Real Propert Ownership Interests Flashcards
Estate in severalty
one person owns the property, and all other interests are severed
Tenancy in common
Each person is entitled to possession of the whole. If one dies, that person’s ownership is inheritable, and doesn’t necessarily pass to the other owner(s).
Joint tenancy
equal ownership with undivided rights of possession and requires unity of four separate conditions:
-All owners must have the same type of interest in the property, all must receive their title at the same time from the same source
-All must have the same percentage of ownership
-All must have the right to undivided possession in the property. Joint -Includes the right of survivorship, meaning when one joint tenant dies, that person’s share automatically goes to the other surviving joint tenant(s).
Tenancy by the entirety
-Has the right of survivorship.
-Only available to married couples
-This form of ownership also includes unity of time, title, interest, possession, and marriage.
Key to this form of ownership is that creditors of one spouse can’t attach liens to or sell the interest of the debtor spouse. Only creditors with claims against the couple may attach and sell the interest of the property owned in this manner.
-One spouse can’t transfer interest in the property without the consent of the other spouse.
-Cn’t be reduced to tenancy in common or joint tenancy. Such a change of ownership would require divorce, an annulment, or for the couple to amend the title.
Community property
Property acquired during marriage is considered to be owned by both
Dower and curtesy rights
Dower ensures that a widow received support and a portion of her husband’s property when he passed on
Curtesy grants a husband interest in his wife’s property upon her death. Also prevents husband from conveying his wife’s estate to anyone else but their children
Corporation
an independent legal entity defined by law and owned by shareholders
General or “C” Corp
A C corporation is the most common form. Elected officers govern the company’s affairs, while the designated licensed broker is directly responsible for the real estate transactions.
Ownership in a general corporation is easily transferable through stock. The corporation must pay corporate income tax to the IRS. The shareholders in a C corporation see double taxation: once at the corporate level, and again at the shareholder level.
S Corporation
Permitted to function as a corporation but taxed as a partnership -Dont pay corporate income taxes, so they avoid double taxation. In addition, shareholders in a Subchapter S may deduct losses on their income taxes representing their share of the corporation’s losses.
General partnership
conveys personal liability to partnership debts that exceed the partnership assets. General partners are jointly and separately liable for these debts.
Limited partnership
-always has one or more general partners who assume liability. The other limited partners are limited in their liability and authority by the amount of money theyʼve contributed.
-To protect their immunity from partnership debts, they may not participate in managing the partnership (and are thus sometimes called “silent” partners).
Limited partners who do act as a manager may become generally liable. Limited partnerships are a common form of holding real estate. Usually the general partner is the one who discovers the investment opportunity and brings in limited partners for their funds. The general partner does the work, and the limited partners see aprofit or loss from their investments according to the partnership agreement, and the success or failure of the project. Both limited and general partnerships are taxed as partnerships
LLC
a non-corporate entity. Owners participate in business profits and losses without taxation to the company.
Dont need a board of directors, and their owners (called members, not shareholders) can participate directly in the management of the company or they may elect officials to handle day-to-day business operations.
Owners canʼt be held personally liable if their co-owners or employees commit wrongful acts during the course of conducting business. If found liable for the actions of its owners or employees, the money or property can be taken to pay off the debt, but the owners canʼt be held personally liable. LLCs are popular forms of business structure for real estate brokers and brokerages.
Limited Liability Partnership (LLP)
a form of partnership that has no general partners. Partners share the company profits equally and report them as income on their individual tax returns. All partners have an equal say in how the business is managed, and each has limited personal liability for business debts.
-Protects each partner from debts against the partnership arising from professional malpractice lawsuits against another partner. Tend to be formed by professionals, such as accountants, lawyers, and architects.
Joint Venture (JV)
A businessarrangement similar to a partnership—a temporary organization formed by two or more parties to invest in real estate (or other investments).
Participants may be corporations, partnerships, LLCs, or other entities, or the parties may hold title as joint tenants or tenants in common. Each party is responsible for the profits, losses, and costs associated with the project.
Syndicate
organizations with many investors who jointly participate in a real estate investment. When they meet the definition of “dealing in securities,” they must adhere to the rules and regulations of the Securities and Exchange Commission. An investment is a security, as defined by the Federal Securities Act of 1933, if itʼs:
An investment of money
A group enterprise
Intended to make a profit, and that profit is solely derived from the management effort of others
So ifyouʼre a “silent partner” in a group investment whose intention is to make a profit, and you sit back while others manage the project (things like cooperatives or condominium projects), this may well meet the definition of syndicate. Taxation depends on the syndicateʼs form. Syndicates can be corporations, general or limited partnerships, or LLC
Testimony trust
one created according to the terms of the will of a deceased person. Itʼs often used to establish care for minor children.This trust doesnt avoid probate.
Living trust
created during a personʼs lifetime, and is often used when minor children are involved. Property may be placed within the trust for their use in their lifetime or when they reach the age determined by the personwho creates the trust. Does not involve probate bc they are alive
Grantor retained income trust (GRIT)
an interesting method of conveying or granting title to an income-producing property to another, generally a family member, via a trust. It is usually set to a specified number of years before it becomes the grantee’s (the trust’s beneficiary).
This trust allows for the grantors to retain the flow of income from the property up until the end date of the trust.
REIT (real estate investment trust)
were designed to give investors opportunities to invest in real estate while maintaining certain beneficial aspects of other investments, such as mutual funds, which spread their risk over many properties. One of the major advantages is the single tax, imposed at the beneficiary level. They are sold just like stocks are on the open market.
REMT ( real estate mortgage trust)
invest in real estate debt; buy commercial and residential mortgage-backed securities. Many focus on buying mortgage securities backed by Freddie Mac and Fannie Mae. They make money by interest on these investments
Fair housing: Investors who own ____________ single-family homes and don’t use real estate licensees to assist in the sale of property are exempt
3 or fewer
Fair housing: Owners of _________________ who live in one of the units and don’t use real estate licensees to assist in the sale are exempt.
Two to four-unit multi-family homes
Income tax shelters for single-family detached homeownership: Points deduction and penalty-free early IRA distribution for first-time homebuyer: Acquisition
Points deduction and penalty-free early IRA distribution for first-time homebuyers
Income tax shelters for single-family detached homeownership: Ownership
Property tax and mortgage interest deductions
