Why Donald Trump cannot sell his property
I've seen a lot of people posting about raging for Donald to sell his assets (divest), it won't happen. It SHOULD happen, but no amount of yelling and screaming would make it happen. It would cost him / his heirs too much.
The reason why is how taxes on real estate, capital gains, depreciation, and estate taxes interact. To simplify this example, lets take Trump Tower:
These numbers are fictional for illustration purposes, and assume he has no debt. The debt issue just makes the calculations more complex, but doesn't change the underlying logic.
Purchase Amount 300m (he's owned it for a long time)
Accumulated Depreciation - 150m
Value if Sold - 1b
If he sells it, here's what happens tax wise:
1b - 150m = 850m gain, of which 150m is recaptured depreciation. So 150m X 53% (ordinary income for depreciation recapture including NY taxes) + 700 X 30% (capital gains rate) = 290m taxes. In addition he would owe 390m in estate taxes when he dies.
Total tax bill (including estate taxes) = 680 million taxes, heirs get 320 million cash
If he keeps it, here's what happens (assuming he died next year):
Heirs get stepped up basis (when you die capital assets are revalued for depreciation and capital gains purposes to fair market value on date of death). Estate tax of 550m can be paid with loan.
Heirs get: 1b dollar building, 550m loan, net 450m
In addition, in scenerio 2 above they heirs can start depreciation all over again (beginning at 1b).
Final big deal
As long as you trade one piece of commercial property for another, no taxes are due, so Donald or the heirs could wind up never paying capital gains taxes, get the benefit of stepped up basis, and increased depreciation. (just estate taxes when a generation dies).
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