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Q. What is my tax basis?
A. To make a long story short, your tax basis in a property is what you paid
for it, plus any capital improvements, minus any depreciation.
Thus, if you bought a property five years ago for $50,000.00,
put on a new roof for $10,000.00, and took depreciation in each of the five
years since you purchased it of $1,000.00 per year, your tax basis would be
calculated as follows:
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$50,000.00 Purchase Price
+$10,000.00 New Roof
-$ 5,000.00 Five Years' Depreciation
$55,000.00 Tax Basis
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Note that if you sold the property for $60,000.00, and your costs of sale
were 8%, or $4,800.00, you would only have a capital gain of $200.00. Your
capital gains tax might only be about $67.00! In such a case, it would probably
not be a good idea to structure the transaction as an exchange. However, an
exchange service which is not practicing law or accounting might not look into
this, and might not recommend that you not do an exchange. Since the service was
not practicing law or accounting, there might be nothing you could do about
this. Get sound advice from a licensed professional!
Rice & Stallknecht, P.C. would be honored to
assist you.
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