Question

A U.S. individual investor held a real estate asset (a parcel of land) that that was purchased for $10,000,000, then held for 10 years. Now, the individual will sell it for $30,000,000. a) Compute the tax on the sale if the land is held directly by the investor b) Compute the tax on the sale to the investor if land is held in a corporation (consider both entity tax and tax on the distributions) c) Compute the tax on the sale to the investor if the land is held in a REIT (assume that the REIT met requirements for REIT status in all years and consider both entity tax and tax on distributions) Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Johnson C&K FMV $900,000 $675,000 Adjusted tax basis 593,000 462,000 Mortgage 200,000 -0- Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute Johnson's gain recognized on the exchange and its tax basis in the property received from C&K

Answer 1

ANSWER TO PART 1:

Given

Sale price of real estate asset(Parcel of land) = $30,000,000

Less: Acquired Price = ($10,000.000)

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Realized Capital Gain = $20,000,000

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a) If real asset is sold directly by the Owner

Applicable Tax rate(Being Individual) = 20%

Capital gain tax =   $20,000,000*20% = $4,000,000.

b) If real asset is held and sold directly in the name of corporation:

Applicable Tax rate(Being Corporation) = 21%

Capital gain tax =   $20,000,000*21% = $4,200,000.

c) If real asset is held and sold directly in the name of REIT:

Applicable Tax rate(Being REIT) = 29.6%

Capital gain tax =   $20,000,000*29.6% = $5,920,000.