[Dead Spin] How (And Why) An NBA Team Makes A $7M Profit Look Like a $28M Loss

This realistic example might explain it better.

Scenario: You are an independent courier who travels 100% for business. Your contracted rate is $35.00 an hour. In a single given year, you put in a standard 40 hour work week at 50 weeks a year. You pull in an income of $70,000.

As a courier, your average speed is 70 MPH. (driving 70 miles in 1 hour x 40 hours a week x 50 weeks a year) You net 144000 miles in one year, all which can be a tax write off at $.51 a mile for standard fed. business mileage. This equals to $71400 in tax write off for mileage alone. You are now operating at a $1400 loss (before including any other expenses).

Essentially, you are running at a loss from a taxable income aspect. What you really have is 70k income minus 20k in fuel and maintenance, which gives you a tax free 50k a year. Nobody cares that you are running at a taxable loss except you and the IRS. So now you decide to goto your client, show him your balance sheet and demand an increase because you are running at a taxable loss. They would laugh you out the door. The team owners are doing the same thing.

 

You would have to replace your car every couple of years in this case. You better believe you would expect more money. The standard mileage rate is an awesome deduction for those with $20,000 cars, not as great for those with $50,000 SUVs.

 

Going off the bolded part, it appears that you agree that I have $$ in my pocket. You are still ignoring my basic question. Under my example do I have a $1 loss or a $6 gain in reality?

The $10 payment is an expense in my simplified example. Since you want to get super technical, I take a interest only loan for that first year and never touch the principal balance. Therefore, I can finance that $10 and have nothing go to principal if I choose.

The IRS cares about taxable income. Everyone else cares about income, as far as the $$ that you keep at the end of the day (in this case the $6, not the $1 tax loss). And your examples are way off base compared to anything I have said.

 

I agree with you in full, especially the bolded part, but who exactly is arguing that? I'm arguing that I can use depreciation to make it look like I lost $$ in a certain period when I really didn't (real $$, not a paper loss).

 

Very basic example, but as property typically appreciates more than it depreciates (well not in this market but you get my point), odds are you don't have to sell for $7 less. The $7 is just what the code allows you to take. It doesn't neccessarily mean your property lost value in real life (as in the appraised value or FMV is less).

 

THANK YOU!! Great example Space Ghost. Yes, you technically have a "loss", on paper. But in reality you haven't lost anything.

And why do these * keep popping up whenever I respond on my iPhone?

 

to do a real cash flow analysis you need two years of balance sheets.

 

But that's because the government gives you a separate unique tax deduction (mileage) that is not part of your normal business. That's not occurring here - the article even admitted they screwed up and didn't know what they were talking about.

 

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Every year. You lose depreciation expense because you've been forced to reduce the depreciable basis by the gain recognized during the exchange. You lose out on the depreciation expense that you could have claimed had you bought it with cash or financed. Less expenses = more taxable income = more tax.

 

My example is exactly what you are saying. Cash in minus cash out = profit. It is exactly what you have been saying for pages, and that is not correct. If the IRS was the only person concerned, we wouldn't even have GAAP. Heck, we wouldn't have balance sheets or income statements based on what you are saying. We wouldn't need anything but you bank balance beginning and ending.

 

When do I PAY the tax if I DEFER it and then roll my gains into another piece of real estate that I NEVER SELL? This is at least the 2nd time asking the same question (hence the bolded words).

 

Do you realize that everyone does not use GAAP, not even every business? Do you realize how many businesses don't use balance sheets or income statements, but instead just their bank balance? Why are you applying accounting principles to every situation when they are not always used, and don't have to be used by law?

And my example is cash in minus cash out = real profit (tangible, $$ in my hand). There are other non cash expenses such as depreciation, or a mileage expense that Space Ghost mentioned, that can be used to reflect a paper loss even though you have a real profit at the end of the day. Going back to the example Space Ghost gave, if you are that courier are you telling folks you lost $$ that year and are basically working for free since the mileage deduction (non cash expense) gives you a paper loss? Similar to if you are my landlord are you telling folks you made $6 or lost $1? I think we both know the answer to these questions (I note that because you keep not answering the question). No one is saying your paper loss is not valid and doesn't exist. We are saying in the real world you made $$.

 

http://www.nba.com/2011/news/07/06/nba.response/index.html

 

My only question is will revenue sharing fix the losses as much as slashing player salaries. Oh, and one more question. What is the plan to punish teams for making poor decisions. The owners are trying to guarentee themselves a profit, no matter what they do (i.e. handing out stupid contracts).

 

I will never understand our nation's obsession with rewarding the rich.

 

both sides here are pretty rich. that's why i don't have much sympathy either way. no coal miners in this discussion.

 

He answered you in the exact post you quoted - you pay it over the course of depreciating the new property. You get less depreciation deduction than you would otherwise, increasing your tax bill for each of those years.

 

if you think the us code is corrupt, look at greece

 

oh yeah, us 350MM people, greece, 11MM. i read that greece's debt per individual is $250K, no where near that in the US

 

I'm lost. If I buy a property for whatever amount, take excess depreciation to create a taxable loss in a period where I really have no loss, sell it and roll the gains into a new property that I depreciate on a regular schedule then how am I paying more tax on that gain. How does this lead to less of a depreciation deduction on the new property?

Edit: "forced to reduce the basis by the gain recognized during the exchange". I stand corrected if true.