Real Estate Taxation and Depreciation

Depreciation allowances are deductions that reduce taxable income and therefore income tax liabilities. They also impact net operating income and before-tax cash flow.

Limited partnerships offer a solution to several challenges associated with real estate investments, including the high initial investment needed, the risk of disasters, and the requirement of specialized knowledge of the market.

Passive asset rules apply to income and losses from investments, but they do not apply to income and losses from property where the owner is actively involved in a real estate business.

Tax credits are direct reductions in income tax liability, unlike deductions that reduce taxable income. They are not limited to specific entities like corporations or trusts.

The withholding requirement for foreign investors applies to the buyer, not the seller, and ensures a portion of the proceeds is withheld and paid to the IRS. This requirement is not specific to taxable gains.

Depreciation allowances are non-cash expenses that reduce taxable income but do not affect cash flow directly. This means a business can save on taxes without necessarily having to spend more money.

In a real estate transaction, consideration refers to all items of value exchanged between the buyer and seller. This includes not only cash but also any other assets, services, or promises given in exchange for the property.

The adjusted basis of a property is its purchase price adjusted for factors like capital improvements and cost recovery allowances. It is used to calculate capital gains or losses when the property is sold.

Cotenancy offers the benefits of pride of personal ownership and freedom from personal income tax liability while sharing ownership and responsibility for the property.

Joint tenancy features the right of survivorship, meaning the deceased owner's interest automatically passes to the surviving joint tenants. This eliminates probate for the deceased owner's share.

The tax shelter generated from a real estate investment cannot exceed the income generated from the property itself. This means there's a limit on how much tax relief you can get.

The adjusted basis is the purchase price of a property minus any depreciation taken. It is calculated to determine the gain or loss upon sale.

Joint tenancy requires equal and undivided interests in the property. This means all owners share the same rights and responsibilities, and their interests are not separated.