The asking price for an apartment building is $1,000,000; rents are estimated at $200,000 during the first year and are expected to grow at 5 percent per year. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35% of effective gross income. Buildings make up 90% of total value. A 20-year FRM for 70% of the purchase price can be obtained at 10 percent interest. The property is expected to appreciate in value at 3% per year and is expected to be owned for two years and then sold. (assume CG tax rate of 20% and depreciation recapture tax rate of 25%. Income tax rate is 28%)

1. Write down the before and after tax cash flows statements for years 1 and 2.

2. Does this property enjoy Tax Shelter? Explain why or why not. Does this property enjoy Deep Tax Shelter? Explain why or why not.