Chapter 14 - Federal Income Tax Laws Affecting Real Estate Flashcards
Calculate the amount of a home equity loan if all the interest is deductible
Only deductible up to $100,000 loan
Take present valuation minus current mortgage balances to get Equity.
What is the max amount of loans whose interest is deductible for an owner occupied residence?
Up to $1 million on regular mortgages in the aggregate securing your first and second home for married couple filing jointly. Cut in half for each spouse if married filing separately or a single person. Counts for mobile homes and yachts.
Up to $100,000 on a HELOC.
How may points be deducted in owner occupied properties?
All that are paid on a purchase money mortgage for primary residence
If not primary residence, must be spread out over the life of the loan
Not deductible if too high for the area
Points paid by seller are deductible by the buyer as Interest. Must be deducted from the home’s cost basis. Seller may treat them as a selling expense.
Points paid on a refinance are written off over the life of the loan.
Differences between traditional and Roth IRA
First time home buyers (haven’t owned a principal residence for the previous two years) can use up to $10,000 of their IRA toward their down payment on a new house. may come from a parent’s IRA.
If money comes from a traditional IRA, the $10,000 is taxable, but no penalty.
If from a Roth IRA, it will be tax and penalty free so long as the account holder doesn’t take another distribution for another 5 years after the first contribution is made to the ROTH IRA.
How much gain can be excluded from taxation on the sale of a personal residence?
$250,000 for a single filer or $500,000 for a married couple
Allowed one time every 2 years, unless have to move over 50 miles for a new job, get sick, die, have twins, get divorced, or destruction of the property. If take it sooner than two years, the exclusion is prorated.
Calculate the After Tax Cash Flow of an investment.
Start with Pop Viagra Orally Every Other Night. Then subtract debt service and add back the reserves collected to get the before-tax-cash-flow. Then subtract the tax liability to get true cash flow which is the money truly left over after everything is paid.
The tax liability may even be a savings.
How is a tax credit figured against tax liability?
Tax credit is a dollar-for-dollar credit for tax due.
It’s three times better than a tax deduction.
They can be traded and sold if they exceed your tax liability such that you have an excess.
Know difference between long term and short term capital gain and how they’re taxed.
Long term gain: property held more than one year
Taxed at 15%. However, if taxpayer makes over $400,000 per year ($450K for joint filers), the tax is 20%. If taxpayer’s overall ordinary tax rate is in the 10 or 15% tax brackets, then their long term capital gains rate is zero.
Depreciation is taxed at 25%
Short term gain: property held less than one year
Taxed as ordinary income
Calculate the depreciable basis and annual depreciation for an income property
[(Purchase Price + acquisition costs) x Building Ratio] = depreciable basis
Depreciable Basis/# of years of depreciation*= annual depreciation
*27.5 years (residential) or 39 years (non-residential)
Formula to calculate taxable income for income producing property
NOI \+ Reserves for replacement - Interest - Depreciation - Amortization of loan costs = Taxable income or loss
What is the number of years for straight line depreciation for residential vs commercial property?
39 years for non-residential (nowhere to sleep, poop and cook)
27.5 years for residential
