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Intermediate2 hours13 terms

Federal & Local Tax Policy: Key Terms

This curated collection offers key terms that might be helpful when exploring potential shifts in federal and local tax policy. Understand the terminology you may encounter as these changes can significantly impact your real estate investment returns and long-term strategy. It's a quick reference to clarify complex concepts.

Term Collection

1

Cost Segregation

Cost Segregation is an IRS-approved tax strategy that reclassifies components of a commercial or residential rental property into shorter depreciation schedules, accelerating tax deductions and boosting immediate cash flow for real estate investors.

Intermediate13-14 min
2

Taxable Income

Taxable income is the portion of an individual's or entity's gross income that is subject to taxation after all allowable deductions, exemptions, and credits have been applied. For real estate investors, it determines the actual income on which taxes are paid.

Intermediate12-13 min
3

Depreciation Recapture

Depreciation recapture is an IRS rule that taxes the gain from the sale of depreciated property at ordinary income tax rates, up to the amount of depreciation previously claimed, ensuring tax benefits are accounted for upon sale.

Intermediate15-18 min
4

Capital Gains Tax

Capital Gains Tax is a tax on the profit realized from the sale of a non-inventory asset, such as real estate, calculated as the difference between the selling price and the adjusted cost basis.

Intermediate13-14 min
5

Passive Income

Passive income refers to earnings from an enterprise in which an individual is not actively involved, typically generated from real estate investments like rental properties, REITs, or syndications, requiring minimal ongoing effort after initial setup.

Intermediate13-15 min
6

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min
7

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min
8

Adjusted Basis

The adjusted basis is the original cost of an asset, such as real estate, plus the cost of any capital improvements, minus any depreciation deductions and certain other adjustments. It's crucial for calculating taxable gains or losses upon sale.

Intermediate13-14 min
9

Holding Period

The holding period is the length of time an investor owns a real estate asset, directly influencing capital gains taxation, investment strategy, and overall financial returns.

Intermediate12-15 min
10

SALT Deduction Limit

The SALT (State and Local Tax) deduction limit is a federal tax provision capping the amount of state and local taxes that can be deducted from federal taxable income at $10,000 per household, significantly impacting real estate investors in high-tax states.

Intermediate5 min
11

Real Estate Professional Status

Real Estate Professional Status (REPS) is an IRS designation allowing qualifying taxpayers to treat rental real estate activities as non-passive, enabling them to deduct passive losses against non-passive income and potentially reduce their taxable income significantly.

Advanced12-15 min
12

Property Tax

Property tax is a recurring tax levied by local governments on real estate, calculated based on the property's assessed value, and used to fund public services. It is a significant ongoing expense for property owners and investors.

Beginner15-18 min
13

Tax Deferral

Tax deferral is the legal postponement of paying taxes on investment gains or income until a future date, allowing capital to remain invested and grow through compounding.

Intermediate13-16 min

Common Questions