Source: I am a tax partner at a top CPA firm. If you are paying any significant taxes on commercial real estate you are doing something wrong. Look into Cost Segregation, 1031 exchanges, entity structure, and financing structure to limit or eliminate your taxes.
I guess pretty well every real estate developer or operator worth his salt is doing it wrong then. If you're paying little or no tax you are probably investing in a pretty poor project. Perhaps an example would be illuminating. I am quite familiar with reverse delayed exchanges, entity structuring (I own a crowdfunding platform and structure SPEs pretty well every month), cost segregation, chattel appraisals, multi-layered financing structures (senior, mezzanine, equity, etc.), waterfalls, etc.
Taxes are certainly a consideration in project selection, but they are far from the dominant reason pretty well every real estate investor I know invests in projects. Great projects drive higher taxes. Again, the goal is maximal after-tax gains; not minimal taxes. If you're paying almost nothing in taxes you're doing it wrong.
Real estate is the name of the game not because of the huge appreciation. It works because of the favorable tax, leveraging and financing structures available for this type of business.
Pretty well every real estate investor I know is either hoping for significant cash flows or upside. The selection set depends in a large degree on their personal circumstances. Taxes are a distant consideration in almost every situation among my peer group. I'd gladly pay a heap of taxes for a project that delivers terrific returns. The tax tail should not wag the dog.
I also said little to no taxes over decades. Your use of the word None, which is a finite amount. As a percent of their appreciation how much do these folks pay in taxes? Most likely significantly less than someone pulling down a paycheck.
Yes, with exchanges you can certainly indefinitely defer taxes using our tax system. A dominant part of this "appreciation" is really a "tax on inflation tax" though. Having inflation erode one's purchasing power and then paying tax on this "gain" isn't really a great way to grow one's wealth.
I own a multi million dollar commercial building and rental houses that cash flow very well, but they kick off taxable losses after depreciation is applied. The reason the tax code is complicated and we have an Alternative Minimum Tax is because we can and we did create tax shelters that would eliminate taxes for decades if not forever.
Perhaps, but that does not really make those projects great projects. Again, the goal is maximal after-tax gain; not minimal taxes. If you're paying very little in taxes you're probably picking poor projects. Everyone's situation is a bit different and people have different risk tolerances. I really don't know of any real estate investors that are seeking to find projects where they shelter all of their income. They'd gladly take higher returns in trade for higher taxes. Any other behavior would not be that of a rational self-maximizer.
Trump legally takes advantage of these as many Real Estate investors. It is all legit, but he is not paying any significant taxes. IE the reason, why he is not releasing his tax returns. The returns would show minimal to no taxable income. All legitimate, but the population would get hung up on the fact that he does not "Make" a lot of taxable income and obviously is not very "Rich". When he is obviously doing very well and it would be very hard to explain that is how the wealthy play. It would also make it harder to push through his tax plan, which will most likely eliminate taxes for many people. The tax code is only complicated for those doing complicated transaction. If they make it simple, then we will be able to eliminate taxes for our clients. They will then realize that they need to pay some taxes and will begin adding different laws to make it "fair", then it will get complicated again. This will be a huge boon for tax attorneys and accountants. It is easy to sell services to your clients when you can say, "For $100k, I can reduce your million dollar tax bill to zero".
I don't know all of the specifics of Trump's return, but from everything I have read he is carrying forward losses from deals struck a long time ago. This hardly seems like a great way to limit taxes. I presume that a lot of his carryfoward losses somehow survived later legislation that limited the games he was playing with at loss rules. I don't think these same "strategies" would work today with the current tax regime. Maybe they would.
In any event this is really hard to debate in the abstract. I don't agree that the tax shelter games that one can play optimize the risk-adjusted returns if the primary goal is to minimize taxes. No knowledgeable investors I know of structure their affairs in this manner.