in Vol 4 page 579 of the CFAi texts… why is accum dep subtracted twice if figure 10 (65,596)? Schweser does this too.
As I said in my pirate thread…they explain it bad by giving you too much information. I had to teach it to myself using my own method as theirs was do-do. Great waste of an hour or two.
its quite confusing on fig 10. ATER = Net sales price - mortgage balance - taxes taxes need to be calculated by looking at the capital gains tax (net sales price less book value) and then the tax on the accumulated depreciation
so whats the answer?? this is also the 3am exam…
I hope this helps. It’s my understanding of the ATER calc. It may help to think of “recaptured depreciation” as the gov’t (well, the US gov’t) doing the capturing. See, you’ve been getting a tax benefit during the life of the investment because depreciation has reduced your taxable income. Now that you’re selling the property, they are going to require you to declare that accumulated depreciation as income (read: you owe taxes on it). As for Figure 10, which is indeed crappy, try start at the bottom: [Bottom Section] Sales price, net of transaction costs -Loan payoff -Taxes ========== ATER Everything above that bottom section is only there to calc the Taxes piece. You have to figure out both the capital gains tax and the recaptured dep tax. [Top Section] 1. What’s your gain on sale? Sales price, net of transaction costs -Net PP&E 2. Now get the CG tax. Deduct accumulated depreciation from your gain. This effectively reduces your income (not so bad here since it’s reducing taxable income). You have to do this step to get to the capital gains tax amount. Gain on Sale -Accumulated depreciation 3. The easier of the two. Tax the recaptured depreciation - this is where you give back to the man. Accumulated depreciation x Recapture tax rate Going back to the bottom, add #2 and #3 to get total taxes, finish the artithmetic in the bottom section, and you have your ATER.