20 2. How are upfront financing costs associated with financing an income property handled for tax purposes? Use the following information to answer questions 3-5: Five years ago you purchased a small apartment complex for $1 million. You borrowed $700,000 at 7 percent for 25 years with monthly payments. The original depreciable basis was $750,000 and you have used 27/2-year straight-line depreciation over the five-year holding period. Assume there was no personal property associated with the acquisition. Assume no capital expenditures have been made since acquisition. If you sell the property today for $1,270,000 in a fully taxable sale: . What will be the taxes due on sale? Assume 6 percent selling costs, 33 percent ordinary tax rate, a 15 percent capital gain tax rate, and a 25 percent recapture rate. Ignore the mid-month convention . What will be the after-tax equity reversion (cash flow) from the sale? - Over the entire five-year holding period, how much were your taxes from rental operations reduced by the annual depreciation deductions? Ignore the increased taxes due on sale. 20 2. How are upfront financing costs associated with financing an income property handled for tax purposes? Use the following information to answer questions 3-5: Five years ago you purchased a small apartment complex for $1 million. You borrowed $700,000 at 7 percent for 25 years with monthly payments. The original depreciable basis was $750,000 and you have used 27/2-year straight-line depreciation over the five-year holding period. Assume there was no personal property associated with the acquisition. Assume no capital expenditures have been made since acquisition. If you sell the property today for $1,270,000 in a fully taxable sale: . What will be the taxes due on sale? Assume 6 percent selling costs, 33 percent ordinary tax rate, a 15 percent capital gain tax rate, and a 25 percent recapture rate. Ignore the mid-month convention . What will be the after-tax equity reversion (cash flow) from the sale? - Over the entire five-year holding period, how much were your taxes from rental operations reduced by the annual depreciation deductions? Ignore the increased taxes due on sale