Donald Trump's Fire Sale of Assets Faces Major Roadblock

If Donald Trump chooses to sell his assets to pay his civil fraud fine, he may face financial issues by accruing tax.

Trump has until March 25 to come up with a bond amount or the New York Attorney General could begin seizing some of his assets and properties after Judge Arthur Engoron ruled that Trump has to pay roughly $464 million (interest included) in penalties for fraud.

The February ruling stated that Trump and top executives at the Trump Organization inflated the value of his assets to obtain more favorable terms from lenders and insurers. The lawsuit, brought by New York AG Letitia James, initially sought $250 million in damages, but she later increased this figure to $370 million, plus interest.

This week, the former president's legal team said paying the full civil fraud penalty would be "a practical impossibility," leading to speculation that James could soon start seizing Trump properties or that Trump may be forced to sell off some of his real estate empire to pay the penalty.

But, if he does make sales, experts told Newsweek that he might have to pay large rates in capital gains taxes.

Trump Hits Out at Judge

When asked about the prospect of selling his properties, a Trump spokesperson directed Newsweek to a post by the former president on his social media platform Truth Social.

Trump wrote that he now has "almost five hundred million dollars in cash" which he intended to use for his 2024 presidential campaign where he is currently the GOP's presumptive nominee.

"The often overturned political hack judge on the rigged and corrupt a.g. Case, where I have done nothing wrong, knew this, wanted to take it away from me, and that's where and why he came up with the shocking number which, coupled with his crazy interest demand, is approximately $454,000,000," Trump wrote in an all-caps response, calling the penalty "communism in America."

'Trump Asset Sales Subject to Capital Gains Tax'

Speaking to Newsweek, Jim Seida, an associate professor at the Mendoza College of Business, University of Notre Dame, said: "Gains on any sales of assets held by Donald Trump to raise funds for the $464 million bond will generally be subject to federal capital gain taxes, most likely at the 20 percent tax rate."

"The 20 percent long-term capital gains tax rate begins at an adjusted gross income of $583,750. The federal net investment income tax of 3.8 percent would also apply. The combined federal tax rate of 23.8 percent on any gain would mean that to generate $464 million of after-tax proceeds, the amount of assets sold would have to exceed this amount. The amount of gain [from] any asset sale is the sales price less the taxpayer's basis in the asset. Given the 23.8 percent tax rate, the amount of assets sold might need to be as high as $600 million if the sold assets have a very low basis (close to zero basis)."

'Better To Mortgage Than Sell'

Steven Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute in Washington D.C. said it would be better for Trump to borrow against his properties than to sell them.

He told Newsweek: "For tax purposes, Trump generally would prefer to borrow against his properties than to sell them. Long-held properties typically have a market value much greater than the cost basis, and, in these circumstances, a sale would trigger tax. For commercial buildings, the market value substantially above the cost basis is especially common as tax depreciation for commercial buildings almost always is quicker than economic depreciation."

"Not many ways to dispose of a property without paying tax. Real estate often can be swapped, tax-free, in like-kind exchanges. But that won't help Trump now," Rosenthal said.

Len Burman, a fellow at the Urban Institute, the Paul Volcker Professor and a professor of public administration and international affairs at the Maxwell School of Syracuse University, also suggested borrowing money would be a better way to raise funds to pay the penalty.

"There would be capital gains tax for properties that have increased in value above their depreciated basis (purchase price plus cost of improvements minus tax depreciation)," he told Newsweek.

"This is one reason he'd presumably prefer to borrow money using the properties as collateral. It's telling that he has trouble finding lenders willing to lend to him, but maybe not surprising given the issue in the legal case is his overstatement of property values. If he does sell, he would presumably try to sell the properties with the smallest gains, or even losses he can use to offset other gains, to minimize his capital gains tax."

If Trump doesn't make the payment, James has already signaled that she's prepared to begin seizing Trump's properties around New York, including his office tower at 40 Wall Street, which is near James' office in downtown Manhattan.

Last month, the attorney general told ABC News: "We are prepared to make sure that the judgment is paid to New Yorkers, and yes, I look at 40 Wall Street each and every day."