You purchase a retail strip center property for $2,000,000 (assume no closing costs). Your analysis shows you are buying at a 6% cap rate. You plan to hold the property for seven (7) years, and project that NOI will grow 5% per year. You anticipate spending $50,000 each year for capital expenditures (Cap-Ex). Your pro forma shows selling the property at 6% cap (same cap rate as you brought) based on year 7 NOI, and you expect selling expenses of 5%. Assume that 80% of the purchase price represents the value of the building (and that the remaining 20% represents the value of the land). Assume also that your pro forma uses the Alternative Depreciation Schedule period of 40 years. Finally, assume that your combined federal and state tax depreciation recapture tax rate is 30%, and that your combined federal and state long-term capital gains tax rate is 20%.

(a) What is your taxable gain?

(b) What is your total tax (depreciation recapture + long-term capital gains)?