Taxation Basics Flashcards
One of the benefits of home ownership is: Homeowners may deduct both mortgage interest and property tax payments from their federal income tax
A: True
B: False
C: Depends On The Type Of Homeownership
D: None Of The Above
A: True
Benefits Of Home Ownership
- Mortgage Interest Deduction is tax deductible (1040)
- First few years largest due to the interest
- Also know as: MID
- Primary and secondary homes are both deductible.
- Investment properties- depends on structure and there
are deductions on that too.
Closing costs paid on a transaction are tax
deductible
These are used as points, which are deductible whether paid by you or the seller.
The County Assessor
Is responsible for assessing the amount
of taxes for each homeowner.
Loan Amortization Schedule
Accumulative interest The interest is more than the principle to begin with will decrease over time and principle will rise. Reduces effective tax rate, reducing tax liability.
Capital Gain can be defined as:
A: A Property’s Cost Basis
B: The Difference Between The Adjusted Basis Of A Property And Its Net Selling Price
C: The Investor’s Acquisition Cost
D: Cost Recovery
B: The Difference Between The Adjusted Basis Of A Property And Its Net Selling Price
To calculate capital gain, we must calculate the:
A: Cost Basis Minus Depreciation Minus The Sales Price
B: Cost Recovery Minus Depreciation Minus Sales Price
C: Adjusted Cost Basis Minus Cost Basis Minus Taxable Gain
D: Acquisition Cost Plus Cost Basis Minus Depreciation
A: Cost Basis Minus Depreciation Minus The Sales Price
Equity refers to:
A: The Value Of The Property Owned Plus Outstanding Liens
B: The Value Of The Property Owned Minus Outstanding Liens
C: The Taxable Gain
D: The Tax Assessed Value
B: The Value Of The Property Owned Minus Outstanding Liens
One of the tax benefits of home ownership is
A: Mortgage Interest Deduction Is Tax Deductible
B: Closing Costs Paid On A Transaction Are Tax Deductible
C: Both A & B
D: None Of The Above
C: Both A & B
HOME EQUITY LINES - Interest deduction
Like getting a second mortgage on your home. The interest is deductible. Use to enhance and improve the home.
Capital Gains Tax
Capital Gains is on any property, its not just for real estate its for equipment it can be fore stock and investments it can be for any thing that has a significant value. Difference between the original costs and what you bought it for. And the increase in value and that gain is taxed.
Capital Gains
is the increase in value on a property
* Cost basis (purchase price + improvements)
* Recognized depreciation
* Sales price
* The capital gain
Equity
refers to the amount of a property that you can actually OWN as opposed to
the amount you have financed.
* Value of home
* Mortgage (s)
* Equity
* Liens
Another name for depreciation is:
A: Cost Basis
B: Cost Recovery
C: Capital Gain
D: Adjusted Cost Basis
B: Cost Recovery
Basis can be defined as:
A: A Property’s Cost Basis
B: The Difference Between The Adjusted Basis Of A Property And Its Net Selling Price
C: The Investor’s Acquisition Cost
D: The Investor’s Initial Cost
D: The Investor’s Initial Cost
To calculate Cost Basis, one must calculate:
A: Purchase Price Plus Acquisition Cost
B: Acquisition Cost Plus Tax Basis
C: Capital Gain Plus Tax Basis
D: Adjusted Cost Basis Plus Straight-Line Depreciation
A: Purchase Price Plus Acquisition Cost
A tax-deferred exchange is called a:
A: Real Estate Investment Syndicate
B: A Real Estate Investment Trust
C: Real Estate Mortgage Investment Conduit
D: 1031 Exchange
D: 1031 Exchange
Basis
The investor’s initial cost
Tax Basis
The cost of your property
Calculate Cost Basis/
TAX BASIS
Purchase Price of Home
Cash = Finance Amount
+ Costs incurred during acquisition
Real estate agent commission + mortgage tees
= Cost Basis
Tax Deferment
Tax is postponed into the future to be
taxed later.
Exclusion
Excluded Capital Gains on the sale of Real Estate Single Taxpayer can EXCLUDE up to 250K in capital gains taxes from the sale of Primary residence. Married Taxpayer can EXCLUDE up to 500K in capital gains taxes from the sale of Primary residence.
Compute the Capital Gain on Sale of Residence
Purchase Price
+ Improvements
= Adjusted Cost Basis
Sales Price Of Home
- Adjusted Cost Basis
= Capital Gains
Real Estate Capital Gain Exclusion
Live as primary resident for at least 24 months in the last 60 months (2 out of the last 5 years)
the 24 months do not need to be consecutive.
Capital Gain on Investment Property
Capital Gain: the difference between the sales price and the cost of purchase and improvements. Short- term tax rate of 25%, by property held for less than a year. Long-term tax rate of 15% for properties held for 1 year or longer.
Cost Recovery (Depreciation) on Investment Property
Depreciation, a tax concept implemented by the IRS that is roughly defined by the tax code as a loss in value to a property over time as the property is being used.
