Chapter 17. Flashcards
Adjusted Basis
The original cost of a property minus depreciation ( გაუფასურება) and sales of portions thereof plus allowable additions such as capital improvements and certain carrying costs and assessments. A bookkeeping rather than appraisal term.
Appreciation
Monetary ( ფულადი) gain resulting from the increase in the market value of an investment, excluding additions of capital. For example, a house which is sold five years after it was purchased for 50% more than the purchase price.
Basis
A major accounting method that recognizes revenues and expenses at the time physical cash is actually received or paid out.
Boot
Cash received in a tax-deferred ( გადავადება) exchange.
Capital Gain -
A profit that results from the sale of a property where the amount received from the sale exceed the purchase price.
Capital Loss
The difference between a lower selling price and a higher purchase price, resulting in a financial loss to the seller
Cash Flow
The net result when income from an investment property is subtracted from the expenses. The result is used to determine the rate of return on an investor’s money.
Passive Activity Income
Earnings an individual derives from a rental property in which he or she is not actively involved.
Active Income
Income for which services have been performed.
Tax Depreciation
An income deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.
Recaptured Depreciation
When real property is sold at a gain and accelerated depreciation has been claimed, the owner may be required to pay a tax at ordinary (non-accelerated) rates to the extent of the excess accelerate depreciation.
Straight-line Depreciation
A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year.
Tax Shelter
Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments.
Tax-Deferred Exchange
Under Section 1031 of the US Internal Revenue Code, the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
Under the Taxpayer Relief Act of 1997, a single filer can qualify up to how much in tax exemptions…?
$250,000 (Dollars)
According to the IRS, which of the following property types is NOT considered a permitted deduction on one’s tax return…?
Income producing properties
This Act lowered the top tax rate from 50% to 28%…?
Tax Reform Act of 1986
This Act raised the bottom tax rate from 11% to 15%…?
Tax Reform Act of 1986
This program was established to promote private sector involvement in the retention and production of rental houses for low income households…?
LIHC
This type of depreciation is relevant to real estate…?
Tax depreciation
This type of depreciation is described by the physical deterioration of a property…?
Economic depreciation
The taxable income of a property is calculated by subtracting the depreciation from this…?
Net Income
Which of the following assets are NOT depreciable…?
Land
Which of the following is NOT considered a depreciable asset…?
Personal use assets
The depreciable basis for a single family residence is calculated using the following formula…?
Value of house - land value = Depreciable basis
Which of the following is considered a depreciable asset…?
Buildings
Which of the following is considered a depreciable asset…?
Equipment
Using the straight-line depreciation method, income producing, non-residential properties depreciate over how many years…?
39
Real estate investors will most likely benefit most from this type of depreciation…?
Component Depreciation
Operations income does NOT include which of the following…?
Capital gains
This type of income is associated with the sale of a property…?
Capital gains
The formula for determining realized gains is equal to…?
Net Sales Price - Adjusted Basis
When does depreciation NOT help the owner of a property…?
At the sale of the property
In order to qualify for a 1031 exchange, a newly purchased property must be located where…?
Anywhere in the United States
When executing a 1031 Exchange, how many days does an owner have to identify a new property…?
45 days
A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year, is known as…?
Straight-line Depreciation
This type of depreciation is described by the physical deterioration of a property…?
Economic depreciation
A profit that results from the sale of a property where the amount realized from the sale exceeds the purchase price is known as…?
Capital Gain
Mark owns a single family residence. Using the straight-line depreciation method, what is the theoretical economic life of Mark’s property…?
27.5 years
Remember, residential properties depreciate over 27.5 years, while commercial properties depreciate over 39 years.
Which of the following is NOT considered operations income…?
Net proceeds from sale of property
Short-term capital gains applies to assets owned for this time period…?
Less than 1 year
When executing a 1031 exchange, the tax code requires an owner to purchase which of the following…?
Like-kind properties
When executing a 1031 Exchange, how many days does an owner have to acquire the new property…?
180 days
According to the IRS, which of the following property types are considered a permitted deduction…?
