Realty Exchange Corporation has created this simple Capital Gain Analysis Form and Calculator to estimate the tax impact if a property is sold and not exchanged, and to calculate the reinvestment requirements for a tax-free exchange. See below for an example and explanation.
A PDF version of our calculator is available below if you would like to have something that you can use offline. The Calculator requires Acrobat Reader 4.0 or higher. Please upgrade your Acrobat Reader for free using this link.
Open the Gain Calculator as a PDF
Fill in the fields below with your numbers and the calculator will generate an estimate of your results:
|A. Taxable Gain if property is sold:|
|2.||Subtract Selling Costs||+|
|3.||ADJUSTED SELLING PRICE||=|
|4.||ORIGINAL COST BASIS|
|6.||COST BASIS + IMPROVEMENTS|
|7.||Subtract All Depreciation Authorized/Taken|
|8.||ADJUSTED BASIS (subtract from Line 3)||=|
|9.||TOTAL TAXABLE CAPITAL GAIN if property is sold (or deferred if property is exchanged)||=|
|B. Tax on Gain: (Note 3)|
|10a.||Capital Gain Tax on Profit (Line 3 less Line 6 × 15%)|
|10b.||Recapture Section 1250 Depreciation (Line 7 × 25%)||+||1250|
|11.||Your State Income Tax Rate (Note 5)|
|12.||ESTIMATED TAX due if property is sold (or amount deferred if exchanged) (Note 6)||=|
|C. Before and After Tax Proceeds|
|13.||SELLING PRICE (Line 1)|
|14.||Subtract Balance Due on All Loans||-|
|16.||Subtract Selling Costs (Line 2)||-|
|17.||Proceeds Before Tax (cash to escrow in an exchange)||=|
|18.||Subtract Total Tax Due (Line 12) (Note 6)||-|
|19.||Net Sale Proceeds After Tax if property is sold||=|
|D. Exchange Reinvestment Requirements|
|For deferral of all gain, the replacement propertiy(ies) must cost at least (Line 3):|
|The amount of cash that you must reinvest must be at least (Line 17):|
|The balance of funds needed to purchase the new property(ies) may be borrowed or new cash.|
(1) To estimate selling costs use 8 to 10% of selling price consider discounts or allowances given by seller.
(2) To estimate residential depreciation taken multiply purchase price of property being sold by 3%, times the number of years the property has been rented.
(3) Total taxable gain is the Profit (Line 10a) plus all the Depreciation taken (Line 10b).
(4) Section 1250 property is basically all real estate rental property.
(5) Your state taxes will vary depending on the state. We recommend checking state tax authority websites or consulting a local tax attorney or tax accountant to get an accurate number.
(6) Caution: Your recognized gain may push income above tax thresholds. Capital gain is X 20% if your taxable income is above and you may have to add and pay 3.8% Net Investment Income Tax. (As of 7/2019)
Example and Explanation of the Like-Kind Exchange Analysis:
A rental property has a selling price of $500,000 and will have selling costs of $40,000. The property cost $150,000 when purchased ten years ago. No depreciable improvements have been made. The estimated depreciation taken is $45,000.
|A.||Potential Taxable Gain when the Property Sells|
|2.||Subtract: Selling Costs (see Note 1)||-$40,000|
|3.||Equals: Adjusted Selling Price||$460,000|
|4.||Original Cost Basis||$150,000|
|6.||Equals: Adjusted Cost Basis||$150,000|
|7.||Subtract: All Depreciation Taken (see Note 2)||-$45,000|
|8.||Equals: Tax Basis||-$105,000|
|9.||Total: Taxable Capital Gain or Loss if the property sold||$355,000|
|B.||Tax on the Gain if the Property Sells|
|10A.||Capital Gains Tax on Profit (See Note 6) (Adj Selling Price less Adj Cost Basis)||$310,000 x 15%||$46,500|
|10B.||Recapture of all Section 1250 depreciation allowed (see Note 4)||$45,000 x 25%||+$11,250|
|11.||State Income Tax (Note 5) (Example rate is for Virginia)||Tax Rate 5.75% x Line 9||$20,412.50|
|12.||Total: Total Tax if the property is sold||$78,162.50|
|C.||Before and After-Tax Proceeds|
|13.||Selling Price (line 1)||$500,000|
|14.||Subtract: Balance Due on all Loans||-$100,000|
|16.||Subtract: Selling Costs (Line 2)||-$40,000|
|17.||Proceeds Before Tax (cash to Escrow in an Exchange)||$360,000|
|18.||Subtract: Total Tax Due (line 11)||-$78,162.50|
|19.||Net Sale Proceeds After-Tax if the property sold||$281,837.50|
D. Exchange Reinvestment Requirements
For deferral of all gains the replacement property(ies) must cost at least $460,000 (line 3) and the amount of cash reinvested must be at least $360,000.00 (line 17).
The balance of funds needed to purchase the new property(ies) may be borrowed and/or be new cash.
If the new property(ies) cost less than line 3 or the cash reinvested is less than line 16, then the capital gain will be recognized and be taxed on whichever amount of difference is larger (The recaptured Section 1250 depreciation will be taxed first.)