Question

ATCF from Building Sale. You are selling your building for $18,000,000, with 4.5% in selling costs. You have taken $3,000,000 in depreciation and put 600,000 into capital improvements over the period you owned the building, which you purchased for $15,000,000 and incurred 25,000 in acquisition costs. Your current loan balance is 9,500,000. Depreciation recapture tax rate is 28.8% and capital gains tax rate is 23.8%. What is your BTCF from sale? What is your gain on sale? What is your total tax on sale? What is your ATCF from sale?

Answer 1

Given,

Sale Price of Building = $ 18,000,000

Selling costs = 4.5%

Depreciation = $ 3,000,000

Capital Improvement = $ 600,000

Purchase Price = $ 15,000,000

Acquisition cost = $ 25,000

Depreciation recapture rate = 28.8%

Capital gains tax rate = 23.8%

current loan balance = $ 9,500,000

Selling Expense = $ 18,000,000 * 4.5% = $ 810,000

a) What is your BTCF from sale?

Before Tax Cash Flow from Sale (BTCF) = Sale value – Selling Expenses – Loan pay off

                                                                        = $ 18,000,000 - $ 810,000 - $ 9,500,000

                                                                       = $ 76,90,000‬

b) What is your gain on sale?

Adjusted basis = Purchase price + acquisition cost +capital improvement expenses + Selling costs – Accumulated deprecation

Adjusted Basis = $ 15,000,000 + $ 25,000 + $ 600,000 + $ 810,000 - $ 3,000,000

Adjusted Basis = $ 13,435,000

Gain on Sale = Sale Price - Adjusted Basis

                        =$ 18,000,000 - $ 13,435,000 = $ 4,565,000

c) What is your total tax on sale?

Depreciation recapture tax = Depreciation amount * tax rate = $ 3,000,000 * 28.8%

                                                   = $ 864,000

Capital gains tax = ($ 4,565,000 - $ 3,000,000) * 23.8% = $ 1,565,000 * 23.8%

                               = $ 372,470

Total Tax on sale   = Depreciation recapture tax + capital gains tax

                                = $ 864,000 + $ 372,470

                               = $ 1,236,470

d) What is your ATCF from sale?

After tax cash flow from sale = Before tax cash flow from sale - total tax paid

                                                      = $ 76,90,000 - $ 1,236,470

                                                      = $ 64,53,530

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