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Intermediate1 hour15 terms

Real Estate Intangibles: Amortization Glossary

This curated collection offers key terms that might be helpful when exploring the amortization of intangible assets in real estate investment. It provides clear explanations of commonly referenced concepts, supporting your understanding of this specialized area. Use it as a quick reference to navigate the terminology you may encounter.

Term Collection

1

Amortization

Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.

Intermediate12-13 min
2

Straight-Line Amortization

Straight-line amortization is a loan repayment method where the principal portion of each payment remains constant throughout the loan term, resulting in decreasing total payments as the interest component declines.

Intermediate2-3 min
3

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
4

Capitalization of Costs

Capitalization of costs is an accounting method where certain expenditures, typically for significant property improvements, are recorded as assets on the balance sheet rather than immediate expenses, allowing them to be depreciated over their useful life.

Intermediate5-6 min
5

Tax Shield

A reduction in taxable income, and thus tax liability, achieved through deductible expenses like depreciation, interest on debt, or operating losses, commonly utilized in real estate to enhance investment returns.

Intermediate2-3 min
6

Passive Activity Loss

Passive Activity Loss (PAL) rules limit the deduction of losses from passive activities, such as most rental real estate, against non-passive income like wages or portfolio earnings. These losses are typically suspended and carried forward until passive income is generated or the activity is disposed of.

Intermediate13-14 min
7

In-Place Leases

In-place leases are the active rental agreements on a property at the time of acquisition or valuation, directly determining its current income stream and influencing its market value.

Intermediate5 min
8

Internal Revenue Code

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.

Intermediate2-3 min
9

Intangible Assets

Intangible assets are non-physical assets that hold significant value for a real estate investment or business, contributing to its competitive advantage and long-term profitability, though they lack physical form.

Intermediate5-6 min
10

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
11

Useful Life

Useful life in real estate refers to the estimated period over which an asset is expected to be economically productive, primarily used for calculating depreciation for tax purposes.

Intermediate2-3 min
12

Real Estate Professional (REP)

Real Estate Professional (REP) status is an IRS designation allowing eligible taxpayers to deduct passive real estate losses against non-passive income, significantly reducing their taxable income.

Advanced7-9 min
13

Write-off

A write-off in real estate investing is an expense that can be legally subtracted from your gross income to reduce your taxable income and lower your overall tax burden.

Beginner1-2 min
14

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
15

Purchase Price Allocation

Purchase Price Allocation (PPA) is an accounting procedure used in real estate acquisitions to assign the total cost of an acquired property to its individual identifiable assets and liabilities, impacting financial reporting, tax basis, and future depreciation schedules.

Advanced8-9 min

Common Questions