1031 exchanges, depreciation, tax benefits, entity taxation, deductions, and tax planning strategies.
Master tax strategies & implications with our progressive approach
Foundation terms you need to know first (24 terms)
Accrual basis accounting records revenues when they are earned and expenses when they are incurred, regardless of when cash actually changes hands. This method provides a more accurate picture of a business's financial performance over time.
A tax refund is a reimbursement to taxpayers of excess tax paid to the government. For real estate investors, it represents a potential source of capital for new investments or property improvements.
The marginal tax rate is the tax rate applied to your very last dollar of taxable income. It's crucial for real estate investors to understand how additional income or deductions will impact their tax bill.
A tax credit is a direct reduction in the amount of tax owed, dollar-for-dollar, providing a significant financial benefit to real estate investors by lowering their overall tax liability.
An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to identify a business entity for tax purposes, often required for real estate investment structures like LLCs and partnerships.
Complex strategies and professional concepts (46 terms)
The accounting process of recognizing the estimated cost of an Asset Retirement Obligation (ARO) as a liability and capitalizing a corresponding asset, which is then depreciated over its useful life, reflecting the future costs associated with retiring a long-lived asset.
Unrelated Business Income Tax (UBIT) is a tax levied on the net income of a tax-exempt organization, including certain real estate investment vehicles, derived from a trade or business regularly carried on and not substantially related to its exempt purpose.
Tax-exempt debt refers to bonds or other debt instruments issued by governmental entities or qualified private entities, where the interest earned by the bondholder is exempt from federal, and often state and local, income taxes.
Premium financing is a sophisticated financial strategy where an investor borrows funds from a third-party lender to pay the premiums on a large insurance policy, typically a life insurance policy or substantial commercial property insurance, using the policy itself or other assets as collateral.
A Self-Directed IRA (SDIRA) is a specialized retirement account allowing investors to hold alternative assets like real estate, private equity, and precious metals, offering enhanced control but requiring strict adherence to complex IRS regulations to avoid prohibited transactions and Unrelated Business Income Tax (UBIT).
IRS Form 4797 is used by businesses and individuals to report gains and losses from the sale or exchange of business property, including real estate, and involuntary conversions, primarily addressing depreciation recapture.
IRS Form 843, officially titled 'Claim for Refund and Request for Abatement,' is used by taxpayers to request a refund of overpaid taxes, interest, penalties, or additions to tax, or to request the abatement of an unpaid assessment.
A non-cash payment for goods, services, or debt, often involving assets, property, or services instead of monetary exchange. It's common in real estate for partnerships, property exchanges, or compensation.
Income tax is a mandatory payment levied by governments on an individual's or entity's earnings, including salaries, wages, and profits from investments like real estate.
An Individual Retirement Account (IRA) is a tax-advantaged savings plan designed to help individuals save for retirement, offering benefits like tax-deferred growth or tax-free withdrawals.
Inheritance tax is a state-level tax levied on the value of assets inherited by beneficiaries from a deceased person's estate, paid by the recipient rather than the estate itself.
The Installment Method is a tax deferral strategy allowing sellers of real estate to spread the recognition of capital gains over the period in which payments are received, rather than recognizing the entire gain in the year of sale.
An installment sale is a transaction where a seller finances the buyer's purchase of property, receiving at least one payment after the tax year of the sale, thereby deferring capital gains taxes over time.
Interest abatement is a reduction or elimination of interest payments on a loan, often granted by a lender or government entity as an incentive for specific real estate development or economic activities.
Interest Expense Tracing Rules, codified under Treasury Regulation § 1.163-8T, are IRS guidelines that dictate how taxpayers must allocate interest expense based on the use of the debt proceeds, thereby determining its deductibility for tax purposes.
The Internal Revenue Code (IRC) is the comprehensive body of federal tax law in the United States, governing all aspects of taxation, including income, estate, gift, and excise taxes, with significant implications for real estate investors.
The Internal Revenue Service (IRS) is the U.S. federal agency responsible for collecting taxes and enforcing tax laws, playing a crucial role in real estate investing through income, deductions, and capital gains regulations.
Explore complementary areas that build on tax strategies & implications concepts
Personal budgeting, expense tracking, cash flow management, emergency funds, and savings strategies.
Credit scores, debt consolidation, loan management, credit repair, and debt payoff strategies.
Macroeconomic concepts, interest rates, inflation, Federal Reserve policy, and economic cycles.
Wills, trusts, estate taxes, succession planning, beneficiary planning, and wealth preservation.