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Sample Exchange
To illustrate the benefits of exchanging properties versus
selling outright, the following example computes the capital gains tax due on a
typical sale. The variables used are as follows:
Property - Investment property purchased 5 years ago.
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Purchase Price - |
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$220,000 |
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Depreciation taken - |
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$21,818 |
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Sales Price - |
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$550,000 |
For this example, we will use the new 15% tax rate on the
gain and a 25% tax rate on depreciation taken.
The calculations are as follows.
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Direct Sale |
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1031 Exchange |
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Sale Price |
$550,000 |
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$550,000 |
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Less Selling Costs |
($38,500) |
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($38,500) |
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Adjusted Sale Price |
$511,500 |
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$511,500 |
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Less Basis |
($220,000) |
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($220,000) |
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Taxable Gain |
$291,500 |
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$291,500 |
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Federal Tax on Gain @ 15% |
$43,725 |
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Deferred |
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Tax on Depreciation @ 25% |
$5,455 |
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Deferred |
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State Tax on Initial Gain @ 9% |
$26,235 |
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Deferred |
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Capital Gains Tax Due Now |
$75,415 |
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$0 |
In this example, the $75,415.00 paid in taxes can be saved by
completing a 1031 Exchange with Executive 1031 Exchange Services. The proceeds
of the sale are invested in the replacement property and the capital gains taxes
are deferred indefinitely.
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| Info
Box |
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This information is provided as an
example only.
Always check with your
tax advisor before selling your investment
property. |
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