- Considered a tax shelter for investors. - property must be used in a trade of business or held for production of income.
- Must have determinable useful life longer than 1 year.
1031 Exchange
7 Essential Requirements
- Like-Kind Party
- 45 Day Identification Period
- 180 Day Purchase Period
- Use of Qualified Intermediary - Make
sure your Escrow company qualifies. - Title must be mirror image
- Reinvest Equal or Greater Amount
- Revers Exchanges - Title to Both Properties cannot be the Same name at the Same Time.
1031 Exchange
Consider it as a ROLLOVER rather than an exchange… the Gain is rolled over to a new property. Unlimited amount of times an individual can rollover gain and postpone tax. Any money given to make up the difference is referred to as a “boot”. Ultimate goal is to make tax disappear.
Sellers can rollover gain and ultimately move it to one of their investment properties and declare it to their primary residence. Live in it for minimum of 2 years out of 5. Sell and exempt $250 or $500K. Capital gains taxes are eliminated up the death of the property owner. Heirs receive it step up in basis on the date of death (fair market value at the time of death).
In Utah Tax….
is due November 30th
Depreciation taken periodically in equal amounts over an asset’s useful life is called:
A: Capital Gain
B: A 1031 Exchange
C: A REIT
D: Straight-Line
D: Straight-Line
Which of the following is a 1031 exchange requirement?
A: Title Must Be Different
B: Always Work With Your Agent
C: Title Must Be A Mirror Image
D: Always Rely On The Broker For Final Approval
C: Title Must Be A Mirror Image
How many essential requirements does the 1031 exchange have?
A: 7
B: 8
C: 78
D: 15
A: 7
Which of the following is a essential requirement for the 1031 exchange?
A: Reinvest Equal Or Greater Amount
B: Always Reinvest The Exact Amount
C: Do Not Invest
D: Only Invest Some Portion
A: Reinvest Equal Or Greater Amount
Money or property given to make up the difference in value or equity in a 1031 Exchange is called:
A: Boot
B: An Equity Exchange
C: Hypothecation
D: Depreciation
A: Boot
In Utah taxes are due on?
A: Jan 1st
B: Nov 30th
C: April 16th
D: Dec 21st
B: Nov 30th
The number of days a taxpayer has to identify potential replacement properties is:
A: 10
B: 30
C: 45
D: 60
C: 45
Basis is
A: The Investor’s Initial Cost
B: The Foundation Of The Home
C: The Ability To Work Towards The End Result
D: The Seller Cost Of The Home
A: The Investor’s Initial Cost
Which of the following are essential elements of a 1031 Exchange ?
A: 45 Day Identification Period
B: Like-Kind Property
C: 180 Day Purchase Period
D: All Of The Above
D: All Of The Above
The amount of taxes each homeowner is assessed is set by:
A: An Appraiser
B: The State Of Utah
C: The County Commissioner
D: The County Assessor
D: The County Assessor
In Utah, property taxes are due:
A: 6/1
B: 4/16
C: 12/31
D: 11/30
D: 11/30
Another term for depreciation is:
A: Market Value
B: Cost Basis
C: Tax Basis
D: Cost Recovery
D: Cost Recovery
Another way to explain cost basis is:
A: Purchase Price
B: Purchase Price Minus Depreciation
C: Purchase Price Plus Improvements
D: Purchase Price Plus Improvements, Minus Depreciation
A: Purchase Price
To file personal income taxes, one must use:
A: Form 1040
B: Form 1065
C: Form 1099
D: Form 1120
A: Form 1040
The IRS view depreciation as:
A: Tax Credit
B: Adjusted Cost Basis
C: Cost Recovery
D: Capital Gain
C: Cost Recovery
The independent party who is allowed to facilitate 1031 Exchanges is called a(n):
A: Qualified Intermediary
B: Beneficiary
C: Facilitator
D: Broker
A: Qualified Intermediary
The capital gains tax exemption for a primary residence is currently:
A: $100,000 For Individuals And $200,000 For Married Couples
B: $125,000 For Individuals And $250,000 For Married Couples
C: $250,000 For Individuals And $500,000 For Married Couples
D: $300,000 For Individuals And $600,000 For Married Couples
C: $250,000 For Individuals And $500,000 For Married Couples
The formula for figuring out Adjusted Cost Basis is:
A: Cost + Improvements – Depreciation
B: Capital Gain + Improvements – Depreciation
C: Cost Recovery + Improvements – Capital Gain
D: Appreciation + Improvements – Capital Gain
A: Cost + Improvements – Depreciation
Thayne purchased 4plex for the purpose of rental income. He purchased the property for $300,000. He made $18,000 worth of improvements on the property and $25,000 had been taken during the period of time he owned the property. What is Thayne’s adjusted cost basis?
A: $293,000
B: $305,000
C: $318,000
D: $343,000
A: $293,000
