Bill S owns commercial and multi-family residential real estate. His wife, Donna is a Marketing Director at a national technology firm. She has wage income, and Bill’s income is from rental income and sales of property. For years he used the “Like Kind Exchange” Section 1031 to sell property and avoid the tax by purchasing replacement properties. Bill wants to liquidate property and not always reinvest in new property. Bill and Donna also have mortgage interest, property taxes, and some charitable contributions. Bill and Donna implemented this tax strategy in 2016 when Bill sold a commercial property they had owned for many years and plan to use it each year he has a liquidation event. The strategy they are using is flexible annually to accommodate any income fluctuations.

 

Below are their ACTUAL numbers from their personal income tax return for 2016 before the tax strategy and after the strategy was implemented. They will not use the strategy in 2017 due to no real estate sale.

 

2016 Actual Before After
W-2 Earnings (Box 1) $151,866 $151,866
Gain On Sale of Building $3,454,289 $3,454,289
Depr. Recapture on Sale $297,854 $297,854
Other Income (Int, Div, Etc) $7,587 $7,587
AGI (Adjusted Gross Income) $3,911,596 $3,911,596
TI (Taxable Income) $3,898,896 $2,021,900
Federal Tax $811,196 $369,460
AMT (Alt. Minimum Tax) $2,093 $0
Other Tax $139,141 $139,141
Total Federal Tax $952,430 $508,601
State Tax $480,666 $246,366
Total Income Tax $1,433,096 $754,967

 

Total Savings: $678,129

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