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1031 Exchange |
Exchange or Pay Uncle Sam? |
FAQ's about 1031 Exchange
Exchange or Pay Uncle Sam
The following examples show the tax
implications of exchanging versus
cashing out of your current investment
property.
We will use this simplified scenario
for our examples:
• Loan balance is zero
• Property is fully depreciated,
therefore basis is zero
• You have made no improvements to the
property
• Costs of sale are zero
• 15% federal captial gains tax
(sales price - original purchase price =
gain x 15% = federal tax due)
• 5% state capital gains tax
(sales price - original purchase price =
gain x 5% = state tax due)
• 25% depreciation recapture (100% of
property has been depreciated)
(original purchase price x 25% =
recapture tax)
$1,000,000 example
Sales price: $1,000,000
Original purchase price: $500,000 |
| |
Cash Out
VS
Exchange |
| Proceeds from sale: |
$1,000,000 |
$1,000,000 |
| Federal capital
gain: |
$75,000 |
N/A |
| State capital gain: |
$50,000 |
N/A |
| Depreciation
recapture: |
$125,000 |
N/A |
| |
|
|
| Taxes due: |
$250,000 |
$0 |
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| Cash to reinvest: |
$750,000 |
$1,000,000 |
| Purchase power
with 25% down: |
$3,000,000 |
$4,000,000 |
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