|Issue #006 Cheshvan 5769- November 2008
The Poor Millionaire
By Rav Dovid Grossman, Rosh Bais HaVaad
Transcribed by Rabbi Shmuel Binder
A wealthy real estate investor called the gabbai tzedaka of a certain community for an appointment. The gabbai was very excited, expecting a significant donation. He was completely taken aback when, after the doors closed behind them, the investor began crying uncontrollably. "I know it appears that I have fantastic wealth, but in truth I am going through a very hard time. . . Along with my properties I have huge payments to make as well. Currently, I carry tremendous debts on mortgages and other expenses. I fear my holdings are about to crumble beneath me. Please, give me some funds so that I will be able to make it through this challenging time." The gabbai delicately asked, "Couldn't you sell off part of your portfolio to cover your payments?" "It is a good idea," the investor replied. "However, in the current market, I will be forced to sell at a terrific loss. This will only worsen the situation. . ."
May this real estate "mogul" receive funds from tzedaka?
The answer lies in understanding the application of a sugya on Bava Kamma Daf 7a.
The Gemarah there rules that one who has batim sados u'kramim (houses, fields, and
vineyards), but cannot find someone to buy them, may take maaser oni until "half."
The exact definition of "half" and the financial condition of the landowner is
the subject of debate among the Rishonim. There are varying opinions on the explanation of the Gemarah that will determine whether it parallels our real estate investor. 
Tosfos quotes the Rif who teaches that the Gemarah issued the "until half" ruling with
regard to an ashir, a rich person, who was unable to find a suitable buyer. This
interpretation matches the case of our investor exactly. The Rif explains that we
give the ashir "half," meaning that if he finds someone who is willing to purchase
his assets for half their true value, he must sell and cannot take money from tzedaka.
If the buyers are only willing pay up to 49% of the true value of his assets, he
does not have to sell and may take money from tzedaka to cover his needs.
The Gemarah then clarifies further details about the financial climate in the case.
Has the entire real estate market tanked?
The "half" rule does not apply if the rest of the real estate market has also gone
down and everyone else's properties are also worth less. In this case the landowner
is not singled out as an oni, but simply is in the same boat as everyone else. Accordingly,
he may not take tzedaka.
Is he the only one suffering?
If the rest of the real estate market is functioning normally and only he is in
dire straits for some cause specific to him (his properties), he may take tzedaka
until he finds a buyer willing to pay him 100% of the fair market value of his properties.
The Gemarah in this case wants to protect the individual from being exploited.
It's a matter of market timing
The Gemarah concludes that land sales are a seasonal market. The case in question
occurred off season, when most people are not interested in buying land.
According to the Gemarah's conclusion, the "half" rule is interpreted as follows:
If the property is still able to fetch 50% of its normal value the landowner may
not accept tzedaka. If he is unable to get at least 50% he may take from tzedaka.
According to this conclusion, the main issue is whether we see the deflated price
as a temporary (seasonal) fluctuation or a permanent new price.
Regarding the Poor Millionaire
The answer to whether the gabbai can give the "poor millionaire" from tzedaka is
determined by how experts in the field would view the market and his personal financial
position. The entire American real estate market has suffered tremendously in the
recent past. If we view this situation as a temporary "correction" then we may
compare it to a seasonal (temporary) fluctuation and the investor would have to
sell if he could secure a buyer for 50% of his property's worth. If it is not a
temporary problem but the establishment of a new norm then he may not take tzedaka
and would have to sell, even at a loss of more than 50%, in order to cover his expenses.
 Rashi explains differently, maintaining that the landowner's holdings were
valued at 200 zuz. Rashi chose this figure because the Mishnah in Peah teaches that
one is not considered an oni if he owns this amount. He therefore cannot take leket,
shikcha and peah. According to this interpretation of the Gemarah, although he
owns this amount of money, the market conditions make him eligible to receive "half"
of his own value from tzedaka, or 100 zuz. Rashi's understanding does not parallel
the real estate investor in our example as the investor owns far more than 200 zuz.
