Frankly, I admire people who know how to play the system but,

Less than two weeks after the NYT released what a massive 12,000 words “bombshell” report on the “fraudulent” tax dealings of Trump’s father, and which promptly got swept away by the non-stop news cycle, on Saturday the NYT has come back with part two, this time dissecting the the tax records of Trump’s son-in-law, Jared Kushner, highlighting that he paid almost no federal income taxes in several recent years despite a net worth that soared to $324 million in 2016 from $106 million in 2011, and billions of dollars spent building his real estate empire.

Citing the leaked tax documents it obtained, or as it called them, “confidential financial records”, the Times reported that Kushner, a real estate investor and senior White House adviser, for years minimized his tax bills by booking heavy losses on reported depreciation of his real estate holdings that overwhelmed his reported income. And since this is an all too often used loophole of the US tax code, the Times noted that nothing in the documents indicate that Kushner or his company broke the law.

The records, which were given to the NYT by “a person who has had financial dealings with Kushner and his family”, describe Kushner’s business dealings and finances from 2009 to 2016. They were drafted with Kushner’s help as part of a review of his finances by potential lenders and contain information from his federal tax filings in addition to other data provided by advisers, according to the report. Reviewed by “more than a dozen tax accountants and lawyers” the records indicate that Kushner paid little or no federal income taxes in five of the last eight years.

The Times reported that in a 2015 example, Kushner booked $8.3 million in losses driven by “significant depreciation” of real estate owned by Kushner and his company. The loss offset Kushner’s income of $1.7 million in salary and investment gains.

A spokesman for Kushner’s attorney told the Times that Kushner followed the advice of attorneys and accountants, and filed and paid all taxes due required by law. The spokesman also said he wouldn’t respond to assumptions taken from documents that offer an incomplete view of Kushner’s finances.

Kushner’s losses, stemming in large part from the depreciation deduction, appeared to wipe out his taxable income in most years covered by the documents.

To be sure, Kushner Companies, like many real estate firms, may indeed have done nothing wrong, in following the guidelines of the US tax code which passes on any tax obligations to its owners, including Mr. Kushner and his father, who incorporate them into their personal tax returns.

Unlike typical wage earners, the owners of such companies can report losses for tax purposes. When a firm like Kushner Companies reports expenses in excess of its income, the result is a “net operating loss.” That loss can wipe out any taxes that the company’s owner otherwise would owe. Depending on the size of the loss, it can even be used to get refunds for taxes paid in prior years or eliminate tax bills in future years.

A similar NOL was reportedly used by Trump in prior years to offset his own capital gains, allowing the president to avoid paying Federal tax on one or more subsequent years.

While there is nothing explicitly wrong with this strategy, what the NYT is focusing on is the following angle: Kushner was reporting losses even though he bought his properties with borrowed funds.

In many cases, Kushner kicked in less than 1 percent of the purchase price, according to the documents. Even that small amount generally was paid for with loans. Mr. Kushner’s credit lines from banks rose to $46 million in 2016 from zero in 2009, the documents show.

As a result, Mr. Kushner got tax-reducing losses for spending someone else’s money, which is permitted under the tax code. Depreciation deductions are available in other industries, but they generally don’t get to take losses related to spending with borrowed money.

“If I had to live my life over again, I would have been in the real estate business,” said Jonathan Blattmachr, a well-known trusts and estates lawyer, now a principal at Pioneer Wealth Partners, who reviewed the Kushner documents. “It’s fantastic. You get tax deductions for things you don’t pay for.”

So, courtesy of the Times, and for all those who wish to recreate Kushner’s tax strategies, here is how he did it:

Step 1: The Purchase

Kushner Companies buys a property. The majority of the money for the purchase comes in the form of mortgages and personal loans from banks.

Step 2: The Write-Off

Under the federal tax code, real estate investors can write off the purchase price of the building — excluding the cost of the land — over a period of decades. Although Kushner Companies has spent little or no cash of its own, the firm takes large annual deductions based on the theoretical depreciation of the building.

Step 3: The Loss

The property generates cash for the Kushners. But any earnings, which would be subject to the federal income tax, are swamped by the amount that the company is taking in write-offs for depreciation. The result is that Kushner Companies records a net loss for tax purposes.

Step 4: The Investors

The company passes on that loss to its owners, including Mr. Kushner and his father, Charles.

Step 5: The Offset

The loss can be used to offset the Kushners’ income in the year it is recorded, and it can be carried forward to cancel out future income or to get refunds for taxes they paid in previous years.

Step 6: The Deferral

When Kushner Companies sells a property, it can use the proceeds to finance a new acquisition. If done within the right time frame, the company can indefinitely defer any capital-gains taxes it might owe on the sale of the original property.

Step 7: The Result

The outcome is apparent in Jared Kushner’s tax returns, which were summarized in the documents reviewed by The New York Times. Here’s an example from 2015.

Income

• W-2 income: $198,000.
• Taxable interest: $536,000.
• Dividends: $1,000.
• Capital gains: $974,000.

Deductions

• Tax losses from real estate and other partnerships: $3.5 million.
• Tax losses carried forward from previous years: $4.8 million.

Total adjusted gross income

• Negative $6.6 million.

Tax refund

• $4,000.