Equity Reversion After Tax (AKA after-tax proceeds from resale)

Equity Reversion After Tax
The amount of money left for the investor after all obligations of the transaction, and income taxes on the transaction.

Equity Reversion After Tax

Resale price	$1,300,000
Transaction costs	$100,000	
Outstanding mortgage	$900,000
Tax on gain	$180,000
Equity reversion after tax	$120,000	= $1,300,000 - $100,000 - $900,000 - $180,000 = $120,000

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Equity Reversion After Tax

Gross selling price	$45,000,000
Selling expense	($3,150,000)	=($45,000,000*7%)
Net selling price	$41,850,000
Original purchase price	$40,000,000
Accumulated depreciation	$6,250,000	=($1,250,000 * 5)
Adjusted basis (book value)	$33,750,000	= $40,000,000 - $6,250,000
Realized gain on sale	$8,100,000	= $41,850,000 - $33,750,000
Recaptured depreciation	$6,250,000	Net selling price > Original cost (this case) Recaptured depreciation = Accumulated depreciation Net selling price < Original cost Recaptured depreciation = Net selling price - (Original cost - Accumulated depreciation)
Long-term capital gain	$1,850,000	= $8,100,000 - $6,250,000
Tax on recaptured depreciation	$1,750,000	= $6,250,000 * 28%
Tax on long-term capital gain	$277,500	= $1,850,000 * 15%
Total tax on property sale	$2,027,500	= $1,750,000 + $277,500

• Selling expense = Gross selling price * 7%
• The property will be fully depreciated at a rate of $1,250,000 per year over 32 years.
• Investment horizon = 5 years
• Taxes
• Capital gains tax = 15%
• Taxes on recaptured depreciation = 28%
• Tax rate on ordinary income = 40%

Equity Reversion After Tax

Net selling price	$41,850,000
Outstanding mortgage balance	$32,000,000	= Original purchase price - Paid cash = $40,000,000 - $40,000,000 * (1 - 80%)
Pre-tax sales proceeds	$9,850,000	= $41,850,000 - $32,000,000 = $9,850,000
Tax on property sale	$2,027,500
Equity reversion after tax	$7,822,500	= $9,850,000 -  $2,027,500