Unit 1: Introduction to Real Estate Business Flashcards
6 Categories of Real Property
Residential, Commercial, Mixed Use, Industrial, Agricultrual, Special purpose
Commercial and residential uses in the same building or development is considered which category of real property
Mixed use
Warehouse, manufacturing, and production facilities are considered which category of real property
Industrial
Farms, timberlands, ranches, orchards are considered which category of real property
Agricultural
Places of worship, schools, museums, cemeteries, are considered which category of real property
special purpose
Demand, Construction costs, interest rates are factors that affect ___________
supply
labor, materials, and fees are included in ______ costs
construction
demographics, economy, and wages are 3 factors that affect _________(supply or demand)
demand
Real estate brokers (should/should not) advise on tax advantages or disadvantages but should/shouldnt recommend that buyers and sellers seek the advice of a qualified tax consultant.
should not, should
deductions allowed on a first and second residence (4)
property taxes (ad valorem taxes), and mortgage interest, points paid on loans used to improve or acquire (remember POIT), must itemize to take the deduction on tax returns
legal term for “according to value”
ad valorem
POIT what does it stand for
points, origination fees, interest, and property taxes are deductible
property held 12 months or less is taxed at ratepayers ordinatry income is ____-____ gain
short term
Gain from sale of a principal residence is excluded from tax for ________ maximum if single taxpayer or ______ if married or filing jointly
250k 500k
acquisition cost + cost of improvements = _____ basis
adjusted
sales price - selling expenses = _____ sale price
adjusted
adjusted sale price - adjusted basis = ______ ______ gain
realized capital
property held more than 12 months is taxed at a different rate than ordinary income (_____-____ gaini)
long term
up to $_____ gain is tax free for singles and up to $_____ gain is tax free for married couples if taxpayer owned and occupied for at least two of the five years preceding the sale (does not have to have been sequential
250k, 500k
Residential rental property allowance is taken over ___ years
27.5
Commercial property allowance is taken over __ years
39
EXAMPLE: Commercial property has improvements that cost 390k. The depreciation allowance is 39 years. What is annual depreciation deduction? If owner has owned property 10 years, how much depreciation has the owner been allowed to take over that time?
390k/39 = $10,000 per year. Split equally between the 39 years. 10k * 10 = 100k
_____ are used by investors and business property owners to defer payments of capital gains taxes on the sale of business or investment properrty
1031 exchanges (1031 tax-deferred exchanges)
personal and secondary residences are not eligible for a ____ exchange
1031
For benefits of real estate investment
cash flow, tax benefits, potential appreciation, principal reduction
income (cash flow) - expenses (taxes benefits) = ____ cash flow
increase cash flow
Assets (appreciation) - liabilities (prin reduc) = increase ___ ____
net worth
advantages of real estate investment
above avg returns, more control than other investment options, appreciation, equity buildup, leverage, tax benefits
leverage
investors use borrowed money to finance an investment
Disadvantages of real estate investment
lacks liquidity, investment property requires property management, risk
