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 � 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.]


1. CALCULATE NET ADJUSTED BASIS Original Purchase Price __________

+ Improvements __________

- Depreciation __________



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 (20%) __________

+ State Tax (when applicable) __________

= TOTAL TAX DUE __________


4. ANALYZE PURCHASE NO 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 = __________



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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.

If you are interested in learning more about 1031 Tax-Deferred Exchanges, I would be happy to assist. Please don't hesitate to contact Andrew for more information, or call (970) 453-2200 for your real estate enquiries.