
The Problem
William Smith purchased The Imperial Apartments in 1998 for $1.5M and he's been taking approximately $50,000 in
against the property each year (27.5 year
residential rental property). He sold the building in February 2008 for $2.5M.
At the time of sale, his
The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price - $1M adjusted tax basis = $1.5M), making his total tax $350,000.
• Federal Long-term
• Tax Attributable to Unrecaptured Section 1250 gain: $500,000 depreciation x 25% = $125,000
• State/Local Tax (assumes 5% state tax rate): $1.5M tax gain x 5% = $75,000
The Accruit Solution
Working with Accruit, Smith structures the sale of The Imperial as a §1031 single exchange, letting him defer this tax debt indefinitely.
The Results
After executing an LKE, the recognized tax gain on the sale of The Imperial is $0. The benefit to Smith is the deferral of $1.5M of tax gain, resulting in a total tax savings of $350,000 in the year of sale.
* This case is based on a typical real estate exchange scenario.