Personal residences
Which of the following is NOT a requirement for homeowners when deducting mortgage interest on their tax returns…?
Must have a 30-year amortization loan
If the sale price of a property is $1,500,000, what is the taxable gain, assuming an adjusted basis of $600,000…?
$900,000 (Dollars)
This type of income is realized by the owner during the year-to-year operations of the property…?
Operation income
Short-term capital gains is taxed at what tax rate…
Ordinary income tax rates
Under the Taxpayer Relief Act of 1997, joint filers can qualify up to how much in tax exemptions…?
$500,000 (Dollars
If the sale price of a property is $1,500,000, what is the taxable gain, assuming an adjusted basis of $600,000…?
$900,000 (Dollars)
Which of the following is NOT considered operations income…?
Net proceeds from sale of property
This section of the Internal Revenue Code (IRC) allows for an exclusion on capital gains tax at the sale of a primary residence…?
121
When does depreciation NOT help the owner of a property…?
At the sale of the property
Under the Taxpayer Relief Act of 1997, buyers were allowed to use money from these funds toward a down payment without penalties…?
IRA Funds
Under Section 1031 of the US Internal Revenue Code, the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due is known as…?
Tax-Deferred Exchange
Property taxes on these types of properties can only be deducted if one’s taxes are itemized…?
Non-investment properties
According to the IRS, which of the following property types are considered a permitted deduction…?
Personal residences
According to the IRS, which of the following property types is NOT considered a permitted deduction on one’s tax return…?
Income producing properties
This type of depreciation is described by the physical deterioration of a property…
Economic depreciation
David owns a commercial property. In determining the amount of taxes owed, David’s accountant subtracts depreciation from the net income to arrive at the taxable income of the property. The tax rate is then multiplied to this number to determine the amount of taxes owed. This is referred to as what…?
Tax deduction
How much of the purchase price of a condominium is eligible for depreciation…?
100 (Percent %)
Abby owns a 2 family investment property. Using the straight-line depreciation method, over how many years will Abby’s property depreciate…?
27.5 years
The difference between a lower selling price and a higher purchase price, resulting in a financial loss to the seller is known as…?
Capital Loss
Real estate investors will most likely benefit most from this type of depreciation…?
Component Depreciation
This Act lowered the top tax rate from 50% to 28%…?
Tax Reform Act of 1986
This program provided a dollar-for-dollar reduction in federal taxes for developers who built rental housing that serves low income households….?
LIHC
Cash received in a tax-deferred exchange is known as…?
Boot
According to the IRS, which of the following property types is NOT considered a permitted deduction on one’s tax return…?
Income producing properties
David owns a commercial property. In determining the amount of taxes owed, David’s accountant subtracts depreciation from the net income to arrive at the taxable income of the property. The tax rate is then multiplied to this number to determine the amount of taxes owed. This is referred to as what…?
Tax deduction
Which of the following is NOT considered operations income…?
Net proceeds from sale of property
The original cost of a property minus depreciation and sales of portions thereof, plus allowable additions such as capital improvements and certain carrying costs and assessments, is referred to as…?
Adjusted Basis
The Taxpayer Relief Act of 1997 allowed homeowners to realize a $250,000 - $500,000 tax exemption at the sale of their property. However, the homeowner must have lived in the residence for how many years, within the past 5 years…?
2
Real estate investors will most likely benefit most from this type of depreciation…?
Component Depreciation
This type of income is realized by the owner during the year-to-year operations of the property…?
Operation income
Short-term capital gains applies to assets owned for this time period…?
Less than 1 year
Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments, is known as…?
Tax Shelter
According to the IRS, which of the following property types is NOT considered a permitted deduction on one’s tax return…?
Income producing properties
Real estate investors will most likely benefit most from this type of depreciation…?
Component Depreciation
What type of properties benefit from a 1031 exchange…?
Investment properties
Peter is in the process of selling his multi-family building. In order to take advantage of a 1031 exchange, Peter must purchase which of the following properties…?
Any of the answer choices provided are correct
Shopping Center
Office Building
Multi-family Building
When executing a 1031 Exchange, how many days does an owner have to acquire the new property…?
180
