Bernie Sanders Vows to Close Tax Loopholes

October 4th 2016

On Tuesday, Sen. Bernie Sanders (I-Vt.) announced plans to introduce legislation that would prevent wealthy Americans like Republican presidential nominee Donald Trump (and real estate developers in particular) from exploiting loopholes that allow them to put off paying federal taxes. He'll bring the bill to Congress during the next session, according to a press release.

bernie-sandersAP/Dennis Van Tine - apimages.com

"Special tax breaks and loopholes in a corrupt tax code enable billionaires and powerful corporations to avoid paying their fair share of taxes while sticking the burden on the middle class," Sanders said. "It's time to create a tax system which is fair and which asks the wealthy and powerful to start paying their fair share of taxes."

Though Trump has refused to release his tax returns — something every presidential candidate has done for the past 40 years — select pages of his 1995 tax return obtained by The New York Times revealed that Trump claimed more than $916 million is losses in that year, which "could have allowed him to legally avoid paying any federal income taxes for up to 18 years." Sanders plan would eliminate the tax exemptions that potentially enabled to nominee to write off taxes due to real estate and investment losses.

A fact-sheet on the proposed legislation listed four tax loopholes Sanders hopes to close.

1. "Exemption for real estate from passive loss rules."

As a general rule, taxpayers are not allowed to offset losses from a business they are "not really involved in" on personal income taxes. But under the "passive loss rules," included in the Tax Reform Act of 1986, there's an exemption for commercial real estate developers. Because Trump's many real estate holdings — including three casinos and an Atlantic City hotel — were suffering in the 1990s, experts believe he was likely to have incurred significant losses. The current loophole is what allowed Trump to claim those losses on his tax filing in order to offset future taxable income.

2. "Exemption for real estate from at-risk rules."

Another tax loophole available to individuals in Trump's line of work, the "at-risk rules" in the Tax Reform Act, allows real estate developers to claim losses from investments "beyond the money they put in or that they are directly liable for." That exemption means that "[r]eal estate professionals can use losses against non-real estate income, both in the year the losses arise and in some earlier and subsequent years," PBS reported.

3. "Like-kind exchanges."

As the law stands today, individuals can avoid paying taxes on capital gains by selling properties and then quickly reinvesting the money in another property. This loophole is particularly advantageous for real estate professionals, who can continue to defer paying taxes on profits from capital gains as long as they continue to reinvest, Bloomberg reported. It's not clear that Trump benefited from this loophole because he hasn't released his tax returns.

4. "Debt and Depreciation."

Basically, Sanders wants to eliminate the law that allows individuals such as Trump to "combine tax breaks for borrowing with tax breaks when an investment rapidly loses values." The Sanders' press release states that, under the current rules, "an investor like Trump can borrow money to make
an investment, take deductions for the interest he pays on the debt and take deductions if the property depreciates."

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