Unit 18 - Federal Income Taxation of Real Property Ownership

Question 1

The financial interest that the IRS attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset.

Answer 1

basis AKA

cost basis

Question 2

A calculation performed to determine capital gain; the difference between the actual sales price and expenses of the sale.

Answer 2

amount realized

Question 3

Money or property given to make up any difference
in value or equity between two properties in a 1031
exchange

Answer 3

boot

Question 4

The taxable profit earned from the sale of a capital asset such as real property.

Answer 4

capital gain AKA

gain

Question 5

The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life; often used in the calculation of capital gain.

Answer 5

capital improvement

Question 6

A loss derived from the sale of a capital asset such as real property that may be deductible from ordinary taxable income.

Answer 6

capital loss

Question 7

An expense deduction for tax purposes taken over the period of ownership of income property

Answer 7

depreciation

Question 8

When a seller finances the sale of their property (as with the use of a contract for deed or purchase money mortgage), or when the seller is to receive all or some portion of the sales price in a year or years other than the year of the sale.

Answer 8

installment sale

Question 9

Exchanged (not sold) properties that must be held for productive use in a trade or business or for investment (principal residences can not qualify).

Answer 9

like-kind properties

Question 10

Taxable profits from assets owned longer than 12 months, usually taxed at a much lower rate than ordinary income

Answer 10

long-term capital gain

Question 11

Taxable profits from assets owned for 12 months or less, taxable as ordinary income.

Answer 11

short-term capital gain

Question 12

Deferring taxation of capital gains by exchanging property versus selling it and receiving taxable profit. No matter how much the property has appreciated since its initial purchase, it may be exchanged for a like-kind property.

Answer 12

tax-deferred exchange

Question 13

If a property was acquired by purchase, he cost of the property plus allowable closing costs plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken.

Answer 13

adjusted basis