Blas’ Tax Tricks
Just another rich landlord’s rigged system
NEW York’s hometown realestate mogul is manipulating the tax code to save a huge amount of money. No, it’s not President Trump. It’s Mayor de Blasio — showing how a complicated federal tax system benefits a key constituency that styles itself as middle class.
This week, de Blasio released his tax return, along with a dose of self-righteousness. “For us, tax time is a moment of gratitude,” the mayor and his wife, Chirlane McCray, wrote. “We are grateful to live in this country, and do our part. We are grateful to have a home — even if we don’t live in it right now — and a steady source of income” to pay taxes for “education, health care and other key areas” that Trump wants to cut to pay for a “massive tax cut to the wealthy.”
We should, in turn, be grateful de Blasio released his returns. The documents are instructive.
Strip away de Blasio’s everyman talk about “steady income” and a home, and you have an affluent property owner who aggressively and creatively minimizes his taxes.
No, de Blasio isn’t superrich — but he’s doing well. He reported $220,651 in earnings — four times what the Census says is the city’s average of $53,000 in household income. He paid $37,757 in federal taxes — about 17 percent of his total income.
But the mayor and his wife also avoided paying thousands of dollars by making a byzantine tax code work for them. In addition to his reported income, virtually all of it from his salary, the mayor also reaped $106,000 from rents at two houses his family owns in Brooklyn.
But de Blasio and McCray didn’t pay taxes on any of this cash. Why?
A big reason is the mortgageinterest deduction, worth $61,219. Contrary to the de Blasios’ prim statement about being grateful to have a “home,” the mayor and his wife don’t have a Brooklyn home at the moment, but run an apartment-rental business while they live in Gracie Mansion. That’s admirably entrepreneurial, and paying the interest on business debt is a real cash expense.
But the mayor also avoids taxes by constructing a paper loss. The de Blasios took a $26,970 “expense” for “depreciation” of their houses. That, plus much smaller expenses, left the first couple with a $6,247 loss on renting out the apartments, meaning they don’t have to pay taxes. But did they really lose money? The IRS sets rules for taking deductions on house rentals. You can’t depreciate your land, because “land generally does not wear out.” On the other hand, if you buy a dishwasher, you can gradually depreciate that.
That seems straightforward. But properties come with all kinds of wasting assets, from “shrubbery” to pipes. It’s impossible to estimate how much a previous owner paid for each item, how much they’re worth today and how long they’ll last.
De Blasio won’t let the public see how his accountant arrived at his depreciation figure. We just know that for each year he’s been in office, his properties have been wasting away.
Conveniently for the mayor, though, the Brooklyn land that his tenants also pay to live on top of is appreciating. Zillow says the larger property is worth $2 million, thrice what the mayor bought it for 13 years ago. If the feds forced the mayor to offset the depreciation of his pipes with the appreciation of his land, he’d have no tax deduction.
There’s another obvious test. Banks have lent the mayor money to maintain these properties. Why would they lend money to a business that loses thousands of dollars annually, with no prospect of a turnaround?
And why would the mayor keep these apartments if he had to shell out thousands of dollars to subsidize their losses? He’d at least raise his rents, to force his tenants to pay for the toilets they’re destroying.
Because of the mayor’s paper losses, though, “education, health care and other key areas” of the government do suffer. The mayor avoids paying about $7,000 in federal taxes and $3,000 in state and local taxes.
To be clear: This is neither wrong nor unusual. And it’s because this behavior is common that it’s hard to reform the tax code. There are millions of property owners around the country like de Blasio and McCray.
They benefit at the expense of their tenants — and at the expense of individual homeowners, who can’t deduct a microwave oven as “depreciation.” But if Congress did try to abolish these obscure tax breaks, lawmakers would hear from affluent swing voters.