it<u+2019>s not just donald trump. many owners of rental real estate are able to use losses to avoid paying taxes.<u+200b> the republican nominee for president was asked during an oct. 9 debate with rival hillary clinton whether he had used $916 million in losses <u+2014>disclosed in portions of his 1995 tax return obtained by the new york times <u+2014>to avoid federal income taxes. mr. trump responded: <u+201c>of course i do,<u+201d> though he didn<u+2019>t say for how long. he also acknowledged using depreciation, a provision of the tax code that can allow a real-estate owner to write off losses that exist only on paper. <u+201c>i love depreciation,<u+201d> he said. tax breaks have long been available to owners of rental real estate, but they are especially generous if the owner meets the tax-code definition of <u+201c>real-estate professional.<u+201d> such landlords can shelter substantial wage or investment income by deducting paper losses for assets that are actually appreciating in value<u+2014>a rare privilege in the tax world. it is not known whether mr. trump qualifies as a <u+201c>real-estate professional<u+201d> although many tax experts said they assume he does. a representative for mr. trump declined to comment. these breaks aren't just for billionaires. for example, they can also cut tax bills for less affluent couples in which one spouse earns a salary and the other manages rental property owned by the couple. in 2014, one or more filers of 392,000 returns claimed to be real-estate professionals, according the most recent data from the internal revenue service. this total doesn't include taxpayers earning $150,000 or less and who can deduct up to $25,000 of rental losses under different rules. to qualify for this coveted status, real-estate professionals have to meet stringent requirements. for example, they must spend at least 750 hours a year on their rental-real-estate business, and the total hours must be more than half their business activity<u+2014>making it difficult for someone with a full-time job to qualify. they also have to meet a further layer of detailed requirements. here is a rundown of breaks that often benefit those who are eligible: *depreciation . shrewd owners select properties that are appreciating while writing off losses that are only on paper because the law assumes the buildings are deteriorating. this annual deduction is based on a life of 39 years for commercial properties and 27 1/2 years for residential ones. depreciation is deductible even if the owner borrowed money to buy the building. real-estate buyers often hire specialists to prove that a large part of a building<u+2019>s cost<u+2014>sometimes more than 60%<u+2014>is made up of elements that qualify for much faster write-offs. experts say this yields larger paper losses sooner. <u+201c>the benefits are huge,<u+201d> says eve dreyfuss, a cpa with moss adams in campbell, calif. *loss deductions . if there are more losses than income from rental properties because of write-offs for depreciation, interest and taxes, real-estate professionals can use them to offset other income from wages or investments. on the pages of his 1995 return, for example, donald trump claimed $15.8 million of losses from ongoing rental real estate and other activities. this more than offset his $7.4 million of taxable interest income as well as his business income. unused losses can be carried forward for later use. by contrast, taxpayers with capital losses on investments can only use them against capital gains<u+2014>not wages or interest income (above $3,000 a year). *tax deferral . real-estate owners can defer taxes on the sale of rental properties by exchanging them for others in what<u+2019>s known as a <u+201c>like-kind<u+201d> exchange. if the investor holds successor properties until death, capital-gains taxes are never owed. *other exemptions . if there is net income from rental properties, it isn<u+2019>t subject to the 3.8% surtax on net investment income such as interest, dividends and capital gains. the threshold is $250,000 of income for couples and $200,000 for singles. in addition, rental income isn<u+2019>t subject to social security and medicare payroll taxes. taken together, these provisions<u+2014>and the revelations about mr. trump<u+2019>s taxes<u+2014>are causing some democrats in washington to call for limits on them. sen. bernie sanders, for example, would like to curb several of these breaks. meanwhile, people who aspire to be real-estate professionals must face the irs, which patrols this area and often goes to court over it. frequently, the agency wins because taxpayers didn<u+2019>t keep detailed records.<u+200b>in that case,<u+200b>loss deductions are typically deferred until the owner parts with the property. this strict enforcement raises the question: does mr. trump qualify as a real-estate professional given his run for president and non-real-estate businesses? a bit of tax history may work in his favor, says jay starkman, a cpa who practices in atlanta. in 1974, nelson rockefeller deducted $63,275 in expenses related to his confirmation as vice president for gerald ford. the irs denied the write-off because seeking office didn<u+2019>t count as a trade or business. if mr. trump<u+2019>s run for president doesn<u+2019>t count as a business, says mr. starkman, it will be easier for him to claim he<u+2019>s a real-estate professional who spends a majority of his working time on it<u+2014>and deserves the breaks that come with that status. these <u+201c>tax benefits are some of the best in the entire code,<u+201d> says david kautter, a partner with accounting firm rsm us in washington, d.c. write to laura saunders at laura.saunders@wsj.com
the tax breaks available to donald trump<u+2014>and you - wsj
laura saunders