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Real Estate Course
Chapter 17 - Income Tax in Real Estate Transactions
| Term | Definition |
|---|---|
| Straight-line Depreciation | A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year. |
| Tax Depreciation | An income deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property. |
| Capital Gain | A profit that results from a the sale of a property where the amount realized from the sale exceed the purchase price. |
| Capital Loss | The difference between a lower selling price and a higher purchase price, resulting in a financial loss to the seller. |
| Basis | A major accounting method that recognizes revenues and expenses at the time physical cash is actually received or paid out. |
| Recaptured Depreciation | When real property is sold at a gain and accelerated depreciation has been claimed, the owner may be required to pay a tax at ordinary (non-accelerated) rates to the extent of the excess accelerate depreciation. |
| Adjusted Basis | The original cost of a property minus depreciation and sales of portions thereof plus allowable additions such as capital improvements and certain carrying costs and assessments. A bookkeeping rather than appraisal term. |
| Boot | Cash received in a tax-deferred exchange. |
| Tax-Deferred Exchange | Under Section 1031 of the US Internal Revenue Code, the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due. |
| Appreciation | Monetary gain resulting from the increase in the market value of an investment, excluding additions of capital. For example, a house which is sold five years after it was purchased for 50% more than the purchase price. |
| Cash Flow | The net result when income from an investment property is subtracted from the expenses. The result is used to determine the rate of return on an investor's money. |
| Passive Activity Income | Earnings an individual derives from a rental property in which he or she is not actively involved. |
| Active Income | Income for which services have been performed. |
| Tax Shelter | Any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. |
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drister05
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