Tax Question: Depreciation Recapture, capital gains

[AndrePasche]

Hi everyone,
I'm preparing an investment proposal to present to someone and I can't quite get the tax right.

I'm not sure how to factor in the CCA recapture and then the capital gains. I'm seeing different methods online, but many of them are for the states.

Please see the PDF I've created and scroll to the bottom of the first page for the resale analysis.
https://www.dropbox.com/s/1sk9rs415ey2ujq/Investment.pdf?dl=1

So i've read that I need to calculate the adjusted cost basis then tax 50% of the gain at my marginal tax rate.
Took the purchase price and added all the costs but also subtracted depreciation. This increased the gain, which i thought took care of the depreciation recapture.

But today I read that 100% of the depreciation recapture is taxable and 50% of the capital gains are taxable.
So do i calculated the adjusted cost basis but not include depreciation for the capital gains portion and then tax 50% of it at my marginal tax rate. Then just tax 100% of depreciation at my marginal tax rate ?

Thanks in advance!
Andre

 

[Thomas Beyer]

But today I read that 100% of the depreciation recapture is taxable and 50% of the capital gains are taxable.

That is correct, as depreciation really is tax deferral, not tax avoidance.

Real estate is tax deferred, and tax preferred as you pay tax only on 50% on the gain.

I would not include the taxes at all in my investment proposal, as every investor has a different tax rate, some low and some high, or some high now, but lower later when they retire Let them deal with their own taxes, not you.

Just show them the real estate pro-forma and what a great expert you are and why it is a great investment. Then just mention that only 50% of the gain is taxable, and that during the hold even your cash-flow is usually not taxable but a return of capital (due to depreciation / CCA ) ie deferred and preferred.
- See more at: http://myreinspace.com/public_forum...pture_capital_gains.html#sthash.3m9wWVL0.dpuf