Accelerated cost recovery system (ACRS)
Method under which an asset is depreciated more in the early years of its useful life
Active income
Includes earnings received from any of the following: wages, salaries, commissions, bonuses, and other payments for services rendered.
Adequacy-of-interest test
Says that if the stated interest rate is less than 110% of the applicable federal rate, an interest rate will be imputed at 120% of the applicable federal rate.
After-tax cash flow
The cash flow from an investment after all taxes have been paid
After-tax discount rate
The required rate of return on a commercial project after taxes are considered
Alternative minimum taxes (AMTs)
The minimum federal taxes that a taxpayer must pay if there are substantial tax preference items that would otherwise result in low or no taxes due. Made to make sure the wealthy don't get excess tax breaks.
At-risk limitations
Limits the amount of loss on an investment to the amount that the investor actually has at risk
Before-tax discount rate
The required rate of return on an investment before considering taxes
Boot
Property in addition to cash used to purchase another property
Capital loss limitation
Limits the tax deductibility of a loss on capital investment to the amount of gains on other capital investments plus $3,000 of ordinary income.
Certified historic structure (CHSs)
Designation given by the Department of Interior to structures that meet certain age and/or site conditions. Designation may be important to a tax payer to claim a credit for restoring such a structure.
Double-declining method
Depreciation is doubled in the first year is doubled that under the straight-line. The 2nd year, depreciation is double the amount that would be calculated if the remaining balance were depreciated under the straight-line method. Large depreciation in ini
Gross profit percentage
A ratio indicating the percentage of profit earned on each dollar of sales, after considering the cost of products sold.
Imputed interest rule
Interest on an investment that is assumed for certain purposes to be paid even though no interest payment is physically received by the investor.
Installment sale
The selling of an appreciating property on terms rather than for cash so as to postpone the payment of capital gains taxes on the profits.
Investment interest limitation
Limits the amount of interest on debt used to finance the acquisition of an asset (usually raw land) that a taxpayer can deduct to determine taxable income.
Low-income housing credit
A credit against federal taxes for investing in low-income housing
Modified accelerated cost recovery system (MACRS)
system of depreciation that extended the expected lives of assets
Net leased investment
The owner holds a property for which all the operating expenses, including property taxes, repairs, and other expenses, are paid for by the tenant.
Original issue discount (OID)
Tax concept that requires investors to pay taxes on the effective yield of an investment rather than on the coupon rate of the cash flows when the debt was issued at a below-market coupon.
Passive income
Income received primarily from real estate activities.
Passive losses
A loss (negative income) on a real estate property or any limited partnership (such as an oil & gas limited partnership).
Passive loss limitation
A limitation on the amount of loss that may be available to reduce taxes. Generally used to offset passive gains.
Portfolio income
Income from stocks and bonds.
Portfolio losses
Decline in value of a portfolio of stocks, bonds, and other investments.
Property held as a principal residence
Income tax classification for a property that is owned and occupied as a primary residence.
Property held for investment
Income tax classification for a property that is held strictly for income or investment and the owner has no participation in the operations of the investment.
Property held for resale
Income tax classification for a property held as an inventory for resale.
Property held for use in trade or business
Income tax classification for a property, referred to as a Section 1231 asset, that is owned and operated for the purpose of deriving rental income.
Related persons rule
A rule in an installment sale that says if a sale is made to a related person, who in turn sells the property within a 2 year period, the original seller must recognize the balance of the gain at the time the related person makes the sale.
Straight-line method
The property is considered to deteriorate at a constant rate over time.
Sum-of-the-years' digits method
Method of depreciation where the number of years remaining is the numerator and the denominator is the sum of the years in the depreciable life.
Suspended passive losses
Losses remaining after the disposition of an income property that can be used to offset outside income.
Tax-deferred exchange rule
Exchange in which, following an agreement, the tax payer transfers property held either for productive use in trade or business or for investment and subsequently receives property to be held either for productive use in trade or business or for investmen
Tax preference items
Items added to regular taxable income when determining alternative minimum tax.
Tax Reform Act of 1986
Act that compressed the marginal tax rates for individuals, created straight-line depreciation only for real estate, and eliminated favorable treatment of capital gains among other things.
Tax shelter
An asset whose value is partially created by its favorable tax treatment
Time-value-of-money test
Requires that interest be imputed and reported as revenue or expense annually.