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SAMPLE SAVINGS IN A 1031 EXCHANGE
Bob decides to sell a duplex that he has owned as an investment property for 8
years originally purchased for the amount of $70,000, and is now worth
$750,000. His real estate broker has recommended that he obtain a Qualified Intermediary in tax deferred exchange, thereby deferring payment of capital gains taxes.
The real estate broker finds Bob an office
building valued at $3,000,000 for his
replacement property. Bob is successful in the exchange process and as
a result does not have to pay capital gains taxes in the amount of $102,000.
($750,000 less original purchase price of $70,000 equals $680,000 profit.
Capital gains tax is 15% times $680,000 equals $102,000.) He is able to
purchase the office building leveraging the net proceeds from his duplex. Bob
was able to purchase a property worth $408,000 more using the 1031 exchange.
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NET EQUITY
|
Sale
|
Exchange |
| CAPITAL GAINS TAX |
$680,000 |
$750,000
|
| EQUITY TO REINVEST
|
$102,000 |
$0
|
| PROPOSED ACQUISITION* |
$648,000 |
$750,000
|
| *(Presuming 25% Down payment) |
$2,592,000 |
$3,000,000 |
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