Copyright © Cengage Learning. All rights reserved. 2 Derivatives.
Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage...
-
Upload
amber-carson -
Category
Documents
-
view
219 -
download
0
Transcript of Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage...
![Page 1: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/1.jpg)
Chapter 15Federal Income
Taxation and BasicPrinciples of RealEstate Investment
2010©Cengage Learning. All Rights Reserved.
![Page 2: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/2.jpg)
IN THIS CHAPTER
• Real estate licensees should recommend that buyers and sellers seek this specialized expertise.
• The fundamentals of tax implications in the ownership and sale of a principal residence and business and investment property.
• Special tax benefits provided to owners and sellers.
• Basic real estate investment principles2010©Cengage Learning. All Rights Reserved.
![Page 3: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/3.jpg)
Depreciation
• Deductible allowance from net income of property when arriving at taxable income.
• Useful life for residential property is 27.5 years and 31.5 years for nonresidential property.
• No depreciation allowed for land.
2010©Cengage Learning. All Rights Reserved.
![Page 4: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/4.jpg)
Passive Income
• Any tax losses from investment property are allowable only to offset income from passive activities.
• Taxpayers may shelter up to $25,000 of passive income or active income with adjusted gross income of less than $100,000 who actively manage their own rental property.
2010©Cengage Learning. All Rights Reserved.
![Page 5: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/5.jpg)
INTEREST AND TAXES
The tax-deductible expenses of home ownership are – mortgage interest – ad valorem real property taxes
2010©Cengage Learning. All Rights Reserved.
![Page 9: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/9.jpg)
Sales of Principal Residences
• Married homeowners may exclude from taxation up to $500,000 of the gain from the sale of a principal residence.
• Single homeowners are allowed to exclude up to $250,000.
• the taxpayer must have owned and occupied the home as a principal residence for at least two of the last five years.
2010©Cengage Learning. All Rights Reserved.
![Page 10: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/10.jpg)
Capital Gains
• A gain or loss on the sale of an asset is not recognized for income tax purposes until you dispose of the asset.
• When gain becomes taxable it may be eligible for the preferential capital gains tax rates depending upon the length of ownership.
• Professionals should be consulted to determine the exact date and rate for any transaction.
2010©Cengage Learning. All Rights Reserved.
![Page 11: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/11.jpg)
Estate and Gift Taxation
• A gift tax is imposed on lifetime transfers by gift.
• An estate tax is imposed on transfers at death.
2010©Cengage Learning. All Rights Reserved.
![Page 12: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/12.jpg)
Like-Kind (Section 1031) Exchanges
• The properties must be like-kind.• No boot received or taxable.• Basis of property are exchanged.• The property for exchange must be
identified in writing within 45 days. • The closing on the property must be
within 180 days.• No tax due at time of exchange – no sale.
2010©Cengage Learning. All Rights Reserved.
![Page 13: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/13.jpg)
Self-Employed Persons
• Home Office Deductions• Health Insurance Deductions• Business Expenses
2010©Cengage Learning. All Rights Reserved.
![Page 14: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/14.jpg)
REAL ESTATE INVESTMENT
• Capital appreciation• Cash flow• Tax advantages• Tax deferral• Time value of money– A dollar received today is more
valuable than a dollar received next year.
2010©Cengage Learning. All Rights Reserved.
![Page 15: Chapter 15 Federal Income Taxation and Basic Principles of Real Estate Investment 2010©Cengage Learning. All Rights Reserved.](https://reader035.fdocuments.in/reader035/viewer/2022062308/56649dcf5503460f94ac3832/html5/thumbnails/15.jpg)
Accelerated depreciationbasisbootcapital gaindeferred gain rolloverdepreciationInvoluntary conversionlike-kind property (Section 1031) exchangesmultiple exchangeopportunity costpassive incomeproration of the universal exclusionrealized gainStarker exchange/Starker truststraight-line depreciationtax-deductible expensesTaxpayer Relief Act of 1997universal exclusionunlike-kind property
CHAPTER TERMINOLOGY REVIEW
2010©Cengage Learning. All Rights Reserved.