5 years ago you purchased a small apartment complex for $1 million. You borrowed $700,000 at 7% for 25 years with monthly payments. The original depreciable basis was $750,000 and you have used 27 1/2 years of straight line depreciation over the 5 year holding period. Assume no CAPX have been made since the property was acquired. If you sell the property today for $1,270,000 in a fully taxable sale. What will be the taxes due on sale

The taxes due on sale or capital gain tax is $23,454.55.

Data and Calculations:

Cost of apartment complex = $1 million

Loan amount = $700,000

Interest rate = 7%

Annual interest expense = $49,000 ($700,000 x 7%)

Loan payment period = 25 years

Depreciable basis at purchase = $750,000

Depreciation period = 27.5 years

The Depreciation expense per year based on the straight-line method = $27,272.73 ($750,000/27.5)

The accumulated depreciation after 5 years = $136,363.65 ($27,272.73 x 5).

The book value of apartment after 5 years = $863,636.35 ($1,000,000 - $136,363.65).

Sales proceeds = $1,270,000

Gain on sale of apartment = $406,363.65 ($1,270,000 - $863,636.35)

Capital gain after deductible, assuming you lived in the apartment alone = $156,363.65 ($406,363.65 - $250,000)

Capital gain tax = $23,454.55 ($156,363.65 x 15%)

Thus, the taxes due on sale or capital gain tax is $23,454.55.

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The taxes due on sale is descibed as below

Explanation:

The following is the calculaton of purchased apartment complex and all deduction are also be calculated and taxes due on sale is descibed as following, all the calculation on the basis of 5years.

Acqusiotion cost = 1000000; original depreciable basis = $750,000 for 27.5 years

Therefore, using SLM we have

the Annual depreciation deduction = $750000/27.5 = $27272.73

Total depreciation over 5 years = 5 into $27272.73 = 136364

Tax saved due to the depreciation = 136364 into Tax rate

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