Bevin’s friend eligible for big tax break by selling mansion to governor at a loss

In the final days of 2013, just after completing a prize-winning renovation of a 113-year-old mansion in the tony Louisville suburb of Anchorage, businessman Neil Ramsey sold the house and a surrounding 19-acre parcel to his limited liability company, The Anchorage LLC, for $3 million.

Ramsey hoped to turn the historic home into a bed-and-breakfast, but that plan soon faded. A little more than three years later, The Anchorage LLC took a loss of perhaps more than $1 million when it sold the mansion and 10 of the 19 acres for $1.6 million to Anchorage Place LLC, a limited liability company owned by Gov. Matt Bevin.

That transaction has since spawned two ethics complaints against Bevin, questioning whether the seemingly low sales price is tantamount to an improper gift to Bevin from a friend and political donor, but tax experts point to another possible benefit to Ramsey from the deal: a big tax break.

“It would be a tax loss, which he could use to offset any capital gain income he had in that year,” said Jennifer Bird-Pollan, an associate professor of law at the University of Kentucky who specializes in tax law.

In other words, Ramsey’s potential $1 million loss means the Internal Revenue Service will allow him to reduce his tax bill for 2017 by using that loss to offset his long-term capital gains — any profits he earns from selling assets in 2017 that he has owned for at least a year.

For example, if Ramsey sold stock at a profit of $1 million this year, he potentially could use the loss from the sale of the house to eliminate his tax bill on the stock sale. Under that scenario, if Ramsey were taxed at the top federal rate, he would potentially avoid paying $200,000 in federal taxes.

“When they’re able to claim (the loss), it reduces their tax bill depending on what tax bracket they’re in,” said Jason Bailey, the executive director of the Kentucky Center for Economic Policy. “And if you’re a higher income person, the benefit is even greater.”

On the other hand, if Ramsey has no long-term capital gains to offset his loss on the house this year, he is eligible to deduct as much as $3,000 from his taxes because of the loss, according to the IRS. He also can carry forward any portion of his loss that was non-deductible and deduct $3,000 the following year.

Either way, it is unlikely that Ramsey would get to claim the full loss on his taxes. The basis price of the house — the number the IRS uses to see how much he lost in the sale — decreases over time because of depreciation.

Ramsey didn’t respond to an email from the Herald-Leader asking several detailed questions about his sale of the house to Bevin. The governor has dismissed concerns raised about the transaction as “political mumbo jumbo.”

In a written statement, Bevin spokeswoman Amanda Stamper called the Herald-Leader’s reporting about the tax implications of the sale “reckless and irresponsible journalism” that relies on “speculation.”

Ramsey qualifies for the tax credit because he used the property for investment or business purposes and not as a personal residence. In an interview with The Courier-Journal after he and his wife, Anne, won an award for renovating the house, Ramsey indicated that he would use the property as a bed-and-breakfast or private club.

Ramsey bought the property in 2004 for $1,537,500. Anne Ramsey’s name was added to the deed in 2007, when the fair market value of the real estate was listed as $1,659,550. After renovating the house, Ramsey sold it to his LLC for $3 million.

It is not uncommon for wealthy people to buy homes through limited liability corporations. According to a 2015 analysis by the New York Times, almost half the homes in the country worth more than $5 million are owned by LLCs.

In Jefferson County, 5 percent of single-family homes are owned by LLCs. In Fayette County, 7 percent are owned by LLCs, including businesses that own rental properties.

The biggest reason wealthy people buy houses through LLCs is to protect their privacy and to limit their liability, Bird-Pollan said.

“Wealthy people do have concerns about liability, because they have many more assets that can be taken in a suit,” she said.

Bevin, in an interview with WDRB-TV in Louisville, said he bought the house through an LLC for those same privacy and liability reasons.

Taking advantage of a capital-loss tax credit also is a common occurrence in Kentucky. But in Ramsey’s case, he stands to benefit financially from the property’s previous price of $3 million even though he now argues that it was never worth that amount.

In response to accusations of an ethics violation, Bevin and Ramsey have hotly contested the $2.97 million value that Jefferson County’s property valuation administrator has placed on the property.

Ramsey had not previously contested the PVA’s assessment, although he did contest the $3 million valuation that the city of Anchorage put on his property in 2015, which matched the price of the sale. Ramsey, a city councilman in Anchorage, presented an appeal that compared his property with a half-dozen others, and the city agreed to reduce the valuation to $2.2 million.

Ramsey told The Courier-Journal that he included some antiques in his sale to the LLC, although those items were not mentioned in the deed.

In their appeal of the PVA’s assessment, which was filed Monday, an attorney for Bevin and Ramsey, Mark Sommer, said Ramsey didn’t realize how how high he had valued the house in December 2013.

“Mr. Ramsey left the transaction to his advisers and only later learned of the $3 million stated valuation, which mistakenly was over and above the true value of the 19.3 acres,” according to the appeal.

Ramsey, though, signed the deed, which included the $3 million price in capital letters.

There’s nothing illegal about what Ramsey did, according to Bird-Pollan.

However, if the IRS audited the sale and disagreed with the valuation of the house, they could deny the loss, and Ramsey would have to pay the difference in his taxes.

This is the second tax break that Ramsey is eligible to claim this year that has ties to Bevin. Earlier in the year, Ramsey invested $300,000 in Neuronetrix Solutions, a medical device company, through the state’s Angel Investment Tax Credit program. Bevin is a member of that company’s board.

The program, operated by the state Cabinet for Economic Development, allows people who invest in eligible start-up companies to receive a tax credit of as much as 50 percent on their investment, based on where in Kentucky the company is located. Because Ramsey invested in a Louisville-based company, he earned a $120,000 tax credit.

This story was originally published June 9, 2017 at 8:59 AM with the headline "Bevin’s friend eligible for big tax break by selling mansion to governor at a loss."