"Trump claims he is a billionaire. But he can’t pay a $464 million [judgment]," Congressman Ted Lieu wrote on X. "That means he is lying. How do I know? Math." Lying is an interesting word choice – math is an equally interesting word choice. Mr. Trump’s math and the math of potential bond writing entities include the requirements of paying off his secured debt holders and paying the federal and state income taxes resulting from the sale of his real estate assets to pay his fines and penalties. This math supports Mr. Trump’s statements to date.
The Trump Organization announced they had been unable to obtain a bond that would suspend the action of the New York Attorney General to begin foreclosing on his properties. Unless a Court suspends these foreclosure actions, it appears the Attorney General of New York could begin foreclosure proceedings the week of March 25th.
Sales of properties require the seller to pay off secured debt and pay federal and state income taxes. For properties held for long periods, such as the Trump properties, taxable income includes both very significant depreciation recapture along with any valuation increases during the period of ownership.
It is entirely possible that if Donald Trump’s buildings in New York are sold (or foreclosed upon) to pay his existing fines and interest to the State of New York his new federal and state income tax liabilities could be equal to or even greater than his fines and interest due to the State of New York.
Undiscussed by the media or Ted Lieu to date are the federal and state income tax ramifications that would accompany selling property or having property foreclosed to pay the fines that have been proposed. It is far from impossible and likely probable that the taxes that would need to be paid from the sale of properties would trigger hundreds of millions of dollars of new income taxes for Donald Trump.
The Trump Organization (rightfully in the opinion of this author) argues the amount of the fines imposed is outrageously high and violates the federal constitutional preclusion against excess fines. This author has previously argued that not only are the fines outrageously high, but the math used by the Judge imposes penalties on the Trump Organization wherein the Trumps are penalized twice for the same alleged violation of the law. In addition, this author argues that a requirement to sell his properties and pay income taxes that would otherwise not be owed is an additional part of the excess fines.
How large the combined hit to Donald Trump and the Trump Organization of the combination of the fines and interest along with the income taxes that would result from the sale or foreclosure of the Trump properties is not known with precision, but the total would be undoubtedly catastrophic to Donald Trump and the Trump Organization.
As a matter of tax law, neither Donald Trump nor the Trump Organization are allowed any income tax deductions as the result of the fines imposed or the interest thereon. This results in the perfect of bad tax results for Donald Trump and the Trump Organization: non-deductible fines and interest combined with taxable sales of real estate to pay the non-deductible fines and interest.
There is quite a bit of information available regarding Trump's 40 Wall Street Building. Mr. Trump bought the leasehold interest in 1995 when the building was nearly vacant and in need of restoration. He then invested significant funds in restoration thereby making the building economically viable. While spectacularly good from a business standpoint, for tax purposes, the results of the purchase at a fire sale price and almost thirty years of depreciation and amortization likely result in a cost basis of almost zero to Mr. Trump. Here, this author speculates that Mr. Trump’s current tax basis in the 40 Wall Street Building is only $10 million. As a result, virtually his entire sales price (or the fair market value if the building is foreclosed) would be considered taxable income. Mr. Trump would face a resulting combined federal and New York State tax rate of roughly 33% on the sales price less his basis in the property.
Assuming a fair market value of either $260 million as would be argued by New York’s attorney general, the net cash available to Mr. Trump from a sale or a foreclosure would be negligible. The first $160 million would go to the secured lender, Ladder Capital. The next $83 million would go for federal and state income taxes leaving roughly a negligible $17 million to reduce his $464 million debt to the State of New York. (In a foreclosure, the State of New York would receive the value of the building leaving Mr. Trump with the $83 million tax liability.)
Alternatively, assuming a fair market value of $410 million as could be argued by Mr. Trump, the net cash available to Mr. Trump from a sale or a foreclosure would still only dent his $464 million liability. The first $160 million would still go to the secured lender, Ladder Capital and now the income taxes would rise to roughly $133 million. This almost 60% sales price difference would only result in $117 million to reduce his $464 million debt to the State of New York.
Mr. Trump and the Trump Organization are facing New York fines and interest of around $464 million plus all future interest until such payment is made. The facts of the 40 Wall Street Building are likely very similar to the facts of most of Mr. Trump and the Trump Organization’s other real estate assets. Whether Mr. Trump has the assets to pay New York and accompanying federal and state taxes on the sale of his real estate assets is unclear. What is clear is that the total result of these fines and the taxes required to pay the taxes if assets are sold would represent a very, very large percentage, if not all of Mr. Trump’s assets. This is from a victimless crime: in the United States of America.
Is Mr. Trump lying about his ability to make an immediate payment of his $464 million liability to the State of New York? The math says no.