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chapter 19

Federal income taxation of real property ownership

QuestionAnswer
adjusted basis cost of any physical capital improvements that add value to the property or prolong its life (added to the cost basis)
basis determines the amount of the gain realized from a sale of real property
boot money or property given to make up any difference in value or equity between two properties in a 1031 exchange
capital gain the taxable profit earned from the sale of real property
capital loss a loss derived from the sale of real property that may be deductible from ordinary taxable income.
cost basis the owner's initial cost for the real estate including closing expenses
depreciation a loss of value in property due to any cause; an expense deduction for tax purposes taken over the period of ownership of income property
installment sale A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer need only pay on funds received that year.
like-kind properties a tax term used in exchanges; property may be exchanged for life in kind property and the tax postponed (does not refer to the physical similarity of the properties).
long-term capital gain profits from assets owned longer than 12 months; taxed at a lower rate than ordinary income
short-term capital gain profits from assets owned for 12 months or less
tax-deferred exchange an IRS sanctioned method for real estate investors to defer taxation of capital gains by making a property exchange rather than by selling the investment property
Created by: whitwill