When Eric Trump bought two one-bedroom apartments from his father in April 2016 for less than half the price they were previously listed, it might have seemed like Donald Trump was giving his son a sweetheart deal. More than likely, however, Eric Trump is losing money on the apartments.
Eric Trump paid around $350,000 each for two 510 square foot apartments in the back corner of an apartment building near Manhattan’s Central Park. Just a few months earlier, those apartments were priced by the Trump Organization at $790,000 and $800,000, according to a report on the investigative journalism website ProPublica.
ProPublica’s headline on this story is “Here’s How Trump Transferred Wealth to His Son While Avoiding the Usual Taxes.” According to ProPublica, the sales of these apartments at such “family-friendly” prices ordinarily would have given rise hundreds of thousands in gift taxes. But the relevant tax code gives real estate developers leeway to transfer apartments without incurring those taxes, according to ProPublica.
But did Donald Trump really “transfer wealth” to his son or avoid taxes that ordinary people would have to pay? Probably not. A close examination of the real estate records suggests that Eric Trump may actually be losing money on the apartments he purchased from his father.
Although ProPublica says it cannot determine if the apartments are currently occupied, one of the documents uncovered by ProPublica reveals that as of last year one was vacant and the other was occupied by a renter. The document is described as a “rent roll listing.” It’s basically a list of the apartments in the building that are owned by Trump CPS LLC, the buildings developer and sponsor. One of the apartments purchased by Eric Trump, apartment 13G, is listed as vacant. The other, apartment 14G, is rented to a tenant for $1433.45.
The tenant in 14G is likely one of the original residents of the building, which was once rent-controlled and populated by “wealthy rent-regulated tenants.” According to the rent roll listing, the tenant has not had a lease since the year 2000. Nonetheless, the tenant pays just $1433.65 per month in rent, significantly below the current market value despite the fact that the building appears no longer to be rent-regulated. The odds are that this is just an elderly tenant that the Trump organization has decided is worth keeping in place despite the very low rent.
That rent–which amounts to just over $17,000 per year–does not cover the cost of owning the apartment. Not even close.
The monthly common charges due on apartment 14G are $1,039.04, according to ProPublica’s documents. The property tax on the apartment last year was $4,709. A fifteen year, 3.9 percent mortgage on 80 percent of the purchase price would add another monthly payment of around $2000. That would bring the annual carrying cost of the apartment to around $41,200.
Which would mean that it cost around $24,000 a year to own this occupied, non-rent regulated apartment.
The real estate website Zillow estimates that the monthly rent for each apartment at $2,700 per month. A slightly larger apartment with a more attractive floor plan rented for $3000 a month two years ago, suggesting that Zillow’s estimate is about right. So if the owner managed to rent out the unoccupied apartment, his income annual income would be $32,000. Note that this too is less than than the carrying cost, so the owner would lose $9,200 a year.
The combined purchases would put a joint owner in the red to the tune of $33,200 a year. That’s a very strange way for Donald Trump to transfer wealth to his son.
In all likelihood, Donald Trump did not sell the apartments to Eric Trump for less than they were worth. Rather, the original estimate listed by the Trump Organization was simply too high. When the reality came to assess the costs and income associated with the properties because they were actually being sold, the price had to fall precipitously.
And that means that Donald Trump did not need any special developer exemption to avoid gift taxes on the sale of the apartment because there was no “family-friendly” discount on the sale at all.
Ultimately, Eric Trump could make money on the apartments if he’s able to find someone willing to pay more for the apartments. But given their small size and low potential income, that might not be likely. Keep in mind: his father bought this building back in 1981 and still has not sold these two apartments.
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