Word: partnerships
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Dates: during 1970-1979
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...imports of Mexican textiles and produce, and a reversal of present moves toward stringent immigration controls. Above all, the U.S. must be willing to deal with its neighbor as an equal. Only then will the fiercely proud Mexicans soften their suspicion of the northern colossus and join in a partnership that will benefit both sides...
...partnership buys into any property-movies, coal mines, lemon groves -on which fairly rapid depreciation is allowed. That enables the members to write off in four years or less most of the value of the property, even though it might continue to generate income for decades. When the depreciation benefits are fully realized and the investors have recaptured much of their original investment through write-offs, they can sell the property. The profits from the sale are taxed, but usually at favorable capital gains rates, which under the new law have been reduced even further, from an effective maximum...
What had made the shelters particularly fetching was that in most instances the investors had to put up only a small amount of their own cash. As a partnership they often borrowed the rest on a "nonrecourse" loan, paper for which the partners are not personally liable. If the notes were defaulted, the lender got the property, and the investors got their writeoffs from depreciation and had no worry about being sued for leftover debt...
...example, a promoter sold a lithograph stone plate. He figured that it was worth $40,000. But to make it attractive for tax purposes, he agreed to sell it to a partnership of investors for an inflated price of $100,000. They put up only $40,000 in cash and gave over the remaining $60,000 in nonrecourse notes made out to the promoter. Very often these notes were never paid off. Still, the partners got tax writeoffs of $100,000 because the stone depreciated with every print produced...
...course, some tax havens remain. Apartment houses and the renovation of historical buildings are the most popular, largely because Congress took no steps to block nonrecourse financing of them. Thus a shelter partnership might raise $1 million from its members and $4 million in nonrecourse loans to convert a rundown building into federally subsidized apartments at a total cost of $5 million. Though the property could be assumed to have a useful life of 30 years, the investors may deduct the mostly borrowed cost over five years, providing them with $1 million a year in write-offs that they...