Chapter 7 The Tax Environment 4 Cash Flow Versus Taxable Income –Real Estate as a Tax Shelter 4 Analyzing Tax Impacts –Passive Income/ Passive Loss 4 Classifying Real Estate for Tax Purposes –Dealer (ordinary income) Table 7-6 –Investor (Capital Gains)

Chapter 7 The Tax Environment 4 Tax Status and Tax Rates –Noncorporate Tax Rates –Corporate Tax Rates

Chapter 7 The Tax Environment 4 Taxable Income from Operations –Operating Expenses and Taxes Repairs vs. Capital Imprvt’s (deprec.) –Financing and Taxes Depreciable Basis and the Mortgage Interest Deductibility Refinancing and Tax Deductibility of Financing Cost At-risk Limitations (issue in mtgs.)

Chapter 7 The Tax Environment 4 Taxable Income from Operations –Depreciation Deduction What is Depreciation (recovery of cost of investment from taxable income) Non-cash Determining the Depreciable Amount (cost of investment + capital expenditures - cost of land) Basis Allocation (MV or Tax Appraisal) Time Depreciated (Resid yrs./ Non Res. 39) –Component Cost Depreciation (Breakdown) –Alternative Minimum Tax (Older b/f 1987)

Chapter 7 The Tax Environment 4 Taxes on the Sale of an Investment –Capital Gains and Losses –Minimum Taxes on Sale –Minimum Taxes of Corporations

Chapter 7 The Tax Environment 4 Methods of Deferring Taxes on Disposition –The Installment Sale Basic Requirements (series of payments, owner financing) lowers the tax burden from one period –Tax Deferred Exchanges (Sec. 1031) Why Exchange (sale not possible, income tax deferral) Basic Exchange Requirements –Productive use, trade, investment –Like Kind Transfers (Apartment for Retail)