How the Rich Pay No Taxes

[Buttoneer]

Shareable!

[msongs]

1. aka how democrats and republicans write the laws so rich people pay less taxes...

unfortunately it takes two to tango in congress

[Happy Hoosier]

10. BOTH SIDES NT

[marybourg]

2. And he never does sell the assets. He wills them to his children who get a "stepped up basis"

meaning they only pay tax on the difference between the value on his date of death and the value when they sell them, a few weeks later. Then the kids cry about “death tax”, so they can repeat the same routine for their kids. Yup. That’s why tRump overvalued his real estate holdings.So he could borrow more, at an even lower billionaire rate.

[lostnfound]

3. To avoid paying capital gains, he can reinvest in opportunity zone, pay ZERO tax on gains if he keeps it ten years

The deal on some of that stuff was absurd.
“Qualified Opportunity Zones”. A total giveaway, which only the rich even know about.

As i wrote a few years ago:

So… if you make a million in capital gains in 2019 and you don’t want to pay taxes on it, you can reinvest the money in 2019 on a property that’s qualified under both the new QOZ and the old NMTC. Instead of paying $200K right away in capital gains, you can spend $1 M building a facility on a piece of land in Ybor. You can take NMTC tax credits worth $390,000 over the next 6 years. In year 7, you’ll finally have to pay capital gains on 85% of the capital gains taxes, which is $170K. Hang onto it for a total of 10 years, and if it appreciates to $6 M in 10 years, you won’t have to pay a dime on that $5 M gain when you sell it.

Without NMTC or QOZ: Earn $1 M in market, pay about $200,000. Invest the $1M, sell in 10 years for $6 M, capital gains on $5 M = $1.16 M. Thus, $6 M in income and $1.36 M in taxes.

With NMTC and QOZ: Earn $1M in market, tax credits of $390,000, pay $170,000 after 7 years, and no further. Thus, $6 M in income and net $220,000 in tax CREDITS.

Work for 50 years making $120,000? You’ll earn $6 M in income and pay $1.59 M in taxes – including federal ($1.1 M) and FICA ($0.5 M) – not counting state income tax if any..

[cliffside]

8. Never heard about "Qualified Opportunity Zones" appears they were part of the 2017 Trump tax cuts ...

interesting and thank you!

As is always said ... follow the money.

https://opportunityzones.hud.gov/resources/map

https://nj.gov/governor/njopportunityzones/

"The Opportunity Zones program was enacted as part of the 2017 federal Tax Cuts and Jobs Act and is designed to drive long-term capital investments into low-income rural and urban communities. This federal program provides opportunities for private investors to support investments in distressed communities through participation in Qualified Opportunity Funds. Investors can defer paying federal taxes on capital gains reinvested in Qualified Opportunity Funds that invest in low-income communities, under rules released by the U.S. Department of the Treasury. Reinvested capital gains are deferred from taxation until exit from a Qualified Opportunity Fund or December 31, 2026, whichever comes first. However the original gains reinvested in Qualified Opportunity Fund investments held for the long term are taxed at reduced rates, with taxable gains discounted by 10% at the 5-year mark and by an additional 5% discount at the 7-year mark. Any new gains from Qualified Opportunity Fund investments held for at least 10 years will be permanently excluded from the capital gains tax."

https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/

"The law cut corporate tax rates permanently and individual tax rates temporarily. It permanently removed the individual mandate requiring individuals to purchase health insurance, a key provision of the Affordable Care Act.
4
The highest earners were expected to benefit most from the law, while the lowest earners were believed to pay more in taxes when individual tax provisions expire after 2025."

[Kaleva]

4. How does the guy on the right pay back the loan?

If he spends much of what he borrowed like it was income, where does the money come from to pay off the loan?

[Disaffected]

5. My question also.

And, how does he pay the interest on the loan?

[Buttoneer]

6. He probably deducts any payments on the loan?

[Kaleva]

7. Hell have to sell or transfer his stock to the bank

Because of interest, he'll owe more then he borrowed and if he uses much of what he borrowed to live on, he'll run out of money and have no way to pay the remainder of the loan along with the interest.

[Buttoneer]

9. I'm no accountant, but I'm sure there are other loopholes. n/t

[Happy Hoosier]

12. Interest on debt used for investment is deductible....

So they typically only use a portion to live on and invest the rest..... and the tax deduction offsets taxes owed on the capital gains. In any case where they owe more than they have, they just roll over th eloan with an inflated valuation of the asset. Sound familiar?

[Happy Hoosier]

11. Here's how....

Generally, when he takes the initial loan, he uses only part of the loan proceeds for "income" He invests the rest. But the interest on the loan is deductible (loans for investment pruposes have the interest tax deductible). When the loan term is due, if he has sufficient assets from the initial loan that have appreciated (if the "income portion used was relatively small, for example), they just repay the loan, rinse and repeat. If not, they just roll ovewr the loan. Collateral assets are likely to have appreciated and so a larger loan is justified (which can cover any delta of remaining balance on the original loan and lifestyle creep). Securities can be used for this, but an asset with a more subjective valuation, like real estate is better. With securities, valuation is set by the market. But with real estate, especially high-end real estate, you can typically find an appraiser who will give you the number you want to justify the loan from the bank. This might be sounding familiar..... and it's a bit of a game of hot potato. The banks don't typically care if the loan amount is infated. They know at the end of the day, the debtor will likely just roll over the loan and the risk is reset. It's only really an issue if the value of an asset is noticebly and visibly reduced. but this why the banks are so willing to, for example, lend TSF piles of money based on what they likely know are fraudulent valuations. They know they will be passing that risk on to someone else once they have made their money.... unless they are unlucky enough to be the person holding the "hot potato" at the end, if that happened. In short, the loan is never REALLY paid off. It just gets rolled over again and again. I know a couple local land lords who do this with their rental properties. It's unethical, IMO, but perfectly legal, and they make bank on it.

[Kaleva]

13. Thanks!

[marybourg]

14. They don't, although for the extremely rich

Last edited Wed Sep 18, 2024, 10:54 AM - Edit history (1)

the interest rates are very very low. Their children pay it off out of the assets they inherit tax free below a multi multi million amount for a couple. Meanwhile. the assets have been earning and growing, having not been spent down, or taxed.

[Kaleva]

16. I'm learning something new today!

[WarGamer]

15. BINGO deserves 1000 recs