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Intermediate1 hour13 terms

IRA & 401(k) Tax Strategy Key Terms

This curated collection offers key terms that might be helpful when exploring Traditional and Roth retirement accounts. It's designed to clarify commonly referenced concepts related to pre-tax and post-tax contributions, helping you understand their long-term tax implications. Use this as a quick reference to navigate the terminology of retirement savings.

Term Collection

1

Tax Bracket

A tax bracket is a range of income that is taxed at a specific rate by the government. Understanding your tax bracket is crucial for calculating your tax liability and planning real estate investments.

Beginner2-3 min
2

Capital Gains Tax

Capital Gains Tax is a tax on the profit realized from the sale of a non-inventory asset, such as real estate, calculated as the difference between the selling price and the adjusted cost basis.

Intermediate13-14 min
3

Cost Segregation

Cost Segregation is an IRS-approved tax strategy that reclassifies components of a commercial or residential rental property into shorter depreciation schedules, accelerating tax deductions and boosting immediate cash flow for real estate investors.

Intermediate13-14 min
4

Self-Directed 401(k)

A Self-Directed 401(k) is a retirement plan for self-employed individuals and small business owners with no full-time employees, allowing them to invest retirement funds in a broader range of assets, including real estate, private equity, and other alternative investments, beyond traditional stocks and bonds.

Intermediate9 min
5

Tax Deferral

Tax deferral is the legal postponement of paying taxes on investment gains or income until a future date, allowing capital to remain invested and grow through compounding.

Intermediate13-16 min
6

Self-Directed IRA

A Self-Directed IRA (SDIRA) is a specialized retirement account allowing investors to hold alternative assets like real estate, private equity, and precious metals, offering enhanced control but requiring strict adherence to complex IRS regulations to avoid prohibited transactions and Unrelated Business Income Tax (UBIT).

Advanced11-12 min
7

Real Estate Professional Status

Real Estate Professional Status (REPS) is an IRS designation allowing qualifying taxpayers to treat rental real estate activities as non-passive, enabling them to deduct passive losses against non-passive income and potentially reduce their taxable income significantly.

Advanced12-15 min
8

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min
9

Roth IRA Tax-Free Withdrawals

Roth IRA tax-free withdrawals allow eligible individuals to access their contributions and earnings completely free of federal income tax in retirement, provided specific age and holding period requirements are met. This makes them a powerful tool for tax-efficient wealth accumulation, especially for real estate investors.

Intermediate5 min
10

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min
11

IRA Real Estate Investing

IRA real estate investing involves using a self-directed Individual Retirement Account (SDIRA) to purchase and hold real estate assets, allowing investors to defer or avoid taxes on investment gains.

Intermediate5 min
12

Long-Term Capital Gains

Long-Term Capital Gains are profits from selling an asset held for more than one year, typically taxed at lower, preferential rates compared to ordinary income, making them a key consideration for real estate investors.

Intermediate12-15 min
13

Marginal Tax Rate

The marginal tax rate is the tax rate applied to your very last dollar of taxable income. It's crucial for real estate investors to understand how additional income or deductions will impact their tax bill.

Beginner3 min

Common Questions