Let’s discuss that near billion dollar tax loss carryforward

We can only wonder why it has almost become a forgotten issue. But here is the rub. The President didn’t really lose his money. It was never all his own money. Most of the money came from investors and lenders. Now if you, our dear reader, or me, have a mortgage foreclosure, that forgiven debt becomes a tax liability. It is as if you earned the amount of money that represents your unpaid mortgage balance. So your terrible misfortune will be compounded by a devastating tax bill. But if you took out a business loan or issued bonds through the right kind of business structure,  such as a Limited Liability Company, and defaulted, no problem. You are not tasked to pay the taxes on the debt you will never pay.

But it goes further. You can be assumed to have personally lost those funds, if your business entity was what is called a “pass through entity”. Even though those funds that were lost were never really yours. Thus it was possible to deduct the losses of money that other people provided and lost. Yes it was a brilliant tax strategy, and perhaps we are simplifying it a bit.


Mr. Trump’s accountant took credit for this strategy, but the president was smart enough to adopt a suggested tax strategy, so cunning and original, but potentially harmful to the United States,  that it has since been discredited and blocked. . So credit is due. Mr. Trump was smart enough to massively benefit from numerous people’s hardships (creditors, investors, employees, vendors), which he, due to poor judgement and timing, largely caused.

Is it really any wonder that Trump refuses to release his tax returns, which will reveal all this (not to mention charitable contributions, or the lack thereof, while identifying  where conflicts of interest yet reside).

For those financial folks reading (it’s too arcane for most readers), here is how that was done. His casino business in New Jersey was set up as a pass-through entity and it offered public shares as such. Pass-through entities are enabled to pass through profits and losses directly to their investors and/or owners. Trump was able to retain the largest portion of those shares, even without making anything like the substantial investment in money that the public investors made. . Typically owners of pass-through entities are able to offer a limited amount of existing shares in the offering, while retaining most of them, thus the public investors wind up capitalizing most of the respective business entity that the shares represent, while the promoter (Trump) actually retained substantial ownership of shares.. Investment professionals call this practice, inherent in almost all new equity (or stock) offerings, “dilution”. Losses from the business accrue to all the entities’ owners, based on the number of shares they have, not on what they paid for them.. So while Trump paid next to nothing for his shares, he had a great deal of them. Thus he was able to take the large losses on those shares, for the failed businesses. The losses were so large they more than offset one year of his income, but he was able to “carry them forward.” Folks carry forward losses because they generally exceed income for some number of years; wiping out one years’ income entirely, and than carried forward to “reduce” future taxable income . And that is the reason he wouldn’t show his tax returns, because he has paid very little in taxes off the backs of all the losers in his various failed businesses. 

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