Give Me that Tax Return Charlie Rangel Before You Hurt Yourself

September 13th, 2008 · 1 Comment

I am no great fan of the raspy-voiced, muckraking Congressman from New York but I’ll take a client whenever I can get one.

The Villa

Charlie, they say, received $75,000.00 in rental income for a Villa he owns in the Dominican Republic and failed to report that income on his federal, state and city income tax returns.

So he probably owes the IRS some back taxes, right?

Not so fast Lazinksy.

Anyone who owns rental property will tell you that you can generate cash flow and still not have to pay income tax on the rental operation. That’s because of depreciation.

Rangel, like any other rental property owner, can deduct the cost (plus improvements) of the Villa over time. Depreciation, of course, is a non-cash flow deduction.

Let’s make a few minor assumptions and do Charlie’s return shall we?

Rangel’s Average Yearly Rental Income 7,500 (75k over a ten year period)

Cost of Villa plus improvements 90,000 (80k purchase price plus 1k per year for improvements)

Rangel is entitled to take a depreciation deduction determined as follows:

90,000.00 divided by 27.5 = $3,272.00

Rangel’s earnings before property taxes, maintenance and management costs are:

7,500.00 minus $3,272.00 or $4,228.00.

That means if Rangel had paid just $352.00 per month for property taxes and management and maintenance of the property he would have had zero net profit even though he would have stuffed $272.00 a month into his pocket.

And if Charlie had taken just a couple of trips a year to the Dominican Republican to “inspect” his investment it would have gotten him there.

And my calculations don’t even take into account any furniture and fixtures Rangel had in the apartment which could have been deducted or depreciated as well.

Now that I think about it, if he flies me down there for a weekend (tax deductible, of course) to take inventory I think I can return with a nice little refund for him.

The Villafied

Of course, Charlie’s problem is more political than it is criminal. You see, Sir Charles has in the past been an ardent promoter of tax increases and has even been called a “tax psycho” for one of his more absurd tax increase proposals. See Rangel’s “Mother of All” Tax Bills is “Psycho“.

He’s got other problems, too. He may still owe state and city taxes because New York tax law does not strictly piggyback federal tax law. And then there’s the problem of Charlie’s interest free mortgage.

For the full scoop on the Rangel tax mess see the New York Times’ article Tax Expert Rangel Mangles Facts in Ethics Mess.

Other Bloggers on the Rangel Tax Mess: