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Intermediate1.5 hours15 terms

REPS & Passive Loss: Key Tax Terminology

Explore essential terminology related to Real Estate Professional Status (REPS) and Passive Activity Loss rules. This curated collection offers clear explanations of key concepts that can help high-income investors unlock significant tax benefits. Understand the language of tax architecture to optimize your real estate investments.

Term Collection

1

Federal Income Tax

Federal income tax is a tax levied by the U.S. government on an individual's or entity's earnings, including wages, salaries, investment income, and rental income from real estate. It operates on a progressive system, meaning higher earners pay a larger percentage of their income in taxes.

Beginner5-6 min
2

Material Participation

Material Participation refers to IRS criteria determining an individual's active involvement in a business or rental activity, crucial for deducting real estate losses against ordinary income.

Intermediate13 min
3

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
4

Tax Audit

A tax audit is an examination of an individual's or organization's tax returns and financial information by a tax authority, such as the IRS, to verify accuracy and compliance with tax laws.

Intermediate8-9 min
5

Property Manager

A property manager is an individual or company hired by a real estate investor to handle the daily operations, maintenance, and tenant relations for a rental property, aiming to preserve asset value and maximize rental income.

Intermediate13 min
6

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
7

Ordinary Income

Ordinary income refers to any type of income that is taxed at regular income tax rates, as opposed to preferential rates like those for long-term capital gains. In real estate, this commonly includes rental income, active business profits, and interest income.

Intermediate5 min
8

Income Tax

Income tax is a mandatory payment levied by governments on an individual's or entity's earnings, including salaries, wages, and profits from investments like real estate.

Beginner5-6 min
9

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
10

Real Estate Tax Deductions

Real estate tax deductions are IRS-approved expenses that investors can subtract from their gross rental income, reducing taxable income and overall tax liability.

Intermediate14-15 min
11

Paper Losses

Paper losses, also known as unrealized losses, represent a decrease in the market value of an asset below its purchase price, but the asset has not yet been sold. These losses exist only on paper until the asset is actually sold.

Intermediate5-6 min
12

Spousal REPS Strategy

The Spousal REPS Strategy allows married couples filing jointly to qualify for Real Estate Professional Status (REPS) if one spouse materially participates in real estate activities, enabling the deduction of passive real estate losses against active income.

Advanced8-9 min
13

Rental Property Depreciation

Rental property depreciation is a non-cash tax deduction allowing real estate investors to recover the cost of an income-producing property over its useful life, excluding land value. It significantly reduces taxable income without requiring an out-of-pocket expense, thereby enhancing investment returns and cash flow.

Intermediate8 min
14

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
15

Real Estate Professional Status (REPS) Hourly Requirements

The specific hourly thresholds real estate investors must meet to qualify for Real Estate Professional Status (REPS) with the IRS, allowing them to deduct passive real estate losses against active income.

Intermediate5 min

Common Questions