Three situations resulting in No Profit, but taxable gain
This post is add-on #2 to my recent newsletter. Information compliments of Julie Tumbaga the Vice President, Hawaii Regaional Manager of Orexco1031
Carryover Gain.
If a taxpayer sells property previously acquired in an exchange - at no profit or even at a loss - the taxpayer may still be faced with significant taxable gain.
e.g. Taxpayer originally acquired property A for $20,000. Taxpayer disposed of Property A in a tax deferred exchange for $100,000 and acquired Property B for $150,000 thereby deferring taxes on $80,000 of gain. Taxpayer's adjusted basis in Property B is $70,000 ($150,000 purchase price - $80,000 carryover gain = $70,000). Taxpayer now proposes to sell Property B for the same price as he purchased it for - i.e. $150,000. Although Taxpayer is not making a profit on this transaction, he will still have significant federal and state taxes of approximately $28,000 on his gain of $80,000.
