Question

Facts and information below are needed to resolve questions 24 through 26:

Jim Realty LLC, a partnership owned entirely by individuals, sells an apartment building for $72,200,000. The basis of the building immediately prior to the sale is as follows

	Original Cost - Unadjusted Tax Basis	Accumulated Depreciation
land	15,000,000	-
Building	60,000,000	(20,000,000)
Furniture & Fixtures Original Cost	300,000	(100,000)

24. Using the above information, determine the gain or loss on the sale of the apartment building to the individual owners.

25. Assuming that the allocation of the selling price is $20,000,000 to land, $52,000,000 to building and $200,000 to furniture and fixtures, prepare an estimate of the total taxes for the owners on the sale.

26. Prepare an alternative calculation for the sale with the total sales price of $72,200,000 that would result in lower taxes for the individuals

Answer 1

24	The gain or loss on the sale of the apartment building to the individual owners
	Selling Price		$72,200,000
	Less: Adjusted basis of building
	Land		$15,000,000
	Building	$60,000,000
	Less: Accumulated Depreciation	($20,000,000)	$40,000,000
	Furniture and Fixtures	$300,000
	Less: Accumulated Depreciation	($100,000)	$200,000
	Adjusted basis of building		$55,200,000
	Gain on sale of building (selling price - adjusted basis)		$17,000,000
	Assuming all the individual owners share profit equally
	Share of gain of each individual owner (gain/3)		$5,666,667
25	Estimate of the total taxes for the owners on the sale
	Sale of land
	Selling Price of land	$20,000,000
	Less: Cost Basis	($15,000,000)
	Gain on sale of land	$5,000,000
	Tax on long term capital gain @ 15%		$750,000
	Sale of Building
	Selling Price of Building	$52,000,000
	Less: Adjusted Basis	($40,000,000)
	Gain on sale of Building	$12,000,000
	Depreciation recapture gain	$12,000,000
	Tax on depreciation recapture gain @ 25%		$3,000,000
	Sale of Furniture and Fixtures
	Selling Price of Furniture and Fixtures	$200,000
	Less: Adjusted Basis	($200,000)
	Gain on sale of Building	$0
	Depreciation recapture gain	$0
	Tax on depreciation recapture gain @ 25%		$0
26	Alternative calculation for the sale to lower taxes for the individuals
	Capital gain tax rate is lower than depreciation recapture tax gain rate, thus if land is sold for
	$32,000,000 and building for $40,000,000 and furnitures and fixtures for $200,000, then the
	gain of $17,000,000 is taxed at lower rate of 15%, total taxes due will be $2,550,000