Donald Cay Johnstone is the tax expert and economist who has explained the Trump’s taxes. Worth a read.
A brief summary: Trump combined tax benefits under Section 1231 of the Internal Revenue Code with the exception provisions in Section 108. In less legalistic terms, in 1990 Trump over paid for “trophy properties” like the Plaza Hotel in Manhattan and 23 worn-out jetliners for the short-lived Trump Shuttle airline. These mistakes created about $1 billion of “net operating losses,” or NOLs, under Section 1231 of the tax code.These tax losses can be used to offset salaries, business profits, and income from, say, a television show or making neckties in China.
OTHER LIKELY TAX ISSUES FOR Mr. T. 1. lack of charitable giving
2. income from dubious sources, e.g. Saudi Arabia, Russia
3. total worth very low
Thanks to his $916 million of NOLs, Trump could earn much over 18 years in salaries, profits, and interest, but pay no income taxes. But, for ordinary folks, the IRS limits the amount of a loss that can be deducted each year to $5000. So, Trump found a way to turn the loss into real estate depreciation. Real estate can be depreciated over 39 years. The faster a tax break becomes available, the greater its value. Trump’s advisers found a way to convert real-estate depreciation into NOLs that were much more flexible and could be used faster.
To do this Trump needed loans on his depreciated properties. As loans, these provided cash that was never declared as taxable income. As he explained to CNBC in May “I’ve borrowed knowing (I) can pay back with discounts. I’ve done well with debt.” And, to get these loans Trump threatened endless litigation unless 70 banks he owed money gave him millions more in new loans at low interest rates and provided him with $5.4 million a year for personal spending, the equivalent of $10 million in today’s money.