Chapter 18: Federal Income Taxation of Real Property Ownership

Question 1

adjusted basis

Answer 1

The financial interest that the IRS attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus allowable closing costs plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. The new basis is called the adjusted basis

Question 2

amount realized

Answer 2

A calculation performed to determine capital gain; the difference between the actual sales piece and expenses of the sale

Question 3

basis

Answer 3

The financial interest that the IRS attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus allowable closing costs plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. The new basis is called the adjusted basis

Question 4

boot

Answer 4

Money or property given to make up any difference in value or equity between two properties in a 1031 exchange

Question 5

capital gain

Answer 5

The taxable profit earned from the sale of a capital asset such as real property.

Question 6

capital improvement

Answer 6

The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life; often used in the calculation of capital gain

Question 7

capital loss

Answer 7

A loss derived from the sale of a capital asset such as real property that may be deductible from ordinary taxable income

Question 8

cost basis

Answer 8

m

Question 9

depreciation

Answer 9

(1) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence.
(2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property

Question 10

gain

Answer 10

n

Question 11

installment sale

Answer 11

n

Question 12

life-kind properties

Answer 12

n

Question 13

long-term capital gain

Answer 13

Profits from assets owned longer than 12 months and is usually taxed at a much lower rate than ordinary income

Question 14

short-term capital gain

Answer 14

Profits from assets owned for 12 months or less and is taxable as ordinary income

Question 15

tax-deferred exchange

Answer 15

k