CH 18 Flashcards
All investors desire their investments to increase in value. However,
the more the investor stands to gain, the greater the risk that the investor may lose.
Two of the rewards that investments offer are
income and tax benefits.
An investor invests in fifteen diversified bond funds. This is an example of an investment in
debt.
A real estate investment can take a long period of time to sell. For the investor, this means that real estate is
relatively illiquid.
Compared to a stock portfolio, a real estate investment would be considered
a more management-intensive investment.
Six investors purchase a shopping center. One investor manages the tenants and another handles the marketing and leasing. Two investors manage accounting and finance, and the remaining two run the management office. This is a possible example of
a general partnership.
Taxable income produced by an income property is
gross income minus expenses minus building depreciation.
As a general rule, in deriving taxable income on an investment property, it is legal to
deduct interest payments from income.
what is true of the tax treatment of a principal residence?
The owner may be able to remove capital gain from taxable income when the property is sold.
An investment property seller pays $14,000 in closing costs. These costs
may be deducted from the sale price for gains tax purposes.
Capital gain tax is figured by multiplying
one’s tax bracket times the difference between net sale proceeds and adjusted basis.
Cash flow is a measure of how much before-tax or after-tax cash an investment property made. To get cash flow it is therefore necessary to take out?
cost recovery expense.
whats one way investors measure the yield (profit) of an investment?
cash flow divided by investor’s equity.
