Just Like Trump, I Avoided Paying Federal Taxes

http://www.nytimes.com/2016/10/17/opinion/just-like-trump-i-avoided-paying-federal-taxes.html

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Cleveland Heights, Ohio — I’m like Donald Trump, somewhat. We both inherited buildings from our fathers. I’ve kept my father’s properties and bought a couple more buildings. For my first couple of years I had “loss carry-forwards.” I lost money and paid no federal taxes.

Some dads teach their sons fishing. My dad taught me to do taxes.

He kept two sets of books — one pencil, one ink. Self-made guys, like my dad, often kept two sets of books, a retired accountant later told me. The second-generation, like me, usually goes legit, he said.

I went legit. I got audited, didn’t take an accountant with me, and left the Cleveland federal building with a credit. Landlords handle a lot of cash — first month’s rent, security deposits. That’s probably why I got audited.

Years later, my younger son got a certified letter from the I.R.S. with a handwritten Post-it attached. (The government usually sends me unsigned computer-generated letters.) What did the government want with him? My son, then a college student, played drums for the Michigan Wolverines women’s basketball pep band. He was paid $25 per game plus free hot dogs. The I.R.S. gave him a credit, too: $68. I was proud of him.

I haven’t been audited since 1982. Thirty-four years of saving bills and income/expense statements and checks — and nobody wants to see them. Yes, I periodically throw out nonessential records, but I replenish.

Mr. Trump claims to be an expert on taxes, but he isn’t that interested in his own taxes, according to his former accountant, Jack Mitnick, who said Mr. Trump’s former wife Ivana asked more questions at their annual visit to the accountant than her husband did.

I don’t keep two sets of books, but like Dad, I do use a pencil. A couple of years ago I went to a major downtown Cleveland accounting firm and showed my returns to an accountant who nearly flipped out. “I’ve never seen this before. You do it by pencil?” he said. Yes, so when I make mistakes I can easily correct them.

I sign my name by pen. I report withheld security deposits, every first month’s rent pocketed, and I take all the legal deductions, just like Mr. Trump.

Apartment buildings have lives — it’s called depreciation. For instance, apartment buildings last, according to the tax code, 27.5 years. Commercial buildings last 31.5 years or 39 years; the law keeps changing.

Luckily for laymen, the I.R.S. literature is good reading. The 1040 instructions are clear, and the I.R.S. is often accommodating: “If you have suggestions for making these forms simpler, we would be happy to hear from you.”

Every January I wear a camping headlamp and crawl around my attic, culling old receipts and folders, making room for new files. Why do I save all this stuff? I get insulation flecks on my fleece jacket. It’s freezing up there, and there are mouse droppings and desiccated rubber bands.

The first commandment of real estate is, “Save all old records” (you might get sued someday and want to prove you’re the good guy). The second rule is, “Never sell a building” (because then you’ll have to pay capital gains). But if you do sell, defer those gains by buying another building almost immediately. The best strategy: hang on to the building forever, and when you die, your heirs can sell it without paying a big capital gains tax. (Hillary Clinton is thinking of changing that law.)

Two years ago I sold a 17-suite apartment building, and as stipulated by the federal tax code, I had 45 days to identify a new property or else pay capital gains. I hired a “1031 company” — a firm that exists solely to hold your money while you do a “1031 exchange” — both named for a section of the tax code. You buy a more expensive building. If I touched the money, even for a second, the transaction would be taxable.

I couldn’t find an appropriate apartment building in 45 days, so I bought a medical office building. The elevator — the only one in the building — often had bad moods; I didn’t like the calls from doctors about how their patients had to hobble up three flights of steps because the elevator was out.

I sold the building this year and owe the capital gains tax. Fine. As a banker once told me, “You make your money, and we make ours.” If you’re paying taxes, you’re making money.

The only problem is my taxes are now too hard to do myself. I owe capital gains taxes going back to 1987 — the year I bought the 17-suiter. I’m not saying how much. I’m like Mr. Trump that way. But I’m paying.