If only there were some way for us to know for sure what happened. Like, if there were some documents filed with an official government agency during this time period that would elucidate exactly what happened here.
(bolding mine)
I recognize that you moved the goalposts.
Don’t you feel a little silly using an article that begins “Since her divorce from the human Cheeto” to prove your point?
Why not? It’s a year in which the cost of operating a household is greater than the revenue brought in by that household. How is that different from a corporation (remember, corporations are people my friend) with a net operating loss for a year?
Sure… “If it’s not a crime, then it’s perfectly acceptable and even terrific.”**
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** if you’re a Republican
So, what would be an example of a loss that Joe Average could write off and carry over to subsequent years?
How do we know that the $915 million dollar loss wasn’t a payoff to Pablo Escobar? Sure, he was dead in 1995, but I’ve heard very smart people say that there’s something fishy with this tax deduction. VERY smart people who I won’t name, but are not anonymous sources – they can’t be trusted!
We should investigate fully for the next five years, and then maybe in 2021, Hillary Clinton can declare that she ended the controversy even though someone else – probably Chris Christie – was the one that started it.
Losses on capital investments. A common example would be sale of a stock and a price less than what it was paid for, more than 12 months from the purchase date. These losses can offset capital gains. To the extent that the losses exceed the gains by more than the prescribed limit of $3,000, they can be carried forward and applied to future year gains.
Why not? Because that’s not what the tax rules allow. A household is different than a corporation because wait for it…it’s not incorporated. Complicated, I know.
Illegally “sent” I can see, illegally “published”, perhaps another viewpoint I can understand the argument for, but how do you illegally “obtain” an anonymous envelope sent through the mails? Especially if, among the first things you do, is take it to your attorney for his advice?
Now Mr. Attorney might suck and give you bad advice, but please explain the illegality of receiving an envelope?
But the question really is “should it?” If I can’t depreciate my house, should I be able to depreciate my office building - for tax purposes, not for financial accounting purposes? There are reasons to capitalize and depreciate over time for financial accounting, but tax - on buildings? Over a mere 30 years? Who builds a building to only last 30 years?
Moreover, should I be able to carry business losses from year to year, but not personal losses?
Owning a small business - like I do - is awesome for our taxes. And to some extent - encouraging people to take risks and run small businesses is something our tax code should do. But billion dollar losses? I’m not sure if I want the U.S. government to subsidize any one company to that tune over the course of twenty years. That encourages irresponsible corporate behavior.
Right, but nobody’s arguing that carrying over the NOL was against the rules.
From your question “do you understand why?,” I inferred that you thought there was some obvious justification for the rule. Did you not mean that?
These were his personal taxes. You don’t owe fiduciary responsibility to yourself.
If you are stupid enough to lose $1 billion, write it off. But don’t say you are legally obligated to. Maybe that is similar to his implication that he is legally obligated to not release his returns under audit.
And I just want to emphasize what you said - that you can only apply these losses to capital gains, not for the most part to regular income. Half of Silicon Valley did this after the bubble. I did. It is not a mark of genius.
Trump’s losses, however, could be applied to his unrelated income. My impression is that this is limited to real estate people. In fact it seems that non real-estate professionals with real estate losses can only apply those losses to later real estate gains.
Trump’s tax plan does not change this, by the way.
Any Joe Average who is self-employed can lose money and have an NOL to carry over. It’s not difficult to lose money in business.
Specific example: Joe sees all the kids in the neighborhood want Meanie Babies for Christmas. He runs around buying up Meanie Babies at the top of the market and plans to put them on sale on eBay and make a fortune. Meantime another toy company comes out with Lick Me Elmer and the kids no longer want Meanie Babies. Joe ends up selling his Meanie Babies for half of what he paid for them.
Another example: Joe Plumber has been working for his uncle for a long time. He sees how much money his uncle charges, but Joe only gets a fraction of that. He figures he’ll start his own plumbing business. He spends his life savings buying a truck, parts, insurance, and getting licenses and permits. He opens his door. Nobody calls. They all like his uncle and see no reason to switch.
There really is no such thing as a “personal loss” if we are talking about people who earn a wage for a living. A person makes $40k in wages, he has $40k in income. He has no expenses to earn that $40k.
A business owner has to pay for things that are needed to earn these profits. Rent on an office building is needed to produce business income. The business income minus the rent on the office building (and all other expenses related to the business)=taxable income. This has nothing to do with personal expenses which will vary between individuals and are not related to actually earning the money.
Adopting your argument would be similar to the common tax protester argument of saying that they have no taxable income because all of their wages that year went to pay for household expenses.
Now you’re getting into the Passive Activity Loss limitations.
Generally, losses incurred in passive activities (including real estate rentals) can only be used to offset other passive income (not necessarily in the same business). The rest can be carried over. However, in the year in which you completely dispose of your interests in the passive activity, you apply any unused passive losses to your non-passive income.
The special provision about rental income is that all rental activity is considered passive unless you are a real estate professional, in which case that passive activity loss limitations do not apply. So, if you own a two-flat that you rent out to tenants, that is a passive activity. If you spend your whole day managing a real estate portfolio, that is a non-passive activity.
This might explain it better than I did:
Passive Activity Loss (PAL) Rules: IRS Limits on Deducting Passive Losses
I disagree. For my job, I have transportation costs and work clothes costs at a bare minimum. There are some other things I purchase that I wouldn’t buy otherwise, but these are unambiguously work costs.
There is an obvious justification - losses get netted against earnings. There is no income to offset against for being unemployed.
Is your house used for solely for business purposes? You can depreciate the portion that is.
Yes, if a person is in the business of real estate then real estate losses are no longer passive and not limited in the way other passive activity losses are. Or what Alley Dweller said.
And you are allowed to deduct certain unreimbursed travel and uniform type costs if they are for work. But simply eating, living, etc. are not work related expenses. Traveling to and from regular work place are personal expenses, not work related expenses. Travel to other places that is not reimbursed could possibly be deducted depending on the fact pattern, like to a second job.
Thanks. I’m old enough to remember tax shelters (but not old or rich enough to use them.) And since my wife is a writer, and we file a Schedule C for her, she has answered the question about active involvement in the business for each year.
Now, while I can see losses from the Plaza counting toward his personal taxes, I don’t understand why losses from Trump Air would. We of course don’t know if it did or not, but I have a hard time thinking he got up to $900 million without it.
But they are “work costs” that everyone has, or better stated, the IRS presumes everyone to have. Commuting expenses and work attire (except for uniforms) are not tax deductible as the clothing can be worn outside of work. Not allowing deductions for commuting expenses are a realization that we all choose where to live more or less.
If I drive sixty miles to work and you live right next door to the business, why should the taxpayers in essence, subsidize my choice to live out in the sticks?
So we all have to get ready and get to work somehow, but wage earners are given a paycheck for being there. That is a gain under the rules as commonly understood.
However a business owner must expend funds just for the opportunity to realize a gain. That is something that does not happen to wage earners. If you are employed at, say, $20/hr, you get $20/hr whether the business has a great month or is barely surviving.
That’s why I have complained in the threads about minimum wage that I MUST pay employees a basic wage, but am not guaranteed the same myself.