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Tax Implications of Real Estate Transactions: Analyzing the Sale of an Apartment by Ms. T. Terri

An analysis of the tax implications of real estate transactions, focusing on the sale of an apartment by Ms. T. Terri.

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Tax Implications of Real Estate Transactions: Analyzing the Sale ofan Apartment by Ms. T. TerriFACTS:Ms. T Terri purchased an apartment on February 21, 2010 for $3,000,000 with 90% of thepurchase price allocated to the building. 10% went to theland. She sold the apartment onSeptember 2, 2012 for $3,600,000 with 90% of the sales price allocated to the building. Thepurchaser paid T. Terri $600,000 cash and assumed a $3,000,000 mortgage on theproperty. T. Terri’s only other taxable property transaction during the past ten years wasthree years ago and it resulted in a Sec. 1231 loss of $100,000. (Normally, T. Terri engagesin wholly non-taxable Sec. 1031 exchanges.) While T. Terri owned the apartment, 100% ofthe gross rental income was “rental income from dwelling units” (You may assume that herrental of the apartment building was a profit-motivated “trade or business.”) T. Terri issingle and had a taxable income of $1,000,000 in 2012 (without including the taxconsequences of the sale of the apartment)IssuesPart 11.What is T. Terri’s realized gain or loss on this transaction? (Assume for purposes of Part1 only that T. Terri has, or will have, deducted in her federal income tax returns a total of$250,000 in depreciation on the apartment building through the date of the sale)Answer:

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