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Intermediate1 hour15 terms

Form 4797 REI Tax Terms: A Curated Glossary

This curated collection offers key terms that might be helpful when exploring IRS Form 4797 and its implications for real estate investors. It provides a quick reference for commonly referenced concepts related to reporting sales and exchanges of business property. Use this terminology guide to better understand the tax landscape of your real estate investments.

Term Collection

1

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
2

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
3

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
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

Ordinary Income

Ordinary income refers to any type of income that is taxed at regular income tax rates, as opposed to preferential rates like those for long-term capital gains. In real estate, this commonly includes rental income, active business profits, and interest income.

Intermediate5 min
6

Section 1250 Property

Section 1250 property refers to depreciable real property, such as buildings and their structural components, subject to specific depreciation recapture rules upon sale, which can convert a portion of capital gains into ordinary income.

Intermediate5 min
7

Recapture Tax Rate

The recapture tax rate is the specific tax rate, typically up to 25%, applied to the portion of a real estate investment's gain that is attributable to previously deducted depreciation when the property is sold.

Intermediate1-2 min
8

Gain or Loss Calculation

Gain or loss calculation determines the profit or deficit from a real estate investment by comparing the net selling price to the adjusted cost basis, crucial for tax reporting and investment analysis.

Intermediate5 min
9

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
10

Depreciable Basis

The depreciable basis is the portion of an investment property's cost, excluding land value, that can be legally deducted over time through depreciation for tax purposes.

Intermediate11-15 min
11

Taxable Event

A taxable event is any transaction or occurrence that results in a tax liability, requiring an individual or entity to pay taxes to a government authority. In real estate, these often involve the sale of property, depreciation recapture, or certain refinancing scenarios.

Intermediate3 min
12

IRS Form 4797: Sales of Business Property

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.

Intermediate5 min
13

Section 1231 Property

Section 1231 property refers to depreciable real or personal property used in a trade or business and held for more than one year, offering favorable tax treatment by allowing net gains to be taxed as long-term capital gains and net losses as ordinary losses.

Intermediate5 min
14

Realized Gain/Loss

A realized gain or loss occurs when an asset, like a real estate property, is sold for a price different from its original cost, resulting in a profit or deficit that has been "locked in" by a completed transaction.

Beginner2-3 min
15

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

Common Questions