In December 2019, the U.S. Supreme Court agreed to hear Donald Trump’s appeal of multiple lower court rulings requiring the President to turn over tax and financial records to Congress. Now, the question of whether the public will ever learn what those tax returns show likely rests in the hands of Chief Justice John Roberts.

So what is really at stake here? Is President Trump concealing dark financial dealings that will forever taint his already controversial reputation? Or will his archives tell us more about the vagaries of U.S. tax law than the ethics of the man?

The fact that the Trump family has made whatever fortune it has in real estate provides some key clues. Here are my best guesses about the tales that the long-sought Trump tax files have to tell.

Huge Real Estate Depreciation Deductions

The basic concept of depreciation deductions is simple enough: Big-ticket items like an office computer network or a forklift steadily lose value over time. When companies cannot deduct the cost of acquiring these items all at once, they instead do so little by little over the course of the “usable life” of each item, which can range from a few years to several decades.

Theoretically, by the time those deductions add up to the original cost, the property has no remaining value. However, the theory makes a lot more sense for forklifts than for buildings. The IRS assigns a usable life of 27.5 to 39 years for most buildings; by that standard, Buckingham Palace became worthless by about 1743.

Skillfully used, real estate depreciation deductions would allow Donald Trump to declare annual losses for an apartment tower, even while the property rapidly climbs in value and brings his company multimillion-dollar revenues.

Past (But Not Present) Status as a Real Estate Professional

Often, the IRS classifies depreciation losses as “passive activity” losses, which limits the deduction many real estate owners can claim. However, those who qualify as real estate professionals are usually exempted from these limits. Obtaining this highly desirable status typically requires investing over 750 hours annually, and the majority of one’s working hours overall, into a real estate business.

Certainly, citizen Donald Trump met these criteria, and just as certainly, President Trump cannot. It is therefore likely that the 2015-2016 Trump tax returns would show him grabbing every available deduction for real estate pros before surrendering that status.

Sizable Carryforward Business Losses From Past Years

Since most tax deductions are nonrefundable, business owners have nothing to gain by claiming deductions in excess of their earnings for the year. Once they achieve zero tax liability, their best strategy is to transfer losses to another tax year. Handled expertly, these net operating loss (NOL) carryforward losses can make it possible to pay no federal income tax for a decade or longer.

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the extremely beneficial option to carry back, to prior years, these NOLs and indefinitely extended IRS rules allowing carryforward losses to be spread out over up to 20 years. The unsuccessful launch of Trump Steaks over a decade ago might still be shielding the President from federal taxes today.

Large Charitable Deductions, Some of Them Controversial

The court-ordered dissolution of the Donald J. Trump Foundation in 2019 grabbed headlines, but most of citizen Trump’s charitable contributions fell into an entirely different realm. At his Mar-a-Lago resort and many other properties, Trump’s business entities have made frequent use of a type of donation-in-kind known as an easement.

In brief, under an easement arrangement, a property owner agrees to either protect natural areas in an unspoiled state (a conservation easement) or preserve the historical character of buildings and grounds (a preservation easement). The deduction for easements is based on the idea that the owner is forgoing opportunities to develop the property and raise its value.

Many economic justice advocates have decried easements as little more than a tax dodge for the wealthy, since neither money nor physical property is actually handed over to a charitable organization. The IRS itself lists bogus easements as one of the “Dirty Dozen” most common tax schemes. Nevertheless, executed properly, easements are 100% legal, and the President is far from the only person using them to gain a tax advantage.

Multi-tiered Ownership: A Legitimate Strategy That Confuses Even Top Tax Lawyers

Originally developed as a way to protect business owners’ personal assets in the event of a business failure, the structure known as multi-tiered ownership can also offer significant tax benefits. These ownership webs sometimes grow so complex that even top tax and creditors’ attorneys (and even tax and bankruptcy court judges) cannot untangle them.

In its “simplest” form, multi-tiered ownership ensures that a company does not directly own major assets. For example, a real estate professional might have a limited liability company (LLC) that operates a ski resort, and a separate entity—known as a holding company—that actually owns the land, lodge, chalets, and major assets (chair lifts, Sno-Cats, etc.) needed to run the resort. If the resort fails, or a skier gets seriously injured, these assets could be shielded from creditors’ claims.

By stringing together LLCs and other business entities, entrepreneurs can sometimes gain tax advantages through income shifting by legally shifting income — reporting this income on the tax returns of the companies and locations which create the least tax liability. This strategy generally requires business locations in various states and countries.

Bottom Line: Looking Bad vs. Being Bad

Here is one last prediction on which I would confidently bet the family fortune today: whenever they ultimate come to light, President Trump’s tax returns will spark intense debate. However, the tax records of most real estate moguls would likewise baffle and outrage many Americans.

Most likely, the tale told by the Trump returns will be primarily one of a man and a family who have used the rules of the game to best advantage, as most people would if given the chance.

This article is not tax, legal, or other professional advice and cannot be relied upon for any purpose without consultation and advice from a retained professional.

As one of the most knowledgeable and well-connected tax & accounting professionals in the world, Harvey Bezozi's mission as a CPA and CFP ® is to provide concierge-level work product and service, along with seamless communication, high energy, and a super-positive attitude. Located in Boca Raton, Florida, Bezozi has been in business since 1994, and serves clients in all 50 states and internationally. More information can be found at YourFinancialWizard.com