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How to Calculate Your Potential Tax Benefits with a 1031 Exchange

Many people know that a 1031 Exchange can allow for tax deferral of Federal and State Capital Gains Tax, Depreciation Recapture Tax, and Net Investment Income Tax, but they do not know how to calculate the potential tax deferral. Learn how to calculate your Capital Gains Tax and Depreciation Recapture Tax liabilities, as well as the full potential tax deferral through a 1031 Exchange.
Tax Savings with a 1031 exchange

If you are selling an investment or business use property, you should consider a 1031 exchange. Generally speaking, a 1031 exchange allows you to defer capital gains tax at the federal and state level, depreciation recapture tax, and net investment income tax when you sell an investment or business use real estate and reinvest those proceeds into another business or investment use property. If that isn’t compelling enough, wait until you see your potential benefits by calculating your various tax totals and deferral potential.

How to Calculate Capital Gains Tax

Many people ask, how is Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s Calculated, the Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s Tax Calculation is as follows: Sales Price - the TOTAL of Original purchase price (cost basis) + improvements to the property + selling expenses = Total Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s

Federal Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s Tax = Total Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s multiplied either 15% or 20% depending on your annual household Income. Currently for persons married filing jointly the 20% rate would begin on income of $517,001. Remember the sale of the property itself is considered part of the income.

State Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s Tax = Total Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s multiplied by your State Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain Tax Rate which varies by state. Look up your State’s Capital Gains Tax Rate.

By adding the total of your Federal Capital Gains and State Capital Gains Tax you get your total Capital Gain Tax that would be owed if you did not complete a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange .

While it is important to understand the figures and calculations that determine your potential Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property. Capital Gain s Tax, we made it easy for you to calculate using our Capital Gains Calculator. The calculator will also calculate Net Investment Income Tax, an additional tax at 3.8% incurred when the taxpayer’s annual investment income is $200,000+ for a single taxpayer or $250,000+ for married taxpayers filing jointly.

How to Calculate Depreciation Recapture Tax

Your tax liability doesn’t stop there, without a 1031 exchange you will also be responsible for The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation Recapture Tax. How do you calculate depreciation recapture tax? First, we need to calculate the The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation taken on the property over the course of ownership.

Annual allowable depreciation is based off whether the property is residential or commercial, from there you need to know your original purchase price (cost basis), land value (value of the land minus building/structure value), and cost of improvements.

The calculation for annual allowable depreciation is as follows:

Original purchase price - land value + cost of improvements = Total Depreciable Value

Annual Allowable The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation = Total The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation Value divided by either 27.5 (residential) or 39 (commercial)

Once you know your Annual Allowable The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation , you can calculate the The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation Recapture Tax you would be liable for without a 1031 exchange.

The calculation is as follows:

Annual Allowable The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation multiplied by the total years you have owned the property = Accumulated The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation

Accumulated The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation multiplied by 25% deprecation capture tax rate = total The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation Recapture Tax that will be due along with the capital gain tax to the IRS without a 1031 exchange.

Utilize our Depreciation Calculator to determine your annual allowable depreciation and Accumulated The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule. Depreciation that can be plugged into our 1031 exchange calculator for determining your total tax deferment possible with a 1031 exchange.

 

 *The calculators are for informational purposes only and provide an approximate estimate. Consult with your Tax Advisor for an accurate calculation based on your specific situation.

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