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An investor is considering selling a property that has an adjusted basis of $3.2 million for $4 million. The property has a loan balance of $275 million. She is exploring different disposition strategies. All capital gains would be taxed at 24% (Whether from depreciation recapture or price appreciation) and ordinary income would be taxed at 32%. Suppose that the investor is considering doing a tax-deferred exchange. She would acquire a second property for $4.5mi ilion and assume a loan for $3,850,000. She believes the land would be about 15% of the purchase price and the building would be about 85%. If she does the exchange, she plans to sell this exchange property after 5 years. It would be depreciated over 30 years. She would like to know if this is a better strategy than selling the property for cash and then purchasing the other property. Calculate the tax saving return from the exchange. use the table below to guide your work. (Hint: Some information from this description is not needed) Exchange versus Regular Sale and Purchase New Prop Calc of tax savings if exchanged: Sale Price if sold today Adjusted Basis today Gain if sold today Capital Gain Tax Rate Tax if sold today Calc of add dep benefits if not exchanged: Depreciable life Add depreciation if sale \& purchase new Ord inc. tax rate Dep. tax savings if sale \& purchase new Calc of additioal tax at end of holding period if exchanged: Holding period Additional Gain at sale of exchanged prop Deferred gain Less: difference in accum dep Cap gains tax rate at end of holding period Additional tax at sale of exchanged prop Calc of return on tax savings from exchange: PV PMT FV N Rate 1.62% 1.19% 4.84% 3.32% 1.45% 3.51% An investor is considering selling a property that has an adjusted basis of $3.2 million for $4 million. The property has a loan balance of $275 million. She is exploring different disposition strategies. All capital gains would be taxed at 24% (Whether from depreciation recapture or price appreciation) and ordinary income would be taxed at 32%. Suppose that the investor is considering doing a tax-deferred exchange. She would acquire a second property for $4.5mi ilion and assume a loan for $3,850,000. She believes the land would be about 15% of the purchase price and the building would be about 85%. If she does the exchange, she plans to sell this exchange property after 5 years. It would be depreciated over 30 years. She would like to know if this is a better strategy than selling the property for cash and then purchasing the other property. Calculate the tax saving return from the exchange. use the table below to guide your work. (Hint: Some information from this description is not needed) Exchange versus Regular Sale and Purchase New Prop Calc of tax savings if exchanged: Sale Price if sold today Adjusted Basis today Gain if sold today Capital Gain Tax Rate Tax if sold today Calc of add dep benefits if not exchanged: Depreciable life Add depreciation if sale \& purchase new Ord inc. tax rate Dep. tax savings if sale \& purchase new Calc of additioal tax at end of holding period if exchanged: Holding period Additional Gain at sale of exchanged prop Deferred gain Less: difference in accum dep Cap gains tax rate at end of holding period Additional tax at sale of exchanged prop Calc of return on tax savings from exchange: PV PMT FV N Rate 1.62% 1.19% 4.84% 3.32% 1.45% 3.51%

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