Trump could face massive tax bill with proposed sale of office towers

The Trump Organization deferred a huge tax gain in 2005 by purchasing the NYC and San Fran properties

TRD NATIONAL /
Jun.June 24, 2020 03:30 PM
President Trump with 555 California Street and 1290 Sixth Avenue (Getty, Google Maps)

President Trump with 555 California Street and 1290 Sixth Avenue (Getty, Google Maps)

If President Trump’s company were to sell its stake in a pair of big-ticket office towers, it could face a large, and politically fraught tax bill.

The Trump Organization is considering selling its minority stake in a pair of office buildings in 1290 Sixth Avenue in Manhattan and 555 California Street in San Francisco, Bloomberg reported Tuesday. The West Coast building could trade for more than $2 billion, sources familiar with the offering told the outlet.

But Trump’s purchase of the towers 15 years ago contains a ticking tax time bomb that could go off if his public position makes it difficult for the company to roll the proceeds from the sale into a new property, experts told The Real Deal.

The Trump Organization acquired the two towers in 2005 through a like-kind tax exchange — known as a 1031 exchange. That allowed it to defer a massive tax bill on the sale of a large development site that the Trump Organization sold on Manhattan’s Upper West Side.

Back in 1985, Trump had purchased what was then known as the Lincoln West development site over the West 60th Street rail yards for $95 million. Twenty years later, he and his partners sold the site for $1.8 billion. They were able to avoid paying capital gains taxes on the roughly $1 billion windfall by using the proceeds from the sale to purchase the two office towers through a 1031 exchange.

But now, Trump’s position as president could complicate not just the sale of the Manhattan and San Francisco buildings, but also another potential 1031 purchase. If the company sold the buildings and didn’t make another 1031 deal, it would have to pay the capital gains taxes on that sale and would be responsible for paying taxes on the 2005 deal, experts told TRD.

“There’s got to be an enormous gain left over from that deal,” said one source, who did not want to be identified discussing the president’s business affairs.

A spokesperson for the Trump Organization did not respond to a request for comment.

Together, the buildings in Manhattan and San Francisco account for about a quarter of the president’s personal fortune. Trumps’ critics have long raised concerns over the fact that he refused to divest his business interests while in office. They argue that those who want to influence the president’s policy decisions could use his real estate business and others as a means to gain favor.

Any sale or purchase of a property would be heavily scrutinized to see if the terms unreasonably favored Trump. The issue of the 1031 exchange is also another political hot button.

Dating back to the Obama administration, officials had sought to reform the tax program. When the Republican Congress rolled out its tax-reform plan in 2017, it proposed eliminating 1031 exchanges altogether — leading many in the real estate industry to wring their hands over the potential impact on property values.

The final law that Trump signed, however, preserved the lucrative tax break.

Contact Rich Bockmann at [email protected] or 908-415-5229


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