Assume JP Property management a corporation for tax purposes purchased a building for $35,000,000. It can borrow 90% of the purchase price but will need to come out of pocket for the remainder. The bank will make a 5 year loan at a 6% rate. The bank requires only interest to be paid annually. Assume that 20% of the purchase price will be allocated to land and that all depreciable property is depreciable over a 40 year life using the straight-line method. The property will be sold in 5 years for $40,000,000. Annual rents are $5,250,000 and annual operating costs are $50,000. The corporate tax rate is 21%.

First, compute taxable income and annual tax expense using the following table:

Taxable Income		1	2	3	4	5
Rents		$5,250,000	$5,250,000	$5,250,000	$5,250,000	$5,250,000
Interest Expense
Operating Expenses
Depreciation Expense
Taxable Income
Tax Rate
Tax

Next, calculate the gain on sale:

Sales Price 40,000,000

Tax on Sale