1031 Exchange Sample Tax Deferal Form

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Sample tax deferral from a 1031 Exchange

Here is an example of a potential real life transaction illustrating the tax savings of doing a 1031 Tax Deferred Exchange. An income producing property originally purchased for $500,000 and held for a few years. Over that time improvements of $25,000 were made and $100,00 of depreciation was taken. The property is listed for $1million and is sold. The fees for the real estate agent commission, title and legal work and other sales expenses totaled $80,000.

•	Purchase Price	$500,000
•	Capital Improvements	$25,000
•	Depreciation	($100,000)
•	Sale Price	$1,000,000
•	Sale Expenses	$80,000

Determine the Basis
Original Purchase Price	$500,000
PLUS Capital Improvements	(+) 25,000
LESS Depreciation	(-) 100,000

Adjusted Basis	$425,000

Gain
Sale Price	$1,000,000
LESS Expense of Sale	(-) 80,000
Net Sale Price	$920,000
LESS Adjusted Basis	(-) $425,000

Realized Gain	$495,000

Estimated Tax
Depreciation Recapture (25% x $100,000)	25,000
Capital Gains (15% x $395,000)	59,250

Federal Taxes Due	$84,250

In this example the investor has a potentially taxable gain of $495,000, which would calculate to $84,250 in federal taxes. There could be additional state taxes as well. If the investor instead executed a 1031 Exchange, purchased property of $920,000 or more (the net sales price), and rolled in the cash proceeds, the entire gain would be deferred and no taxes would be due.

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This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. The applicable tax codes apply to and relate to federal law only. Individual states may have their own additional tax codes. Please contact the appropriate tax and legal professional in your state. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation. Properties represented here are not current offerings and properties of this nature may not always be available for purchase.