Twelve years ago, Mr$.$ Davis contributed a property that includes a building and land to Davis Office Furniture, a C corporation.

$$ The property will be used for office and warehouse space.

$$ Mr$.$ Davis acquired the property and used it as rental property for five years prior to the contribution to the corporation.

$$ The property was exchanged for a $30$ percent equity interest in the corporation.

$$ After the contribution of the property, Mr$.$ Davis had an $80\%$ interest in the corporation.

$$ The adjusted tax basis in the warehouse property at the time of the contribution to the corporation was $$1,500,000($building $$900,000$ and $$600,000$ land$).$ This basis reflects depreciation taken up to the date of the contribution.

$$ The building$$s appraised FMV on date of contribution to the business was $$1,650,000.$

$$

During the current year, Mr$.$ Davis decided to retire and close the business.

$$ On the last day of the year the corporation sold the property $($building and land$)$ to an unrelated purchaser for $$2,500,000.$

$$ A realtor was paid a $6$ percent commission.

$$ The corporation will liquidate its office furniture inventory shortly and the company may need your assistance with that at a later date.

Calculate the corporation$$s after$-$tax cash flow on the sale of the building. Assume there is a $$350,000$ mortgage balance at the time of sale. The mortgage was not assumed by the buyer but is required to be paid back by the seller at closing. Show your calculation using a table within the analysis section of the memo. Remember, depreciation deductions do not represent cash outflows. However, they impact basis and therefore, the tax cost of any recognized gain. Explain your analysis. Be specific.

I have calculated it with explanation but would like your opinion as an expert if I did it correctly. Thank you.

Calculation of After$-$Tax Cash$$Flow on Property Sale

$1.$ Sale Proceeds and Commission Deduction:

Sale Price: $$2,500,000$

Realtor Commission $(6\%)$: $$2,500,000*0\mathrm{.}06=$ $$150,000$

Net Sales Proceeds: $$2,500,000-$ $$150,000=$ $$2,350,000$

$2.$ Gain Calculation:

Adjusted Basis of Property $($Building and Land$)$:$$$$1,500,000$

Gain on Sale: $$2,350,000-$ $$1,500,000=$$$850,000$

$3.$ Tax on Gain:

Corporate Tax Rate: Assuming $21\%$

Tax on Gain: $$850,0000\mathrm{.}21=$$$178,500$

$4.$ Mortgage Repayment:

Mortgage Balance to Pay Off: $$350,000$

$5.$ After$-$Tax Cash Flow$$Calculation:

After$-$Tax Cash Flow: $$2,350,000-$ $$178,500-$ $$350,000=$$$1,821,500$

Description$$

Calculation$$

Amount$$

Sale price$$

$$

$$2,500,000$

Less: realtor commission $6\%$

$$2,500,0000\mathrm{.}6$

$$150,000$

Nest sales proceeds

Sales price $-$ commission$$

$$2,350,000$

Adjusted basis$$

$$

$$1,500,000$

Recognized gain on sale$$

Net sales proceeds $-$ adjusted basis$$

$$850,000$

Corporate e tax on gain $21\%$

$$850,0000\mathrm{.}21$

$ $178,500$

Less mortgage repayment

$$

$$350,000$

After tax cash flow$$

Net sales proceeds $-$ tax $-$ mortgage$$

$$1,821,500$

$$

$$

Explanation:

$$

Step $1$:$$

Calculate Net Proceeds and Recognized Gain

Net Sales Proceeds: $$2,500,000($sale price$)-$ $$150,000(6\%$ commission$)=$ $$2,350,000.$

Recognized Gain: $$2,350,000($net proceeds$)-$ $$1,500,000($adjusted basis$)=$ $$850,000.$

Step $2$:$$

Determine After$-$Tax Cash Flow

Tax on Gain: $$850,000*21\%=$ $$178,500.$

Mortgage Repayment: $$350,000.$

After$-$Tax Cash Flow: $$2,350,000($net proceeds$)-$ $$178,500($tax$)-$ $$350,000($mortgage$)=$ $$1,821,500.$

Final Answer:$$The after$-$tax cash flow from the sale is $$1,821,500.$

Thank you