Calculating Your Capital Gain

“Analyze the Benefits of an Exchange Before You Sell”

The real power of a tax deferred exchange is not just the tax savings Ñ 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.]

Compare the tax savings 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 PurchaseÐNO Exchange        Sales Price                        __________

                                                - Cost of Sale                  __________

                                                - Loan Balances                 __________

                                                = GROSS EQUITY                      __________

                                                - Capital Gain Taxes Due         __________

                                                = NET EQUITY                      __________

                                                Net Equity X 4 =                   __________

5. Analyze Purchase-Exchange              Capital Gain Taxes Due         _____0____

                                                Gross Equity = Net Equity             __________

Gross Equity x 4 = __________

                                   ASSET PRESERVATION

                        I N C O P O R A T E D

A National IRC § 1031 “Qualified Intermediary”

Call for a Free Consultation:  (800) 282-1031 or Visit our Web Site:  apiexchange.com

This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.                                                                                                                © 2000  Asset Preservation, Inc.