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Free calculator · Real Estate

After-Tax Cash Flow & Tax at Sale

Calculates annual depreciation and tax savings, the tax due at sale split into depreciation recapture and capital gain, and the resulting after-tax levered IRR and NPV on the chapter’s worked deal. The interactive inputs are the depreciable basis, recovery period, ordinary, recapture, and capital gain tax rates, up-front loan costs, and the after-tax required return, while the operating deal itself stays fixed.

Interactive Tool

Tax assumptions

Operating cash flows are fixed to the Part Seven $30M deal (60% LTV at 6.0%). Vary the tax layer below.

Basis to improvements

Recovery period

Ordinary tax rate

Recapture rate (§1250)

Capital gain rate

Up-front loan costs

Loan term (for amortizing costs)

After-tax required return

Annual after-tax cash flow

Y1NOI $1,650,000−int $1,073,987−dep $836,364TI −$272,351ATCF $384,294

Y2NOI $1,699,500−int $1,060,354−dep $872,727TI −$245,581ATCF $423,104

Y3NOI $1,750,485−int $1,045,879−dep $872,727TI −$180,122ATCF $449,832

Y4NOI $1,803,000−int $1,030,512−dep $872,727TI −$112,240ATCF $477,215

Y5NOI $1,857,090−int $1,014,198−dep $836,364TI −$5,472ATCF $492,535

Annual depreciation

$872,727

$24,000,000 ÷ 27.5

Total depreciation

$4,290,909

over 5 yrs (mid-month)

Loan-cost amort / yr

$12,000

$300,000 left at sale

Tax at sale: recapture first, then gain

Adjusted basis (price − depreciation)

$25,709,091

Total gain (net price − adj. basis)

$6,891,712

Recapture: $4,290,909 × 25%

$1,072,727

Capital gain: $2,600,803 × 15%

$390,120

Loan-cost write-off × 35%

−$105,000 saved

Net tax due at sale

$1,357,848

Before-tax sale equity

$15,851,019

net price − loan

After-tax sale equity

$14,493,171

− tax at sale

After-tax levered IRR

6.60%

before-tax 8.57%

After-tax NPV

−$215,428

at 7.00%

The return runs on the full $12,360,000 outlay: the $12,000,000 down payment plus $360,000 of up-front financing costs paid at closing. Depreciation shelters operating income now, then returns at sale as recapture taxed at 25%, a deferral, not forgiveness. Compare after-tax cash flows only with an after-tax hurdle rate.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.