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Homework answers / question archive / A retail property was acquired on April 12 of year one with $7,250,000 of cash and $4,500,000 of debt
A retail property was acquired on April 12 of year one with $7,250,000 of cash and $4,500,000 of debt. The mortgage was a 20-year term, 4.75% fixed rate, fully amortizing. No loan fees because the owner accepted a higher interest rate. The owner did not make any capital improvements to the property during the hold period. Year one NOI of $523,225.
The property was sold on the April 11 of year eight for $12,800,000 with closing costs of 5.25%.
The owners Tax rates are 39% ordinary Income, 27% depreciation recapture, 20% capital gains
(For Debt retirement calculations assume full years, ignoring the month specified above. There are more to make you think for the depreciation schedule than to cause confusion with debt retirement.)
Tax Assessment for this property is as follows:
Value |
|
$ (25%) |
Land |
$ (75%) |
Improvements |
$11,750,000 (100%) |
Total |
Reminder: The Calculation for SPBT and SPAT is below as a refresher
Sale Price
= Sales Proceeds Before Tax
= Sale Proceeds After Tax
Note 1: Remember what is taxed as ordinary income at time of sale (this is NOT the sale proceeds and is not the same as annual ordinary income tax and is possibly zero).
Note 2: This is a tax on the accumulated depreciation over the hold period.
Note 3: This is a tax on the Taxable Gain (Sale price less closing costs less Adjusted Basis less Depreciation taken)