Podcast
Questions and Answers
Which of the following scenarios would most likely result in a capital loss for the seller?
Which of the following scenarios would most likely result in a capital loss for the seller?
- Selling a property and using the proceeds to purchase a similar property, deferring capital gains taxes.
- Selling a property after claiming depreciation deductions that exceeded the property's cost basis.
- Selling a property for more than its adjusted basis.
- Selling land for a price lower than what it was originally purchased for. (correct)
A property's adjusted basis is relevant for determining what?
A property's adjusted basis is relevant for determining what?
- The maximum depreciation deduction allowable.
- The amount of homeowner's insurance required.
- Capital gain or loss upon the property's sale. (correct)
- The annual property tax owed.
Which of the following actions would NOT directly increase the adjusted basis of a property?
Which of the following actions would NOT directly increase the adjusted basis of a property?
- Paying legal fees related to defending the property title.
- Performing routine maintenance, such as painting. (correct)
- Installing a new central air conditioning system.
- Adding a room to the house.
A real estate investor seeking to minimize their current year's tax liability might utilize which of the following?
A real estate investor seeking to minimize their current year's tax liability might utilize which of the following?
What is the primary purpose of a tax shelter?
What is the primary purpose of a tax shelter?
A homeowner adds a swimming pool to their property. How does this improvement likely affect the property's adjusted basis and potential capital gains tax?
A homeowner adds a swimming pool to their property. How does this improvement likely affect the property's adjusted basis and potential capital gains tax?
If a property owner discovers they have been over-depreciating an asset on their taxes, what might be the potential consequence when selling the property?
If a property owner discovers they have been over-depreciating an asset on their taxes, what might be the potential consequence when selling the property?
How do capital improvements differ from regular repairs in the context of a property's adjusted basis?
How do capital improvements differ from regular repairs in the context of a property's adjusted basis?
Which strategy would NOT generally be considered a legitimate tax shelter?
Which strategy would NOT generally be considered a legitimate tax shelter?
How is depreciation factored into determining the adjusted basis of a property that has decreased in value?
How is depreciation factored into determining the adjusted basis of a property that has decreased in value?
Flashcards
Capital Loss
Capital Loss
The financial loss resulting from a lower selling price compared to a higher purchase price.
Adjusted Basis
Adjusted Basis
The original property cost, reduced by depreciation and sales, plus capital improvements and carrying costs.
Tax Shelter
Tax Shelter
A method to legally reduce taxable income.
Study Notes
- A capital loss happens when a property sells for less than its purchase price, resulting in a financial loss for the seller.
- Adjusted basis: The original cost of a property, reduced by depreciation and sales of portions, and increased by allowable additions like capital improvements and carrying costs.
- Tax shelter: Any method used to reduce taxable income, which lowers payments to tax collecting entities like state and federal governments.
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