Here are a couple HYPOTHETICAL SCENARIOS:
HYPOTHETICAL SCENARIO #1
Primary Residence in Los Angeles
Mr. and Mrs. Taxpayer want to sell the highly appreciated residential property in California that they have lived in for ten years:
Sales proceeds after commissions and closing costs . .$4,000,000
Seller’s Original Basis: . . . . . . . . . . . . . .$400,000
Mortgage Balance at time of closing: . . . . . . . . . . . . . . $300,000
IRC sec.121 exclusion: . . . . . . . . . . . . . . . . . . . . . $500,000
($250,000 per owner residing there for two of the last five years)
Seller’s adjusted basis: . . . . . . . . . . . . . . . .$900,000
(purchase price + section 121 exclusion)
Taxable gain: . . . . . . . . . . . . . . . . . . . . . . .$3,100,000
(net sales proceeds minus adjusted basis)
Federal Tax 20%,
CA State Tax 13.3%
Medicare Tax 3.8%
Approximate Tax Due: . . . . . . . . . . . . . . . $1,150,100
Approximate Tax Due with a DST . . . . . . . . . . . . . .$0
HYPOTHETICAL SCENARIO #2
Commercial Property sale in NYC
Sales proceeds after commissions and closing costs: . . . . . . $20,000,000
Seller’s Original Basis: . . . . . . . . . . . . . . . $5,000,000
Capital Improvements: . . . . . . . . . . . . . . .$1,000,000
Depreciation: . . . . . . . . . . . . . . . . . . . . . . $4,000,000
Mortgage Balance at time of closing: . $2,000,000
Seller’s adjusted basis : . . . . . . . . . . . . . $2,000,000
(purchase price + capital improvements – depreciation)
Taxable gain: . . . . . . . . . . . . . . . . . . . . . . $18,000,000
(net sales proceeds minus adjusted basis)
Federal Tax 25%;
NY State & City Tax 12.7%
Medicare Tax 3.8%
Approximate Tax Due: . . . . . . . . . . . . . . . . $6,769,280
Approximate Tax Due with a DST: . . . . . . $0
HYPOTHETICAL SCENARIO #3
Business in Chicago Sales proceeds after commissions and closing costs: . . . $10,000,000
Seller’s Original Basis: . . . . . . . . . . . . . . . . . . . . . . . $0
Business Loan balance at time of closing: $250,000
Taxable gain: . . . . . . . . . . . . . . . . . . . . . $10,000,000
(net sales proceeds minus adjusted basis)
Federal Tax 20%,
Illinois State Tax 4.95%
Medicare Tax 3.8% (doesn’t apply to this situation)
Approximate Tax Due: . . . . . . . . . . . . . . $2,495,000
Approximate Tax Due with a DST with Mortgage Over Basis (MOB): . . . . . . . . . $62,375
*Mortgage Over Basis (MOB) is taxable = $250k is non-deferrable
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