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 Deprection (25%) __________
+ Federal Capital Gain (20%) __________
+ 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 taxes
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 20%. State taxes, which can be as high as 11% in some
states, are added to the federal capital gain tax 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 4th calculation, the net equity times
four (assuming a 25% down payment) is the value of property you could
purchase after paying all capital gain taxes.
Under the 5th 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: Asset Preservation, Inc. cannot give tax and or legal advice. Every
taxpayer should review their specific transaction and potential tax
consequences with their own tax and/or legal advisors.]
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Contents 1031 Exchange Information
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