Ramen Retirement: 1031 Exchange Economics
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Ramen Retirement: 1031 Exchange Economics
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Relinquished PropertyReplacement PropertyTax WaterfallDepreciation Basis Going ForwardTax rate assumptions
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Original Purchase & DepreciationPurchase price (net of fees)$110,000Depreciation Recapture TaxReplacement Property Basis & DepreciationFederal cap gains tax20.0%
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Purchase price (net of fees)
$100,000Total taxable amount$10,000Property price$110,000
Federal depreciation recapture
25.0%
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Depreciable %80%Taxable debt reliefEligible depreciation recapture$29,091Less: Relinquished basis at sale$70,909Federal regular income rate37%
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Starting depreciable basis$80,000Old mortgage$70,000Depreciation recapture taxed$10,000Less: Dep recapture deferred$19,091State tax13.3%
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Years of depreciation10New mortgage$10,000Depreciation tax paid$4,210Less: Capital gains deferred$20,000Affordable care tax3.8%
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Net depreciation$29,091Taxable debt relief$60,000
Depreciation recapture deferred
$19,091Added basis$0Capital gain tax37.1%
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Ending depreciable basis$50,909Depreciation tax deferred$8,037Added depreciable basis$0
Depreciation recapture tax
42.1%
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Cash Added or RemovedAnnual depreciation added$0Regular income tax 54.1%
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Sale Details
Equity from reliquished property
$50,000Capital Gains Tax
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Sale price (net of fees)$120,000
Less: Total cash needed to close
$100,000
Remaining taxable amount
$0Reduction in Relinquished Basis
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Mortgage balance at sale$70,000
Net cash removed / (added)
-$50,000Eligible capital gains$20,000Basis reduction$0
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Equity cash$50,000Capital gains taxed$0Depreciable basis reduction$0
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Net debt & cash removed$10,000Capital gains tax paid$0
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Depreciation & Capital GainsCapital gains deferred$20,000Relinquished Basis & Depreciation
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Capital gain$20,000Capital gains tax deferred$7,420Starting depreciable basis$80,000
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Depreciation recapture$29,091Net depreciation$29,091
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Total gain$49,091Total tax paid$4,210Ending depreciable basis$50,909
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Total tax deferred$15,457
Less: depreciable basis reduction
$0
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Adjusted depreciable basis$50,909
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Years of depreciation remaining17.5
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Annual depreciation value$2,909
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Total annual depreciation value
$2,909
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Note: Depreciation from relinquished property will expire in 17.5 years
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Source: ramenretirement.com
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