This story originally appeared on money.com.
The latest surprise in this year’s presidential campaign: A bombshell New York Times report that Donald Trump’s 1995 tax return included a $916 million loss that may have allowed him to avoid paying federal income taxes for nearly 20 years.
Whatever you think of the politics of our tax system, taxpayers who aren’t business owners, much less real estate tycoons like Trump, can get a tax break when some aspect of their finances turns sour. The result is nowhere near what business owners get, but at least it’s something.
In fact, while the amounts cited in Trump’s returns are certainly striking, the strategy that experts think he could have used to trim his bill — counting past business losses against future income — isn’t unusual. Indeed, roughly 1.2 million taxpayers, typically small business owners, took similar deductions in 2014, according the Tax Foundation.
And to many, the provision makes intuitive sense. It allows a business that is wildly profitable one calendar year, but loss-making the next, to even out its income in the eyes of the IRS, according to Tax Foundation economist Alan Cole. “A year is basically an arbitrary unit of time,” he says.
True, if you earn a salary, the situation might strike you as unfair. Many endure big swings in income throughout their lives: Students who go into debt to pay for a degree; salespeople who earn a large bonus one year and none the next; laid-off factory workers who must spend down savings until they find a new job.
In general, though, the IRS doesn’t allow them to count lean years against the fat ones. “If we let people smooth their incomes, they would pay a lot less taxes,” says NYU Law Professor Lily Batchelder.
Nevertheless, here are four examples of tax breaks for you, however modest in relation to what Trump enjoys:
Your Investment Portfolio
Chances are you’ve never bought or sold a casino or hotel. But you may very well have traded a stock or a bond. And if so, there is a good chance that at one time or another you’ve sold at a loss. The good news is these losses — indeed losses on most investments, including real estate — can lower your tax bill, reducing dollar for dollar any capital gains you realized from selling winning investments in the same year.
What’s more, if your losses outstrip your gains, you can carry them forward into future years to offset later profits. There is a disadvantage, however. Unlike business owners who report business profits or losses on their personal income tax returns, the law imposes a strict limit on how much stock market or other investment losses can offset ordinary income, like your salary, which is typically taxed at a higher rate. The IRS allows you to count no more than $3,000 in capital losses against your ordinary income in any given year.
Your Interest in a Business
Many of us who aren’t small business owners may still own a slice of a business, perhaps a small share of a buddy’s restaurant or an Internet startup. This business has a reasonable chance of generating operating losses (especially if it’s a restaurant or Internet startup.) Like your capital losses, these too may lower tax bills. But unless you are actively involved in managing the business, you get less favorable treatment than an owner-operator.
In general, losses from that business can be used to offset your income and carried forward for future years, but this only applies to income from that particular business. Unlike people who run their own business, including Trump, you cannot use the losses from the enterprise to offset other income, such as your salary.
While the distinction between those who manage a businesses and other investors may seem like an odd one, it’s not by accident. The distinction was created by Congress in 1986 to curb money-losing business deals that many argued existed primarily as tax shelters.
Your Rental Property
The rules for rental properties are even stricter than for other types of businesses. This real estate is where some of the biggest abuses occurred in the 1980s, prompting the 1986 tax reform. If you own a rental property, you typically count as a passive investor — meaning you can’t count losses against your ordinary income — even if you manage the property yourself.
A couple of exceptions exist, according to Michael J. Amato, president of Independent Tax & Financial Planners PC, in Holland, Pa. One is if managing real property is your full-time job. The other is if you don’t make much other income. Taxpayers with adjusted gross income (that’s income after deductions and other adjustments) of $100,000 or less, who also actively manage their properties, can claim rental losses of up to $25,000. That $25,000 phases out by the time your adjusted gross income exceeds $150,00o, although wealthier landlords may still be able to use any losses that remain when it finally comes time to sell the property.
Trump is hardly the only American to lose money in real estate. Million were hit hard by the financial crisis. About one in 10 homeowners is still underwater, according to real estate data site Trulia.
One consolation: The first $250,000 on your home sale profit ($500,000 for a couple) is free from capital gains taxes. Above that, you’re taxed. Meanwhile, selling the property at a loss confers little in the way of tax benefits.
Not only does the IRS not let you count the loss against your current or future income, it can’t even use it to offset other capital gains, such as on the sale of stocks. “It’s a little counter-inutitive,” says Trulia’s chief economist, Ralph McLaughlin. “You are taxed on the gain, but there is no relief on a loss.”