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Real estate > Chapter 6- Real Estate Investment and Taxation > Flashcards

Chapter 6- Real Estate Investment and Taxation Flashcards

1
Q

Rate of return

A

1) Cap Rate-Rate of return
2) Cash on Return

  • Teeter totter example- as one goes up other goes down. (Cap Rate)
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2
Q

Cash flow

A

Money left over at the end of the bills.

NO1-Debt Service= cash flow
Cash flow divided by cash invested= return

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3
Q

Leverage

A

Using someone elses money

loan to value ration.

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4
Q

Tax Shelter

A

Generate more money than tax interest

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5
Q

Inflation Hedge

A

Pace or out pace inflation

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6
Q

Liquid asset

A

Something you can readily get… cash, stocks, bonds

Real estate takes longer to get out of.

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7
Q

Risk factor

A

Money will go away

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8
Q

Investment Vehicles

A

Ways you can hold title

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9
Q

Types of investment vehicles

A

1) Sole Proprietorship
2) General Partnership
3) Limited Partnership
4) Regular Corporation (C Corp)
5) “S” Corporation
6) Limited Liability Companies
7) Real Estate Investment Trust (REIT)
8) Securities

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10
Q

Sole Proprietorship

A 
Sole liability 100%
Taxation on 1 person
Decisions easy to make
Have to pay Self Employment taxes
No regulatory agencies
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11
Q

General Partnership

A 
Certificate of Partnership
2 or more, Max unlimited
Joint and several
Taxed 1 time for all partners
All partners have say so and liability
Register Secretary of State Office-regulate
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12
Q

Limited Partnership

A

1 or more general partners- rest are silent
Pass through taxes
General get to make decisions
Security exchange commission- Regulates
Blue Sky laws/Blue sky commission- protects public from illegal selling of partnerships.

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13
Q

Regular Corporation ( “C” corporation)

A

Legal or artificial person.
Takes 1 or more managed by a board of directors.
Double Taxation
Protection from liability- lives on to infinity.
Articles of Inncorporation
Regulated by corperation commission.

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14
Q

“S” Corporation

A 
1-100
Veil of protection 
Regulated by Corperation Commision.
Pass through taxes.
Articles of incorporation
Articles of organization (LLC) is regulatory agency.
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15
Q

Limited Liability Companies

A 
1 or more individual members- unlimited
Need articles
Veil of protection
Pass through taxes
Veil of protection 
Corperation Commision- regulates
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16
Q

Real Estate Investment Trust

A 
(REIT)
Mutual fund
100 investors or more
Pasive investment
limited to investment with liability
Capital gains is taxes
Diversification, no cooperate tax
Cold lose money invested
SEC-Regulates
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17
Q

Securities

A

Pool of money to invest
allow group investors to pool money and invest in something larger.
No investor control
Licensing- Securities Licenses

18
Q

Income subject to tax

A

1) ordinary income or loss- wages

2) Capitol Gains

19
Q

Ordinary income- wages

A 
W2-wages
1099-Mis. wages- commission
1099-Interest income
K1- Partnership income
other income
20
Q

Tax bracket

A

6 brackets

progressive system 10-39.6%

21
Q

Capital Gain

A

Taxable profits from the sale of investment

22
Q

Computing gain

A

Paid for- selling for

23
Q

Basis

A

Purchase Price

24
Q

Acquisition cost

A

closing costs

25
Q

capital improvements

A

Home improvements

26
Q

subtracted depreciation

A

can depreciate improvements and take off taxes

27
Q

Calculating gain

A

adjusted sale-Adjusted Basis= capital gain

28
Q

Adjusted basis can depreciate for

A

27.5 years

29
Q

Short term gain

A

capital asset- 1 year or less

30
Q

Long term

A

excess of 1 year (Holding)

31
Q

Calculate long term

A

gain x rate= tax

32
Q

Calculate short term

A

gain x rate=tax

33
Q

Calculating loss

A

Can deduct

34
Q

Loss deductibility

A

$3000 per year

35
Q

Off-set concept

A

Can take gain off another property

36
Q

Carry forward

A

Carry rest into next year

37
Q

Gains less than _____ no capital gains

A

$250,000 single

$500,000 married

38
Q

Installment sale

A

Spreads taxes out over time

Only on money as it is recieved

39
Q

Tax Deferred exchange

A

To defer taxes

For Investment for Investment

concept of “Boot” Personal property that can balance the exchange-Have to pay taxes on it.

Mortgage relief- taxable

Starker Exchange AKA 1031-delay, close of property.

40
Q

Starker exchange AKA 1031

A

1) Designate new property in 45 days- first clock. Name more than need.
2) Completion within 180 days of COE- 2nd clock.

Balance is taxable
Money has to go into qualified intermediary after sale.

41
Q

Depreciation

A

Each new owner can depreciate cycle over

Good for 27.5 years

Recoup cost of income property

For Investment properties, needs improvements, commercial.

Tax shelter-Annual amount of depreciation

Real estate (14 decks)

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