Full Tax Referral
An Exchanger may choose to do a partial exchange, and defer taxes on only a portion of their capital gain. However, to fully defer their capital gain taxes, an Exchanger must:
1. Acquire replacement property that is of the same or greater value as the relinquished property (less costs of sale);
2. Spend all of the exchange funds on the acquisition the replacement property.
Exchange funds that aren’t spent are known as “boot” and will be subject to taxation.
Complying with these guidelines will often result in the Exchanger having the same or greater amount of mortgage debt on the replacement property, however that is not required—they can always replace mortgage debt with additional cash. Any relinquished property debt that is not replaced with a new mortgage or additional cash is known as “mortgage boot” and will also be subject to taxation. For example:***
Net Adjust Basis Calculation
| Purchase Price | |||
| Plus Cost of Improvements | |||
| Minus Depreciation | |||
| Net Adjusted Basis |
Capital Gain Calculation
| Sales Price | |||
| Minus Net Adjusted Basis | |||
| Minus Exchange Expenses | |||
| Capital Gain |
Capital Gain Tax Calculation
| Tax Rate | |||
| Federal Capital Gain Tax* | Pick Rate From Drop Down | ||
| Net Investment Income Tax** | Pick Rate From Drop Down | ||
| Depreciation Recapture | |||
| State Income | Fill in Rate as a Percent | ||
| Local Income Tax Rate | Fill in Rate as a Percent | ||
| Total Taxes Due |
Net Equity Calculation
| Sales Price | |||
| Minus Costs of Sale | |||
| Minus Mortgage Payoff | |||
| Minus Taxes Due | |||
| Net Equity |
* For 2016, the long term Federal Capital Gain Tax rate is 15% for most taxpayers, and 20% for taxpayers with adjusted gross income in excess of $415,050(single)/$466,950 (married filing jointly)
**The Medicare Net Investment Income Tax applies to taxpayers with adjusted gross income of $200,000(single)/$250,000 (married filing jointly)
***This Capital Gain Calculator is for illustration purposes only and must not be relied upon in making tax and investment decisions. Tax rates often change. Additionally, as a Qualified Intermediary, KV 1031 Exchange LLC is not permitted to provide tax or legal advice. Accordingly, every investor should review and structure their transaction with the guidance of tax and legal advisors who are fully apprised with the facts and circumstances of their situtation.
