If you are a residential real estate agent listing commercial property you need to know the numbers. You need to make yourself and your client aware of certain items that will affect the seller’s bottom line. Knowing and understanding adjusted basis is one of those areas.
While adjusted basis is something that the client will need to eventually discuss with an accountant it is also an item that you should make the seller aware of.
In a nutshell, adjusted basis is taking the original basis of the property (purchase price plus any closing costs), plus any capital improvements made to the property during the period of ownership. From that you subtract the total accumulated cost recovery deduction and partial sale taken during the time the person has owned the property.
Why is this important? Any capital gain on the sale of the property will be computed using this formula and taxes will be paid on that amount. A lot of sellers do not take into consideration the amount of cost recovery that has been taken on the listed commercial property each tax year during their ownership.
Again, you are not an accountant and should not give any tax advice but be aware and make your client aware of this facet of the transaction before you list commercial property.
If this is new stuff for you, and you need some help, call me it’s what I do. I help Residential Real Estate Agents list commercial property like a pro.