Chapter 16A - Income Tax Issues in Real Estate Flashcards
Active Income
Payment for services rendered - wages, salaries, commissions
Adjusted Basis
Original cost of property plus gains minus losses
Appreciation
Increase in value of asset over time
Basis
Price paid for the property, including any depreciation or investments
Boot
Third property in a like-kind exchange to make up for disparities between the two properties.
Capital Gain
Positive difference between what you sell a property for vs. what you originally paid for it
Capital Loss
Negative difference between what you sell a property for vs. what you originally paid for it.
Depreciation
Recovery of cost of a capital asset by expensing a set portion of it each year. Land is never depreciable, only improvements are.
Home Acquisition Debt
Mortgage taken out to buy, build, or improve home. Mortgage interest is tax deductible, as are discount points.
Home Equity Debt
Debt taken out with home as collateral - interest is fully deductible limited to home’s market value less home acquisition debt or $100,000, whichever is less.
Passive Income
Taxpayer does not materially participate in income producing activity. EX: rental property
Portfolio Income
Earnings from interest, dividends, annuities, royalties, investment properties
Recaptured Depreciation
Occurs on personal asset used for business when asset is sold
Straight Line Depreciation
Assumes an equal amount of asset’s price will be expensed each year of its useful life - 27 1/2 years for residential rental property, 39 years for nonresidential/commercial property.
Tax Deferred Exchange
Taxpayer can sell an investment property and purchase another in its place without paying taxes on proceeds from the sale - like-kind exchange structure as tax-deferred exchange where taxable gain is deferred until a later date.
