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NY Real Estate > Income/Income Tax > Flashcards

Income/Income Tax Flashcards

1
Q

This type of income includes:

Includes earnings from wages, salaries, commissions, bonuses, and other payments for services. Also includes profit from a trade or business, gain on the sale or disposition of assets used in trade or business, and income from intangible property.

A

Active income

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2
Q

This type of income includes:

Earnings derived from any trade or business or income-producing activity in which the taxpayer does not materially participate (e.g., rental property). Includes rental activities, with some exceptions.

A

Passive

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3
Q

This type of income includes:

Includes earnings derived from interest, dividends, annuities, and royalties not derived from the ordinary course of business. Also includes gains or loss from the disposition of property that produces portfolio income or is held for investment purposes.

A

Portfolio

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4
Q

AGI

A

Adjusted gross income

Gross income minus the deduction

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5
Q

Taxable Income x Tax Rate =

A

Tax

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6
Q

Tax – Non-refundable Credits – Refundable Credits =

A

Tax Due or Refund Owed

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7
Q

The government counts all income from the following sources as part of an individual’s gross income:

C-U-P-I-D-S -W-C-A-P

A

 Commissions

 Unemployment compensation

 Profit from a business

 Interest

 Dividends

 Social Security income

 Wages

 Capital gains

 Alimony received

 Pensions

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8
Q

These expenses can be deducted from income…

T-E-A-M-I-S-H

A

 Tuition

 Early withdrawal penalties

 Alimony paid

 Moving expenses

 IRA contributions

 Student loan interest

 Half of self-employment taxes

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9
Q

Homeowners may also be able to deduct the following allowances from AGI:

They can enjoy a S-I-P

A

 Standard deductions

 Itemized deductions

 Personal and dependent exemptions

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10
Q

Home improvements, home repairs, and home maintenance costs are generally

A

not deductible

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11
Q

The profit received from the sale or exchange of property, including real estate.

The difference between the acquisition cost and the adjusted sale price (selling priceminus expenses incurred from selling and expenses related to capital improvements)

A

Capital Gains

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12
Q

Provides some relief to taxpayers eliminating most, if not all, of the gain. Specific conditions include

A

Taxpayer Relief Act of 1997: Section 121

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13
Q

Conditions of Taxpayer Relief Act of 1997: Section 121

A

The taxpayer must have owned and used the property as a principal residence for at least two of the last five years prior to the date of sale.

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14
Q

Under what general circumstances and how often can Taxpayer Relief Act of 1997: Section 121 be invoked.

A

Once every two years except under these specific circumstances:

 Change in place of employment

 Health considerations

 Unforeseen circumstances

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15
Q

A loan that does not qualify as home acquisition debt but is secured by a qualified home. The amount of debt is limited to the smaller of $100,000 or the home’s fair market value, reduced by the amount of home acquisition debt and grandfathered debt.

A

Home Equity Debt

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16
Q

A mortgage taken out by a taxpayer to buy, build, or substantially improve a qualified home.

A

Home Acquisition Debt

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17
Q

Total income received from an investment before expenses are paid; assumes no vacancies

A

Gross income

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18
Q

Losses associated with empty units

A

Vacancy

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19
Q

The estimated rental income anticipated (also called gross operating income)

A

Effective gross income

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20
Q

The measurement of cash inflow and outflow from an investment.

A

Cash flow

21
Q

Cash flow model

A 
Total gross income 
-Vacancy /occupancy loss
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Effective gross income 
-Expenses
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Net operating income (NOI)
-Debt service
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Cash flow before taxes
22
Q

The repayment of the mortgage loan(interest and principal only)

A

Debt service

23
Q

 The ratio of income generated by a cash investment
 Cash Flow / Purchase Costs =

A

Cash-on-Cash Return

24
Q

The loss of value to a property over the time during which it is expected to be useful
 Improvements can depreciate, not the land on which the building sits
 When considering investment property, determined for tax purposes only
 Annual statutory amount of depreciation (cost recovery):
 Residential property – 27 1/2 years
 Commercial property – 39 years
 Improvement Value / Recovery Period = Annual Amount of Depreciation

A

Straight-line depreciation

25
Q

 Appreciation – Increase in the value of the property
 Equity build-up – Mortgage loan balance is reduced
 Leverage – Using other people’s money to finance investments

A

Capital Growth

26
Q

The exemptions on capital gains tax for personal residential property

A

do not apply to income-producing property

27
Q

Step one in calculating the capital gains on an investment property

A

Purchase Price
+ Closing Costs
+ Capital Improvements
– Accrued Depreciation
——————————–
Adjusted Basis

28
Q

To find the adjusted sales price

A

Sales Price
- Closing Costs
————————–
Adjusted Sales Price

29
Q

To find The amount of capital gains

A

Adjusted Sales Price
- Adjusted Basis
—————————-
Capital Gains

30
Q

Basis (original cost) of property, plus gains and minus losses.

A

Adjusted Basis

31
Q

Accounting procedure used to determine the capital gain or loss after the sale of property. It is equal to purchase price, plus capital improvements, less depreciation.

A

Basis

32
Q

Extra, non-like-kind property that can be a part of a like-kind exchange to make up for pricing disparity between like-kind properties.

A

Boot

33
Q

Money used to create income, either as investment in a business or income property.

A

Capital

34
Q

Assets of a permanent nature used to produce income, such as machinery, buildings, equipment, land, etc. Must be distinguished from inventory. A machine that makes pencils, for example, would be a capital asset to a pencil manufacturer, but inventory to the company whose business is to sell such machines.

A

Capital Assets

35
Q

A loss resulting from an investment’s decrease in value.

A

Capital Loss

36
Q

The rate of interest that is considered a reasonable return on the investment. Commonly used in the process of determining value based upon net income.

A

Capitalization Rate

37
Q
  1. A loss in value of a piece of property for any reason. 2. For taxes, the expensing of the cost of business or investment property over a set number of years, determined by the IRS to be an asset’s useful life.
A

Depreciation

38
Q

An accelerated method of depreciation that allows for an asset to be expensed more at the beginning of its life.

A

Double declining balance

39
Q

The use of credit to enhance speculative capacity

A

Leverage

40
Q

The ability to convert an asset into cash quickly without the loss of principal.

A

Liquidity

41
Q

The cost and complexity of monitoring an investment.

A

Management

42
Q

Tax structure implemented by the IRS in which individuals with higher incomes pay a higher income tax.

A

Progressive Tax

43
Q

The rate at which an investor recaptures his investment in income-producing property.

A

Rate of Return

44
Q

Occurs on a personal asset used for business purposes when that asset is sold.

A

Recaptured Depreciation

45
Q

Exchanges where taxable gain is deferred until a later date.

A

Tax-Deferred Exchange

46
Q

Any method used to reduce taxable income, thereby reducing the amount of tax paid to a government.

A

Tax Shelter

47
Q 
Credits for dependent and childcare expenses
Education credits
Child tax credits
Credit for elderly or disabled
Retirement savings contribution credits
A

Non-refundable credits

48
Q

Earned income credit

Additional child tax credit

A

Refundable credits

49
Q

Price paid for the property

A

Basis

NY Real Estate (42 decks)

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