Calculating Your Capital Gain

“Analyze the Benefits of an Exchange Before You Sell”

 

COMPARE THE TAX SAVINGS AND ADDITIONAL PURCHASING POWER OF AN EXCHANGE VS. A TAXABLE SALE

 

1. Calculate Net Adjusted Basis

Original Purchase Price __________

+ Improvements __________

– Depreciation __________

= NET ADJUSTED BASIS __________

 

2. Calculate Capital Gain

Sales Price __________

– Net Adjusted Basis __________

– Cost of Sale _________

= CAPITAL GAIN __________

 

3. Calculate Capital Gain Tax Due

Recaptured Depreciation (25%) __________

+ Federal Capital Gain (15%) __________

+ State Tax (when applicable) __________

= TOTAL TAX DUE __________

 

4. Analyze Purchase Without An Exchange

Sales Price __________

– Cost of Sale __________

– Loan Balances __________

= GROSS EQUITY __________

– Capital Gain Taxes Due __________

= NET EQUITY __________

Net Equity X 4 = __________

 

5. Analyze Purchase With An Exchange

Capital Gain Taxes Due _____0____

Gross Equity = Net Equity __________

Gross Equity x 4 = __________

 

The real power of a tax deferred exchange is not just the tax savings—it is the tremendous increase in purchasing power generated by this tax savings! With the advantages of leverage, every dollar saved in taxed allows a real estate investor to purchase two to three times more real estate.

Many investors are surprised to discover that capital gain taxes are far higher than 15% State taxes, which can be as high as 11% in some states, are added to the general capital gain taxes owed. In addition, depreciation deducted over the ownership period is taxed at a rate of 25%. The net result is often a large percentage of your profits going directly to pay taxes. Under the fourth calculation, the net equity times four (assuming a 25% down payment) is the value of the property you could purchase after paying all capital gains taxes.

Under the fifth calculation, involving an exchange, no taxes are paid, leaving the full purchasing power of the ENTIRE GROSS EQUITY to acquire considerably more real estate! In just one transaction, the Exchanger acquires far more investment property than a seller!

[Note: 1031 Exchange Place cannot give tax and/or legal advice. Every taxpayer should review their specific transactions and potential tax consequences with their own tax and/or legal advisor.]