Tax on recaptured depreciation & Tax on long-term capital gain

Tax on recaptured depreciation & Tax on long-term capital gain

Gross selling price	$60,000,000
Selling expense	($4,200,000)	=($60,000,000*7%)
Net selling price	$55,800,000
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	$22,050,000	= $55,800,000 - $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	$15,800,000	= $22,050,000 - $6,250,000
Tax on recaptured depreciation	$1,750,000	= $6,250,000 * 28%
Tax on long-term capital gain	$2,370,000	= $15,800,000 * 15%
Total tax on property sale	$4,120,000	= $1,750,000 + $2,370,000

• 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%