Q. How can I estimate what my "Capital Gain" will be on the investment
property I'm going to sell (relinquish), before I decide to do a 1031 Exchange?
A. Capital Gain is determined by subtracting the "adjusted basis" from the
"adjusted sales price". The "adjusted sales price" is the "gross sale price"
minus standard transaction costs. So, to get started ....
STEP 1 - COMPUTE THE "ADJUSTED BASIS".
Establish the "original basis" first - it's usually the original sales price you paid for
the property. Next, take the "original basis" amount and add all "improvements"
made to the property which were not expensed. Now subtract all of the depreciation
taken over the period of ownership. The amount remaining is the "adjusted basis".
STEP 2 - DETERMINE YOUR "CAPITAL GAIN".
Subtract the "adjusted basis" from the current sales price. Then from that result,
subtract the "allowable" transaction costs (commissions, fees, etc.). The remainder
is the capital gain".
STEP 3 - ESTIMATE YOUR "CAPITAL GAIN TAX".
Finally, to determine your estimated Capital Gains "tax", multiply the capital gain
by your "combined tax rate" (federal & state). |
