Key Terms - Chapter 18

Question 1

acquisition debt

Answer 1

The debt incurred in the purchase of a personal residence. Can be used similar to acquisition cost.

Question 2

adjusted basis

Answer 2

The value of property used to determine the amount of gain or loss realized by the owner upon sale of the property; equals acquisition cost plus capital improvements minus depreciation taken.

Question 3

amount realized

Answer 3

The sales price minus any allowable expenses of sale. The “net” sales price.

Question 4

basis

Answer 4

The value of property for income tax purposes. Adjusted basis is original acquisition cost (purchase price plus allowable closing costs) plus capital improvements less accrued depreciation.

Question 5

boot

Answer 5

The difference between the purchase price and the value of what is being exchanged that is paid in cash or other property.

Question 6

capital gain

Answer 6

Profit made on the sale of real property.

Question 7

capital improvement

Answer 7

An item that adds value to the property, adapts the property to new uses, or prolongs the life of property. Maintenance is not a capital improvement.

Question 8

capital loss

Answer 8

Loss incurred on the sale of real property.

Question 9

costs of acquisition

Answer 9

The allowable costs of acquiring real property that can be added to the purchase price to determine the basis.

Question 10

equity debt

Answer 10

All debt secured by a qualified residence to the extent it does not exceed the fair market value of the residence reduced by the acquisition debt.

Question 11

installment sale

Answer 11

A transaction in which the seller receives the purchase price in more than one payment.

Question 12

tax-deductible expense

Answer 12

Home ownership provides two types of expenses to be deducted on tax returns, real property taxes paid to a local taxing authority and mortgage interest.