Ch 19 - Federal Income Taxation of Real Property Ownership Flashcards
Tax-deductible loan expenses
Mortgage interest payments (on first and second homes); loan discount points; mortgage PPP; loan origination fees
When can real property taxes by a homeowner be used as a deductible?
In the same year they were paid.
List the tax benefits of owning a home.
Tax-deductible interest payments; tax-deductible property; and adjustments to reduce capital gain liability
When a person sells property for more than its cost.
Capital gain
Short-term capital gain
profits realized from the sale or exchange of property (held 12 months or less); taxed as ordinary income
Long-term capital gain
profits realized from the sale or exchange of property (held more than 12 months); the max tax rate applies
The sum of the Purchase Price, Allowable closing costs, and capital improvements
adjusted basis
The difference between the Sales Price and Allowable closing costs
Amount realized
The difference between the Amount Realized and the adjusted basis.
Capital Gain (or Loss)
Tax-free Gains
Apply to married couples filing jointly with capital gains up to $500,000 and up to $250,000 for a single person or a married person filing singly.
Tax benefit Restrictions
(1) seller must have occupied the property as a primary residence for two of the previous five years (does not have to be continuous), and (2) the exclusion is available only once every two years.
Maintenance costs are tax-deductible, unlike residential owner/occupied. and included in the adjusted basis.
Tax benefit of real estate investment
installment sale
The seller benefits tax-wise from this type of sale by being able to spread taxation of any gain over the term of the loan.
No Tax benefit on which type of real estate investment?
Vacation Homes.
A property may be exchanged for another property and the taxpayer may be able to defer taxes on the entire gain.
tax-deferred exchange
