Unit 14: Taxation

Question 1

Ad Valorem Taxes

Answer 1

Property tax is paid according to the assessed value

Question 2

NDFA (No Darn Fooling Around)

Answer 2

N- November 1st, first installment due
D- December 10th, the first installment becomes delinquent
F- February 1st, second installment due
A- April 10th, the second installment becomes delinquent

Question 3

Supplemental Tax

Answer 3

Bill covers the difference between the seller’s assessed valuation and the new valuation based on the sales price.

Question 4

Proposition 13

Answer 4

Passed in 1978. Limits the annual increases in assessed valuation to 2 percent.

Question 5

Proposition 60

Answer 5

Allows homeowners over 55 years of age to transfer their assessed valuation to a new residence in the same county.

Question 6

Proposition 90

Answer 6

Extends Proposition 60 to participating counties.

Question 7

Documentary Transfer Tax

Answer 7

Transfer tax of 55 cents for each $500 or fraction thereof of seller’s equity transferred.

Question 8

Income Taxes (Progressive)

Answer 8

The more you make the more you pay

Question 9

Capital Gains

Answer 9

A tax is charged any time you sell a capital asset and make money.

Question 10

Depreciation

Answer 10

is a method of accounting for the wear that results from the use of a capital good. (tax shelter)

Question 11

Straight Line Method

Answer 11

The straight-line method is used for residential real estate. The depreciation period is 27.5 years for residential property and 39 years for nonresidential property. Every year depreciate an equal amount throughout the life of the asset.

Question 12

Two things you cant depreciate

Answer 12

1) Owner Occupied

2) Land

Question 13

Basis

Answer 13

Your all-in acquisition costs (new roof, closing costs, etc).

Question 14

Adjusted Basis

Answer 14

= Original Basis+ Improvements- Depreciation

Question 15

Mortgage Foreclosure Debt Relief Act of 2007

Answer 15

Provides that debt forgiveness on the principal residence resulting from loan restructuring, short sale, or forclosure be excluded from income. Although it has expired, the IRS, as well as California, has ruled that a short sale of 1-4 residential units will not be taxed on unpaid debt.

Question 16

1031 exchange

Answer 16

Allows for exchange of personal property, as well as real property. Allows the owner to delay taxes and thus have more money to invest in a new property. (like-kind exchange)

Question 17

Like-Kind rule

Answer 17

Simply any piece of real property exchanged for any other piece of real property.

Question 18

Investment Property Rule

Answer 18

Personal residence does not qualify for a tax-deferred exchange

Question 19

Money Control

Answer 19

To be a valid 1031 exchange, the exchanger cannot have control of the buyer’s money.

Question 20

Sale-Leaseback

Answer 20

The seller benefits from capital being freed and rent that is a fully tax-deductible expense.

Question 21

Universal exclusion for gain on sale of a principal residence

Answer 21

A seller of any age who has owned and used the home as a principal residence for at least two years of the five years before the sale can exclude from income up to $250,000 of gain ($500,000 for joint filers meeting conditions). In general, the exclusion can only be used once every two years.

Question 22

Home Interest

Answer 22

On mortgage amounts of up to 1 million, everything paid in-home interest is deductible

Question 23

Foreign Investment in Real Property Tax Act (FIRPTA)

Answer 23

Law passed in order to prevent foreign buyers to sell their real estate without paying income taxes on the sale. Requires the buyer to withhold estimated taxes equal to 15% of the sale price. In addition, CAL-FIRPTA requires that the buyer withhold estimated taxes of 3 1/3%.