Deck 23: A Comprehensive Analysis for Real Estate Investment Decisions

Question 1

A duplex was purchased for $120,000, and depreciation of $3,300 has been taken for the last seven years. The net proceeds from the sale of the property were $135,000.

A) Assuming the property qualifies for capital gains treatment at a 15% rate, what is the tax owed?
B) What are the net funds from the sale?

Answer 1

A) $5,715; B) $129,285
Explanation: Refer to Appendix 20A.
a)
b)
$\begin{array}{lr}\text { Net proceeds } & \$ 135,000 \\ \text {-Capital gains tax } & \frac{5,715}{\$ 129,285}\end{array}$

Question 2

An apartment complex has net operating income of $15,000, depreciation of $8,000, and interest expense of $13,000. The tax rate is 30%. a) What is taxable income or loss?
B) What is the tax shield benefit or tax owed?

Answer 2

A) ($6,000); B) $1,800
Explanation: Refer to Appendix 20A.
a)
$\begin{array}{lr}\text { Net operating income } & \$ 15,000 \\ \text { - Depreciation } & 8,000 \\ \text { - Interest expense } & \underline{13,000} \\ \text { Taxable income (loss) } & (\$ 6,000)\end{array}$

b)
$\begin{array}{lr}\text { Taxable loss } & \$ 6,000 \\ \text { Tax Rate } & \underline { .30} \\ \text { Tax shield benefit } & \$ 1,800\end{array}$