Use the following information to answer questions 3-5.

Five years ago you purchased a small apartment complex for $1 million. You borrowed $700,000 at 7 percent for 25 years with monthly payments. The original depreciable basis was $750,000 and you have used 27 1/2- year straight-line depreciation over the five year holding period. Assume no capital expenditures have been made since acquisition. If you sell the property today for $1,270,000 in a fully taxable sale:

3. What will be the taxes due on sale? Assume 6 percent selling costs. 33 percent ordinary tax rate, a 15 percent capital gain tax rate, and a 25 percent recapture rate.

4. What will be the after-tax equity reversion (cash flow) from the sale?

5. Over the entire five-year holding period, how much were your taxes from rental operations reduced by the annual depreciation deductions? Ignore the increased taxes ue on sale.