Page 10 - Old Republic Title Exchange

DON'T SELL YOUR INCOME OR INVESTMENT PROPERTY UNTIL YOU

DO THE MATH

Taxes are paid on capital gain, not equity or profit. It is possible to sell property without realizing much profit and still owe
substantial capital gains tax. Capital gain is simply the difference between the sales price and the adjusted basis (i.e., what
you paid for the property, plus amounts spent on capital improvements, less depreciation taken), less any closing costs
associated with the sale.

To calculate your estimated capital gain: First, subtract the adjusted basis from the sales price. Next, subtract the customary
closing costs of your transaction, such as commission, fees, transfer tax, etc. Finally, multiply the capital gain by your
combined tax rates (federal and state) to determine your estimated capital gain tax.

1. Calculate Net-Adjusted Basis: Example:
Original Purchase Price $400,000
Plus Capital Improvements $25,000
Minus Depreciation Taken ( ) ($175,000)
Equals Adjusted Basis $250,000
2. Calculate Capital Gain:

Current Sales Price $600,000
Minus Customary Closing Costs ( ) ($30,000)
Minus Adjusted Basis ( ) ($250,000)
Equals Capital Gain $320,000
3. Calculate Capital Gain Tax:
Gain Attributable to Depreciation $43,750
[$175,000 x 25% = depreciation]
Plus Federal Capital Gain Tax
[$320,000 - $175,000 = $145,000 x 20%] $29,000
Plus State Capital Gain Tax $32,000
[e.g. CA approx. 10% x $320,000 (cap. gain)]
Plus 3.8% Surtax* $12,160
[3.8% x $320,000]
Equals Combined Tax Due $116,910

*If your modified adjusted gross income (MAGI) is equal to or less than the threshold amounts specified in IRC
1411, you will not be subject to the 3.8% tax. If your MAGI is above the specified threshold amounts, you will pay 3.8%
tax on either your investment income or the excess MAGI over the specified threshold, whichever amount is less.

Filing Status Threshold Amount

Married filing jointly $250,000
Married filing separately $125,000
All other individual taxpayers $200,000
Trusts and Estates $14,650 (for 2023)

The formula set forth above is provided to help you determine your approximate gain and the sums that you may wish to
defer through your exchange transaction. Consult with your tax advisor to determine the correct values and whether an
exchange is appropriate for your circumstances. Old Republic Exchange does not provide tax or legal advice.

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