REIPRIME Logo
Intermediate1.5 hours17 terms

Real Estate Depreciation Key Terms

This collection offers carefully selected key terms that might be helpful when exploring accumulated depreciation and its impact on real estate investments. It serves as a quick reference for commonly referenced concepts, supporting your learning journey without providing exhaustive coverage.

Term Collection

1

Taxable Income

Taxable income is the portion of an individual's or entity's gross income that is subject to taxation after all allowable deductions, exemptions, and credits have been applied. For real estate investors, it determines the actual income on which taxes are paid.

Intermediate12-13 min
2

Book Value

Book Value represents the net asset value of a company or property as recorded on its financial statements, calculated as total assets minus total liabilities.

Intermediate2-3 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

Depreciable Basis

The depreciable basis is the portion of an investment property's cost, excluding land value, that can be legally deducted over time through depreciation for tax purposes.

Intermediate11-15 min
5

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
6

Tax Liability

Tax liability refers to the total amount of tax an individual or entity owes to a taxing authority, such as the IRS, for a specific period, typically on income or capital gains from real estate investments.

Beginner2-3 min
7

Depreciation Recapture

Depreciation recapture is an IRS rule that taxes the gain from the sale of depreciated property at ordinary income tax rates, up to the amount of depreciation previously claimed, ensuring tax benefits are accounted for upon sale.

Intermediate15-18 min
8

Modified Accelerated Cost Recovery System

The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used in the United States for most tangible depreciable property, allowing businesses and real estate investors to recover the cost of assets over a specified period.

Advanced5 min
9

Cash Flow

Cash flow in real estate investing represents the net income generated by a property after all operating expenses and debt service payments have been made. Positive cash flow indicates profitability, while negative cash flow suggests a loss.

Intermediate2-3 min
10

Accumulated Depreciation

Accumulated depreciation is the total amount of depreciation expense that has been recorded for an asset since it was acquired, reducing its book value over time and impacting taxable income.

Intermediate5-6 min
11

Useful Life

Useful life in real estate refers to the estimated period over which an asset is expected to be economically productive, primarily used for calculating depreciation for tax purposes.

Intermediate2-3 min
12

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
13

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
14

Passive Activity Loss

Passive Activity Loss (PAL) rules limit the deduction of losses from passive activities, such as most rental real estate, against non-passive income like wages or portfolio earnings. These losses are typically suspended and carried forward until passive income is generated or the activity is disposed of.

Intermediate13-14 min
15

Adjusted Basis

The adjusted basis is the original cost of an asset, such as real estate, plus the cost of any capital improvements, minus any depreciation deductions and certain other adjustments. It's crucial for calculating taxable gains or losses upon sale.

Intermediate13-14 min
16

Bonus Depreciation

Bonus depreciation is a tax incentive allowing businesses and real estate investors to immediately deduct a large percentage of the cost of eligible property in the year it's placed in service, accelerating tax savings and boosting cash flow.

Intermediate12-13 min
17

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

Common Questions