Michael Jackson: Kinda Screwed Either Way?

Feb 28th, 2008 // 6 Comments

AP050302014662.jpgSo at this moment MJ’s scrambling to come up with the $24.5 million he owes in order to keep Neverland Ranch, which is currently in danger of being repossessed for Jackson’s slack-assery in keeping up with his monthly payments. But with Jackson’s financial solvency currently a question mark, it might be better if he simply defaults, loses a residence he hasn’t occupied for several years, and lets whoever decides to bid on Neverland at the planned public auction pick up the tab, right? Wrong, unless he wants to become a smooth criminal tax evader.

The reason for this is: Jackson bought Neverland for between $12 million and $14 million back in 1988. If it sells for the full amount owed, $24.5 million, there’s a conceivable difference of $10 million.

According to California law, Jackson would then be taxed on that money as if he’d sold the property and it was income. According to a California state-sponsored Web site, www.ftb.ca.gov, Jackson would be liable for this money. A ballpark figure could be as much as $5 million.

Ouch. Any well-to-do Idolator readers wishing to spare Jackson 240 million dimes (give or take 50 million) should take note that if Jackson fails to pay, the auction is now set for March 19 on “the steps of the Santa Barbara County courthouse” in sunny California. Prospective buyers should bring “cashier’s checks for the amount they want to offer” and several spray bottles of Febreze in the scent of their choice.

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  1. mike a

    Admittedly I don’t understand high-stakes real estate, but even with taxes, doesn’t that mean that Michael Jackson still makes a $5 million profit on an approximately $13 million initial investment? And isn’t that good?

  2. righteousmaelstrom

    It’s because it’s money owed on the house. It’s the same as if a collection agency or bank wrote off a debt you owed them. Under the tax laws, that is considered income to you and thus you owe the taxes on that written-off debt.

    What I want to know is, if he initially purchased the property for $12M-$14M in 1988, how in the hell does he now owe $24M? Sounds like Jacko was taking out 2nd and 3rd mortgages on the ranch. Ouch.

  3. El Zilcho!

    @mike a: Because if somebody swoops in and buys Neverland Ranch for $24.5 million, Michael needs to pay that money to the bank. The government will be taxing Jackson on the $10 million difference between what he paid and what he sold the property for. So he’ll be $5 million in debt to the government.

  4. El Zilcho!

    @righteousmaelstrom: I believe he did take on a second mortgage a few years back.

  5. mike a

    So the $5 million debt is what remains after the sale? Perhaps I was misreading it to think that he takes 5 and the government takes 5.

    (I hope to someday be in a position to need to understand the ramifications of selling a $24 million house.)

  6. valarmorghulis

    @mike a: essentially the situation is that if they write off the debit, whatever they write off is a profit for him, and he owes taxes on it. if he sells the house at auction for the 24.5 million netting him a profit of 10 million, the gov’t wants taxes from that too. so if those taxes on the 10 mil profit from the auction is about 5 mil, from the 24 he got for the house, he only has 19 mil to pay back the 24 mil he owes (or more likly all that money from the auction goes to the crediter and then the state comes to him and says, “we’d like the 5 mil you owe us in taxes from selling your house now”). essentially, for this all to work out at the auction stage, he needs to sell the ranch for enough money to pay off the debit, AND pay the state their taxes on the sale (which after my non-accountant/real estate agent calculations bring to being around 33 mil).

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