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Published byClifton Franklin Modified over 9 years ago
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1 TAX ASPECTS OF REAL ESTATE
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2 TAXATION n What is taxation? u Madison- a necessary evil u American Revolution…tea bags u Power to tax is the power to destroy u Beatles- “Taxman”
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3 Taxation n Sources of tax revenue u International, federal, state & local u WOW! u Death Taxes u Fees u Value Added Tax (VAT) u Unfunded mandates
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4 Taxation n Power to tax u General Police Power of States u Federal government Art. 1 § 8. – delegated powers Art. 1 § 2; § 9 – restriction Amendment XVI (1913) – direct/ without apportionment
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5 Taxation n State taxation u Income tax u Inheritance/estate tax/other u Property Tax Ad Valorem tax Local, schools, county 85% of local gov’t revenue Assessed value/FMV x millage rate
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6 Taxation u Property tax (cont.) Challenges to assessed value Fairness – issue of gentrification Reduction for: Senior citizen Veteran Disabled Other Exempt Property/Contribution
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7 Taxation u Tax v. Fees (issue of deduction) u Transfer Tax Varies by state NJ progressive/mansion tax PA 2% - split by seller & buyer Local addition Mortgage escrow (negotiate)
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8 Taxation u Transfer Tax Nonpayment Mortgage default Tax lien (1 st priority) Tax sale Tax deed – subject to challenge
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9 Taxation n Federal taxation u Income tax Who pays? Alternative minimum tax u Estate, Gift, and Generation skipping transfer tax u Business Entities, Trusts, & Estates
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10 Taxation n % filers n Top 1% n Top 5% n Top 10% n Bottom 50% n % Inc Tax n 40% n 61% n 71% n 2.9% n % AGI n 23% n 37% n 48% n Tax Inc n 410,100 n 160,000 n 113,000
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11 Taxation n Voters n 40% paid 0 n +9% 0 under Obama n 11% pay less than $1,000 n 60% n 40% pay 95% n 5% ($250,000) pay 60%
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12 Taxation n Federal Individual Income Tax Gross Income (certain deductions) Adjusted gross income ( personal exemption, standard deductions/itemized deductions ) Taxable income x progressive rates Tentative tax (credits) Tax liability
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13 Taxation n Real Estate specific deductions & credits u Property taxes u Mortgage interest Acquisition indebtedness $1million Home equity indebtedness $100,000
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14 Taxation u Depreciation/cost recovery u First time home buyer credit u Energy credits u At risk rules u Passive activity losses
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15 Taxation n Gains & losses u G = AR – AB u L = AB – AR (sp – exp) u AB = “Cost” + Improvements – Cost Recovery u Capitalize v. Expense
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16 Taxation n Exclusions & nonrecognition u §121 - $250,000/500,000 u Prior §1034 rollover w/121 u §1031 like kind exchange u §1033 involuntary conversion u “Boot”
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17 Taxation n Capital gains & losses u Capital asset u Gains u Losses u Short/long-term – holding period u Netting u Preferential rate for LTCG u Capital losses u Recapture n Installment sales
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18 Taxation n Transfer taxes u State inheritance/estate u Federal gift tax u Federal estate tax u Federal GSTT u Basis - §1014/1015 n After tax return
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