Notes on income in real estate transactions for NYS real estate exam
Taxpayer Relief Act of 1997
reduced several federal taxes in the US
IRC Section 121
provides each taxpayer filing a federal tax return an exclusion on capital gains tax when selling their primary residence
the difference b/w a lower selling and a higher purchase price, resulting in a financial loss to seller
gain that is not necessarily taxed
amt of gain which is subject to tax when property is disposed of at a gain or profit in a taxable transfer
a major accounting method that recognizes revenues and expenses at the time physical cash is actually received or paid out
cash received in a tax-deferred exchange
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
home equity financing
mortgage that uses qualified home as collateral
monetary gain resulting from the increase in market value of an investment, excluding additions of capital
established under the Tax Reform Act of 1986 to promote private sector involvement in the retention and production of rental houses for low income households
sale of property
45 days to identify new property
180 days to acquire/close on property
Major benefit is that an owner can delay the payment of capital gains taxes, which provides him/her with extra capital to use in the present day
a loss of utility and thus value caused by the physical deterioration, functional obsolescence or economic obsolescence or any combination thereof
a method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year
an income deduction that allows a taxpayer to recover the cost or basis of certain property’ it is an annual allowance for the wear and tear, deterioration, or obsolescence of the property
personal use assets; land
buildings; equipment; machinery
difference b/w a lower selling price and a higher purchase price, resulting in a financial loss to the seller
Investors can benefit from depreciation when they own the property but may be a liability when they sell the property
residential property is depreciated over 27.5 yrs
commercial property is depreciated over 39 yrs
salaries, business participation
dividends, interest annuities, royalties
passive income (invested funds)
earnings an individual derives from a rental property in which he/she is not actively involved
asset is held <12 months
asset is held>12 months w/ tax rate approx. 23.5%
Tax exemption applies every 2 yrs provided:
-property is primary residence
-taxpayer has lived in home for at least 2 out of the past 5 yrs
What type of depreciation is described by the physical deterioration of property?
When calculating the amount of taxes to be paid on a property, the tax rate is multiplied by what number?
When depreciation is subtracted from net income to determine a property's taxable income, what is the depreciation considered?
Using the straight-line depreciation method, commercial property is depreciated over how many years?
When executing a 1031 exchange, what does the tax code require an owner to purchase?
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