Accelerated depreciation is a method for allocating the cost of an asset in a manner that provides greater deductions in the earlier years of the asset's life. This method is advantageous for tax purposes, offering businesses the opportunity to defer tax payments.
Active Participation is a type of investor position that influences how rental income is taxed. The requirements for active participation are less stringent than for material participation.
The adjusted tax basis refers to the original cost or other basis of property, reduced by depreciation deductions and increased by capital expenditures.
After-tax cash flow refers to the net cash flow generated by an income-producing property after accounting for income taxes and tax savings from allowable deductions. This measurement provides a true picture of an investor's profitability from real estate holding.
The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that taxpayers who claim certain deductions and credits still pay a minimum amount of tax.
A Burned-Out Tax Shelter refers to a real estate investment that was once advantageous for providing large income tax deductions but has lost its tax-sheltering benefits over time due to the reduction and eventual nil in depreciation deductions and the decrease in interest deductions as mortgage payments increasingly cover the principal.
A method of dividing real estate improvements into various parts such as the roof, plumbing, electrical system, and shell, and then depreciating each component separately for tax purposes.
Declining Balance Depreciation is a method of depreciation, often used for income tax purposes, whereby a rate is applied to the remaining balance to derive the depreciation deduction. Compare with Accelerated Depreciation. See Modified Accelerated Cost Recovery System.
Double Declining Balance (DDB) is an accelerated method of depreciation used for tax purposes, applying twice the straight-line depreciation rate to the remaining book value of an asset.
First-Year Depreciation allows property owners to take a larger depreciation deduction in the first year than what is typically provided under regular depreciation schedules, thereby accelerating tax benefits.
Form 1098 is a form that lenders are required by the Internal Revenue Service to send to mortgage borrowers, showing the amount of interest paid during the past year.
A deduction that allows taxpayers who use part of their home for business purposes to deduct certain expenses from their taxable income.
The Internal Revenue Code (IRC) is a comprehensive set of tax laws enacted by the United States Congress to specify how various types of income are to be taxed and what deductions are allowed. It serves as the foundation for the country's federal tax laws and is critical in shaping tax policy and administration.
Itemized deductions are specific expenses that can be deducted from taxable income to reduce the amount of federal income tax owed. They include costs such as mortgage interest, property taxes, and certain types of losses.
Material participation is a tax term referring to the substantial, continuous, and regular involvement in business operations necessary to qualify for certain tax deductions related to real estate losses.
A tax term that allows a current deduction for business expenses, contrasting with capital expenditures and unreasonable expenses.
A property tax deduction allows homeowners to deduct property taxes assessed on their real estate holdings from their annual income taxes, reducing overall tax liability.
Section 167 is the part of the Internal Revenue Code (IRC) that deals with depreciation for property, including real estate. This section provides guidelines for the allowance of depreciation deductions for tax purposes.
Section 179 of the Internal Revenue Code allows businesses to immediately deduct the cost of qualifying equipment, rather than capitalizing and depreciating the asset over a long period. This is particularly beneficial for small businesses, enabling them to reduce their tax liability quickly.
The standard deduction is a flat amount that reduces federal or state taxable income, differing based on the taxpayer's filing status.
A tax deduction is an expense that can be subtracted from an individual or entity's gross income to reduce the amount subject to tax.
