The 'very strange' item on Trump's 1040: alternative minimum tax


Leaked pages of President Donald Trump's 2005 tax return offer no new details about his foreign income and business dealings but highlight a tax he's vowed to abolish.

The alternative minimum tax, or AMT, was responsible for 80 percent of Trump's 2005 federal income tax bill of $38.4 million, on income of $152.7 million. That's a "startlingly" large proportion, said Alexander Popovich, a wealth adviser at JPMorgan Chase & Co.'s private bank. "It's very strange — usually, the AMT is not going to cause anywhere near such a difference," Popovich said.

Trump has contravened 40 years of tradition by declining to release his tax returns, so the two pages of his 2005 return, which veteran tax journalist David Cay Johnston presented on MSNBC's "The Rachel Maddow Show" Tuesday, offer a rare — but limited — peek into the president's finances. Among the items on view: Trump got hit with a tax that in recent years has affected increasing numbers of well-off, but not necessarily wealthy, Americans.

The AMT was introduced to taxpayers in 1970 as a way to prevent high-earning households from winnowing down or zeroing out their federal income-tax bills. The tax works by taking away personal and dependent exemptions, as well as various itemized deductions, including those for state and local taxes. Other deductions are capped. It's triggered by almost two dozen factors, including losses, depreciation, stock options and exemptions for children.

As inflation boosted incomes, the AMT has captured a larger number of taxpayers — including roughly 30 percent of households with cash income between $200,000 and $500,000, according to the Urban-Brookings Tax Policy Center, a Washington-based policy group. Higher state and local taxes in states like California, New York, New Jersey and Massachusetts — which can't be deducted under the AMT — have helped stir complaints about the tax.

Trump and House Republicans have both formally called for abolishing it as part of their planned tax overhaul. The tax will raise about $35 billion this year, about 2.2 percent of all individual income tax revenue, according to the Tax Policy Center.

"The AMT created this incredibly complicated formula to try to compensate for all of the deductions that are built in on the other side of the tax piece," Sen. James Lankford, an Oklahoma Republican, said Wednesday.

Democrats are wary of scrapping it. "I'm an advocate of the AMT," New York Sen. Chuck Schumer, the Democratic leader, said.

It's unclear what caused Trump to have to pay the AMT. The large bill "raises more questions than it answers," said Leonard Burman, co-founder of the Tax Policy Center. "For the vast majority of people, the AMT is only a portion of their tax liability — just a supplement to their regular taxes."

The leaked documents show that Trump and his wife, Melania, paid $5.3 million in federal income tax and more than $31 million in AMT. The combined $38.4 million tax bill gave the Trumps a federal tax rate of about 25 percent. It's not clear that absent the AMT, they would have paid only a 3.5 percent rate, because of differences in the way deductions are treated by the AMT and regular income tax.

It's unusual that the Trumps were caught by a tax that predominantly hits earners in the $400,000 to $1.2 million gross income range, said Popovich of JPMorgan Chase. Far wealthier taxpayers can typically avoid its effects because capital gains income — a mainstay for the top 0.1 percent — largely escapes the AMT.

Chuck Collins, a scholar at the left-leaning Institute for Policy Studies, said he assumed that a reported loss of $103 million on Trump's 2005 return, combined with depreciation for real estate, "probably" triggered the alternative levy. "The AMT tends to catch people who have paper losses," he said.

In a statement released Tuesday night before the MSNBC broadcast, the White House cited a "large-scale depreciation for construction," but didn't elaborate.

Burman said the loss may have been carried over from 1995, when Trump reported a $916 million loss on his New York state tax return, according to documents that were leaked to the New York Times last October.

Taxpayers are allowed to "carry forward" losses that they can't fully use in a given year because they don't have enough taxable income. Bloomberg reported in October that the $916 million loss probably stemmed from Trump's use of a now-banished tax provision that allowed investors to turn canceled debt into personal losses for the purposes of reducing their federal tax bills.

"Whoever leaked the two pages didn't release the supporting schedules to the return, which would show how and why the AMT was triggered," Burman said. "There could be things on the full tax return that might tell us something about the nature and structure of his businesses and income that triggered the tax."

However, the two pages from 2005 may well provide a clue about something else: Trump's federal tax bill for 2004. The document lists estimated tax payments of $13,291,993 that Trump made in 2005 — and under federal rules in place at the time, those payments had to total 110 percent of his 2004 tax liability.

That means Trump probably had a federal tax liability of roughly $12.1 million in 2004, according to Matthew Morris, a tax attorney at law firm Bowditch & Dewey LLP, who reviewed the 2005 document and made the calculations. It's also possible that the estimated tax payments were overpayments, but that seems unlikely, Morris said.


Reader Comments ...


Next Up in Politics

Trump’s solution for school shootings: Arm teachers
Trump’s solution for school shootings: Arm teachers

Seated between teenage survivors of the Florida school shooting, President Donald Trump said during an Oval Office listening session Wednesday that arming teachers and posting gun-toting veterans in schools could deter or stop school shooters.  His comments came during an emotional meeting that included Vice President Mike Pence, Education Secretary...
Trump suggests supporters should pressure Sessions to investigate Obama’s inaction on Russian meddling
Trump suggests supporters should pressure Sessions to investigate Obama’s inaction on Russian meddling

President Donald Trump on Wednesday lashed out at Attorney General Jeff Sessions, suggesting the president's supporters should pressure Sessions to focus the investigation into Russian election meddling on President Barack Obama's administration.  Taking to Twitter, Trump said that the meddling occurred while Obama was in office and asked why...
How will the battle over dreamers end? Here are four scenarios
How will the battle over dreamers end? Here are four scenarios

A deadline to protect hundreds of thousands of young undocumented immigrants is less than two weeks away, and it's looking less and less likely that Washington will act in time to protect them.  So, where does that leave the estimated 700,000 "dreamers" who could face deportation as soon as March 5?  There are a few possibilities...
What Obama did, didn’t do and couldn’t do in response to Russian interference
What Obama did, didn’t do and couldn’t do in response to Russian interference

It's proved hard for social media companies to completely uproot trolls apparently working on behalf of the Russian government. After all, the point of those trolls' activity has been to blend in with regular all-American trolls who have free rein on Twitter and Facebook. Automation is one thing; bots often demonstrate patterns of behavior that set...
Marco Rubio and the NRA confronted by shooting survivors, grieving parents at tense town hall
Marco Rubio and the NRA confronted by shooting survivors, grieving parents at tense town hall

There appeared to be little room for nuance Wednesday evening at CNN's emotionally charged town hall, which brought survivors, lawmakers and a prominent Second Amendment advocate together for the first time since the Feb. 14 massacre at Marjory Stoneman Douglas High School in Parkland, Florida.  Little room for discussing whether a ban on "...
More Stories