Taxation and federal income tax laws Flashcards

1
Q

Most home sales are exempt from capital gains. What are the three qualifications so that a homeowner can claim this exemption?

A
  • The home must be the primary residence.
  • The home must have been lived in two of the last five years before the sale.
  • The sellers could not have sold more than one home in the past 24 months.
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2
Q

Business taxes are based on the Net Income that is derived after deductions for what three items?

A

Operating Expenses, Collection Losses and Depreciation.

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3
Q

To deduct depreciation from a business’ taxes, the asset must meet what four requirements?

A
The asset:
• Be property owned by the business
• Be used in the business
• Have a determinable useful life
• Be expected to last for more than one year
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4
Q

What are the three main categories of business income?:

A

Active Income
Passive income:
Portfolio Income:

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5
Q

What is Active Income?

A

Active Income is Income for which the taxpayer performs services

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6
Q

What is passive income?

A

Passive income is income that the taxpayer does not earn from salaries, tips, etc., but as a partner in a rental property

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7
Q

What is portfolio income?

A

Portfolio Income is income received from dividends, royalties, capital gains, etc.

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8
Q

The steps in the Income Capitalization Approach are:

A
  1. Estimate Annual Gross Income
  2. Subtract allowance for Vacancy and Collection Loss
  3. Deduct Operating Expenses
    4 . Divide the Capitalization Rate (Cap Rate) into the Net Operating Income (NOI)
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