Compute the net benefits of tax depreciation at the time of sale of the following office property.

• The purchase price was $420,000.
• The property will be financed with a 30-year, 8% mortgage loan with monthly payment and loan-to-value (LTV) ratio of 80%.
• There will be no up-front financing cost.
• The market value of the property increased to $540,000 over the two-year holding period.
• Selling costs are 3 percent of the sales price.
• The investor is in the 30 percent ordinary tax bracket.
• Capital gains will be taxed at 15 percent.
• Depreciation recapture will be taxed at 25 percent.
• 15 percent of the initial purchase price represented the value of the land. The remaining 85 percent has been depreciated using straight-line depreciation and a 39-year cost recovery period.
• $30,000 in capital expenditures has been incurred since acquisition; for simplicity, however, the capital expenditures have been added to the tax basis but not separately depreciated.
• Discount rate: 15% (without tax); the tax rate on income from comparable risk investment is 30%.