How to NOT WORK & Earn $500k or $50 Million a Year Paying 50% LOWER Tax Rate Courtesy GOP Tax "Reform" Plan


After a full read of the GOP "Tax Reform & Jobs Act" point-by-point, we at Transformity Research had an epiphany: Surprisingly, the commercial real estate industry, REIT sponsor/investors and MLP sponsors/owners KILL IT under the proposed plan. They do even better than C-corporations at the tax cut trough and that is saying something (What business is the POTUS in again...I can't remember????)

But my FAVORITE LOOPHOLE is what I call the "U.S. Tax Arbitrage Carry Trade" for high marginal income tax rate individuals--its a license for the 1%er to print income at up to 50% LOWER tax rate than current Federal/State income tax rate and earn a 7.5-to-1 annual cash-on-cash return on this "tax arb carry trade."

For ever...and their heirs, too.


Individuals with $millions in marginable securities can take out an @ 2% interest rate margin loan (Interactive Brokers current margin rate today is 1.8% ) and buy a 10% income generating blend of 8-10-12% %+ yielding Real Estate or Mortgage Investment Trust securities (aka REITS/mREITS) AND BE ABLE to deduct 100% of the interest they pay on the loan OFF their individual Federal/State income taxes

The kicker? When it comes to paying taxes on the dividend income they earn from that the carry trade investment, they only pay the 25% pass-through tax rate.

Key Point: The All-American Tax Rate Arbitrage Carry Trade will reduce a smart 1%er's taxable investment income by...50%!

In 1%er land where I live, let's take my rich neighbor Bob with a $10 million tax-free Muni bond portfolio. He can borrow $5M against those bonds for only a 1.8% margin interest cost that is 100% tax deductible against his taxable income (at his 50% combined federal and state income tax rate) and buy a $5 million portfolio of @10% avg. yielding REITs, mortgage REITS and MLPs. 

Here is the's incredible!

Mr. 1%er Bob gets $500,000 of annual income from the American Tax Arbitrage Carry Trade that costs him just $100k of interest (@2% margin) or a 5-to-1 cash-on-cash pre-tax return on the cost of debt service.


Mr 1%er Bob gets to DEDUCT the $100k of margin interest he pays as investment interest of his taxes SOOOOO the after tax cost of money is really near 1% (for 50% effective tax states like CA NYC NJ CT) or a 10-to-1 cash-on-interest paid return!

Mr. 1%er earns $500k and pays 25% pass-through rate or $125,000 in Federal/State taxes so he net's $350,000 AFTER TAX on his $50,000 after tax carry trade interest cost or a 7.5 to 1 net after tax carry trade profit!


Thank You GOP: The 7.5-to-1 U.S. Tax Arbitrage Carry Trade is Born!

Real estate and REITS really come out the big winners in GOP Tax Reform...I can't imagine why???? A cash on cash after tax return for the carry trade of 7.5 to 1..forever? 

“That’s a great deal, and it’s going to create GIANT new tax shelters,” said Steven M. Rosenthal, a tax expert at the nonpartisan Tax Policy Center.

No shit shit. It's even a BETTER deal for his heirs who inherit the Tax Arb REIT portfolio WITH NO Estate TAX OWED! 

IN the OLD code was amended to prohibit this kind of stupid easy tax rate arbitrage. One reason was that it would hurt the market and value for Municipal bonds that fund all sorts of things including INFRASTRUCTURE.

But these are the NEW DAYS of Trumpian ethics so at the last minute...this same REIT tax preference treatment got added to MLPs too!

SO THIS IS HOW we get rich Americans to finance the trillions in infrastructure development we need. NOW I GET IT...this will soon become the U.S. INFRASTRUCTURE Tax Arbitrage Carry Trade!

Trump's a genius!

Man...this sure beats working! 

What about the other 99% of Americans?

Hurray for me and Bob...and fuck you.

Blog/EletterTobin Smith