After reading some of the comments from "To Exchange or Not to Exchange? That is the question," I thought it would be helpful to post information about NET ADJUSTED BASIS.
The simplified way of determining whether there is a potential capital gain on the sale of property is to subtract the original purchase price from the current sale price:
Sale Price - Original Purchase Price= Very Rough Estimate of Capital Gain
However, the more precise way to determine capital gain is to calculate the NET ADJUSTED BASIS, which takes into account capital improvements, depreciation and any deferred capital gain (if the property was originally purchases as replacement property in a 1031 Exchange). Its often helpful to use a CAPITAL GAIN TAX CALCULATOR (although these are closer to the real capital gain, an accountant is needed to calculate actual capital gain because some changes in the tax code have made it more complex).
Here is an example of the basic formula for calculating NET ADJUSTED BASIS:
1. Calculate Net Adjusted Basis: |
Original Purchase Price | $ | |
plus Improvements | + $ | |
minus Depreciation | - $ | |
minus Deferred Capital Gain from prior exchange | - $ | |
= NET ADJUSTED BASIS | = $ | |
In the next post I'll show you how to get a rough estimate of the capital gain that may be recognized on the sale of property if a 1031 exchange is not used.
These and other tools are available on the Asset Preservation, Inc. website. Click on the link below:
If you have found this post (or any other post on AR) helpful for the rest of the Active Rain community, please click on the RED FLAG below to recommend it for a featured post.
Lisa Lambert, Esq. 877.646.1031 or LisaL@apiexchange.com
Asset Preservation, Inc. 800.282.1031 info@apiexchange.com www.apiexchange.com
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