Income Taxation Principles Estelita C. Aguirre, CPA, MM INCOME TAXATION Lecture No. 3.
© 2015 OnCourse Learning Chapter 15 Federal Income Taxation and Basic Principles of Real Estate...
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Transcript of © 2015 OnCourse Learning Chapter 15 Federal Income Taxation and Basic Principles of Real Estate...
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© 2015 OnCourse Learning
Chapter 15Federal Income
Taxation and BasicPrinciples of RealEstate Investment
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IN THIS CHAPTER
• Real estate licensees should recommend that buyers and sellers seek 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 principles
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Depreciation
• Deductible allowance from net income of property when arriving at taxable income.
• No depreciation allowed for land.
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Passive Income
• Any tax losses from investment property are allowable only to offset income from passive activities.
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INTEREST AND TAXES
The tax-deductible expenses of home ownership are –mortgage interest – ad valorem real property taxes– points
2010©Cengage Learning. All Rights Reserved.
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Sales of Principal Residences
• Married homeowners may exclude from taxation up to $500,000 of the gain from the sale.
• 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.
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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.
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Estate and Gift Taxation
• A gift tax is imposed on lifetime transfers by gift.
• An estate tax is imposed on transfers at death.
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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.
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Self-Employed Persons
• Home Office Deductions• Health Insurance Deductions• Business Expenses
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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.
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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