Taxes are paid on capital gain, not equity or profit

It is possible to have little or no equity and still owe tax. Capital gain is arrived at by subtracting the adjusted basis from the adjusted sale price. The adjusted sale price is the gross sale price minus standard transaction costs. To arrive at the adjusted basis, first establish cost basis ( usually the original purchase price). Nest, add to this figure all improvements made to the property, which were not expensed. Then, subtract all depreciation taken over the period of ownership.

To determine the estimated capital gain, subtract the adjusted basis from the sale price. Next, subtract the transaction costs (commissions, fees, ect.) to determine the capital gain. Finally, multiply the capital gain by your combined tax rate (Federal and State) to determine your estimated capital gains tax. Remember there are two different rates (see page two).

    Original Purchase Price     _______________

    Plus Capital Improvements   _______________

    Equals Adjusted Basis       _______________

    Current Sales Price         _______________

    Minus Adjusted Costs        _______________

    Minus Transaction Costs     _______________

    Equals Capital Gain         _______________

    Times your Tax Rate
        For appreciation        _______________

    Times Your Tax Rate
        For depreciation        _______________

    Add state taxes             _______________

Equals Capital Gains tax*       _______________

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	1031 Tax Exchange PDF file.

Disclosure
Jerry Babin - Realtor with RE/MAX Southern Realty cannot advise you concerning the specific tax consequences or advisability of a deferred exchange for tax planning purposes. You will be required to seek the counsel of your accountant or attorney. If we can answer any of your general questions, or those of your representatives, please do not hesitate to contact us.