And if he can’t–then he just has to generate some operating capital in the next four years.
“But he can’t generate any operating capital!!! He’s broke and all his properties are losing money!!!” No, they’re not. There’s a difference between an accounting profit , an operating profit , an economic profit , and a tax profit .
Think of it this way–if DJT makes $50m on a reality TV show, and he has $20m in “operating profit” (which includes revenues and operating expenses, but excludes taxes and depreciation) from a hotel/golf course/resort, then you might think he has $70m in taxable income. But you’d be wrong.
He will take that $70m and invest it back into his resort. And that $70m becomes a deduction, which may be able to be expensed immediately under the IRS capitalization rules. (Anything with less than a 15-year life is immediately expensed. Anything with more than that has to be capitalized and depreciated.) The “accounting profit” is depreciating the $70m over 30 years, but the IRS allows most of it to be immediately expensed. So the “taxable income” is lower than the “accounting” income is.
Moreover, since he just contributed $70m back into the resort, he can probably go out and borrow an additional $70m–which can also be capitalized and depreciated. Now–he has another $70m to depreciate. Now he has $70m in income and $140m in expenses, which generates a $70m loss, which can be carried forward for 20 years.
Most people look at this and say, “OH MY GOD!!! THE PRESIDENT LOST $70 MILLION IN A SINGLE YEAR? AND HE’S RUNNING OUR COUNTRY??? OH MY GOD!!!” What they don’t realize is that even though he has zero taxable income, his net worth increased by $100m ($70m in “income” that was reinvested and deducted and $30m of unrealized capital gain–net of the accumulated debt)–and the IRS does not tax net worth. (At least not yet.) The IRS taxes taxable income, of which he has zero. (And since he can carry that loss forward for 20 years, he will have zero taxable income for a long time.)
If you rinse and repeat this for 30-40 years, you accumulate a lot of money. Granted, you also accumulate debt, but the debt is only a fraction of the assets. The assets keep increasing in value to the tune of 15-20% per year, and the interest expense is 5-6%. He will keep doing this for ever and ever and ever. And once he’s dead and gone, his kids will pick up the torch after him and continue to run his empire, the way he picked up his dad’s torch and ran with it.
Again–maybe this is morally repugnant because it perpetuates dynastic wealth while keeping the poor in the poor house. I’m not here to opine on morality. I just state the facts–which is that Donald Trump is doing just fine.