Chapter 15 - Working with Real Estate Investors and Real Estate Taxation Flashcards
Depreciation from a taxation standpoint
A paperwork loss the IRS allows a person to take on their taxes.
Cost of Homeownership
Equity is stuck in the home and cannot be used to provide income from other investments.
Debt Coverage Ratio (DCR)
Before funding a loan, lenders may calculate the DCR to ensure the net operating income covers th eborrower’s debt service (i.e., loan payments).
DCR = Net Operating Income (NOI) ÷ Debt Service (DS)
Operating Expenses include:
Fixed expenses - Expenses that do not change each month (property taxes, property insurance)
Variable expenses - Expenses that are not consistent and may change (water, gas, electric, maintenance and management)
California Conservation Act of 1965 (Williamson Act)
Local governments enter into contracts with private landowners for the purpose of restricting specific parcels of land to agricultural use.
Homeowner’s Property Tax Exemption
Owner-occupied properties in California may qualify for a $7,000 homeowner’s property tax exemption.
Capital Gain
Increase in value of a parcel of real property from purchase to sale.
Capital Loss
Decrease in value of a parcel of real property from purchase to sale.
1031 Tax-Deferred Exchange
Allows real estate investors to sell an existing income property and move the funds into another income property thus deferring capital gains taxes.
Foreign Investment in Real Property Tax Act (FIRPTA)
Requires that a buyer of real property must withhold and send to the IRS 15% of the gross sales price if the seller of the real property is a “foreign person.”
CA State Tax Withholding on Disposition of California Real Property
In certain CA real estate sales transactions, the buyer must withhold 3-1/3% of the total sale price as state income tax and deliver the sum withheld to the CA State Franchise Tax Board.