His portfolio could in fact be worth millions of dollars.
*The information addressed in this article was transcribed from a shiur given on the forthcoming Archive of Ethics Choshen Mishpat Audio Shiur Series. Archives of Ethics offers practical Halachic insight, relating to monetary Halachah, on each Daf of Masechtos Bava Kama, Metziah and Basra. Click here for more information on this project or here to listen to an overview and free sample of the series.
|Depreciation of Assets and Ma'aser |
By: Rabbi Dovid Bendory
(Ed. note.: The current unprecedented condition of the U.S markets and the global economic meltdown have severely depreciated the value of businesses, homes and investment portfolios. Hardly a day goes by that we do not hear of another severe detrimental downswing in an important segment of the global economy. The current situation not withstanding depreceation is a concept which plays a role in the normal functioning of an economy as well. The following piece is an analysis of the basic concept of depreciation as it relates to business expenditures and ma'aser kesafim.)
Ma'aser was once a relatively straightforward matter: plant, harvest, give about 2% to the Kohen, 10% of what remained to the Levi, 10% of the remainder to maaser sheini; the remaining 79.38% is yours. Today, even those simple farmers face a slew of complex business calculations in running their farms, and that makes the accounting of ma'aser much more complex.
Depreciation as an Accounting Principle
Ploni Ikkar has a farm which earns $10,000 per year. As a Yireh Shamayim, Ploni tithes $1,000 to tzedaka. Unfortunately, Ploni's plough broke and a new plough will cost him $10,000, an entire year's profits. What impact will this plough have on Ploni's earnings and ma'aser?
Let's assume Ploni has enough money saved away to purchase a new plough, and is willing to do so to keep his business running.
For accounting purposes, a business treats the purchase of equipment like the plough as a capital expenditure rather than an operational expense . Ploni has effectively "swapped" his $10,000 in cash for $10,000 worth of plough. But unlike the cash which retains its value, the plough will wear out over time. Tax calculation allows Ploni to utilize an accounting fiction known as depreciation, to factor the cost of the plough against his income. Given that the typical plough lasts 20 years, Ploni deducts 1/20 of the cost -- $500 -- each year for the next 20 years of the plough's life. Or in other words, in each of the coming 20 years, Ploni earns $9,500 rather than $10,000 for accounting purposes2.
Does Depreciation factor into Ma'aser?
For maaser accounting, Ploni deducts the same $500 from his income and therefore earns $9,500 in each of the coming 20 years3. The accounting fiction is a halachic reality.
The Implications of Depreciation on Ma'aser as the Years Progress
Let's say Ploni gets lucky and his plough outlasts the expected 20 years. Ploni's maaser income is now $10,000, just as it was before he bought the plough. If, after 20 years, Ploni sells the plough for $1,000, he owes ma'aser on the sale. Since the plough was held and used for business purposes, its purchase was effectively an investment in Ploni's business. And since he has already depreciated away the full cost of the plough in the first twenty years of usage, the $1,000 sale price is pure income on which he owes $100 of ma'aser.
If Ploni sold the plough in year 10 for $5,000 -- exactly equal to the residual (un-depreciated) value, this $5,000 is not income for ma'aser purposes. Just as the original purchase "swapped" $10,000 of cash for $10,000 of plough, this sale "swaps" $5,000 of plough for $5,000 worth of cash. There is no profit nor loss involved.
If he sells it for $7,000 he would owe $200 dollars of ma'aser (on the $2,000 dollars which were profit over the value of the plough4.
If he sells it for $3,500, Ploni has taken a loss which is deducted against his other income. Just as he owed ma'aser on profits, so too can he deduct his losses if he sells for less.5
What if Ploni borrowed money to purchase the plough?
Let's assume that instead of buying the plough on his own, Ploni turns to Akum Bank for a loan. Akum Bank requires Ploni to pay for $2,000 of the plough himself and lend him the other $8,000 payable at 10% interest compounded annually over the coming 10 years. What is the impact on ma'aser calculation?
It is easiest to understand this situation if we consider that Ploni has two completely separate transactions.
1. He purchased a plough for $10,000 which he depreciates as discussed above.
2. In addition, Ploni has borrowed $8,000 with an interest bearing loan which he must repay as follows. Each year Ploni makes a single payment of $1301.96 consisting of principle and interest. The percentage of the payment which is interest and the percentage which is repayment of principle affects his ma'aser calculation. In year one, $501.96 of his payment is principle; and $800 is interest. The principle payment has impact on his cash flow but no impact on his earnings as he is simply repaying the $8,000 that he borrowed. The $800 in interest is an operational expense that is deducted from income for ma'aser. Thus instead of earning $9,500 (his income less the depreciation of the plough) his gross ma'aser income was $9,500 minus $800, which equals $8,700. He owes $870 in ma'aser.
In each of the coming years, Ploni will pay off increasing amounts of principle and decreasing amounts of interest until year ten in which he pays $1,183.65 in principle and $118.36 in interest. His maaser for that year is $938.16. Note that as the loan progressed, Ploni paid more principle and less interest each year; thus his cash flow due to the loan remained unchanged, but his ma'aser gradually increased.
These examples lay out the principles of depreciation, (and also amortization and depletion which are handled similarly) for ma'aser accounting. In this case, we can calculate our ma'aser obligation exactly as we account our income for tax purposes. Other areas of ma'aser accounting are more complex, especially where they differ from tax accounting.
Rabbi Dovid Bendory is Vice President of Risk Management Technology at Goldman Sachs in New York City where he has worked for the past 15 years. He is the Executive Director of Pidyon, a kiruv organization dedicated to redeeming the spiritual captives of our time. Rabbi Bendory received his Semicha in Yerushalayim, 2005 from HaRav Zalman Nechemia Goldberg.
Acceptable Uses for Ma'os Ma'aserRabbi Boruch Rabanowitz
Concerning the halachic criteria for acceptable recipients of ma'aser, the Ramo (Y.D. 249:1) states that ma'aser can only be given to poor people. The Chafetz Chaim (Ahavas Chesed 19:1) emphasizes that ma'aser was originally instituted for the sake of supporting people studying Torah. Only poor relatives should be provided for before talmidei chachomim.
The Chafetz Chaim also points out that charity for the poor is not only money for food and simple shelter. He broadens the category of poor people to include wedding preparations if the couple does not have the means to arrange for a wedding, medical care for poor people, hachnosas orchim and burial needs of poor people.
The emphasis on poor people seems to indicate that using ma'aser for mitzvos (e.g., mikve, eiruv, shul, esrog, matzoh or communal religious structures) is unacceptable. The Be'er Hagola explains that the Ramo did not intend to exclude divrei mitzvoh from the possible uses of maos ma'aser if the person already accepted the responsibility of the devar mitzvoh before the ma'aser money was designated for that purpose. The Taz (Y.D. 249:1) seemingly agrees. He allows one to use maos ma'aser to purchase an aliyoh if the person explicitly intended to use this ma'aser money to pay at the time he made the pledge. Apparently, the sole fact that the money is going to be used for the shul and not for poor people is not a reason to permit using ma'aser money. But the initial stipulation that the ma'aser will be used for a tzorech mitzvah other than the poor does make it acceptable. The Shach (Y.D. 249:3) also permits using ma'sser for tzorech mitzvah quoting the Maharshal and Derishoh, who add that ma'aser can only be used for a devar mitzvoh if the person would be unable to perform the mitzvoh otherwise. The Taz and Be'er Hagola omit this condition and apparently disagree. Furthermore, the Shach himself goes on to present the opinion of the Maharam of Rothenburg, who disagrees with the Maharshal and Derishoh.
|Kollel Zichron Gershon recently had the esteemed pleasure of hosting Dayan, Harav Fuerst of Chicago. Harav Fuerst delivered a shiur for the Even Haezer Chaburah on the topics of a Kesuba that was written by day and signed at night. |
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