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Intermediate45 minutes15 terms

Strategic Refinancing & Liquidity: Key Terms

Explore essential terms for strategic refinancing and wealth extraction. This curated collection clarifies key concepts you might encounter when leveraging assets for liquidity, rather than selling. It's a helpful reference to understand the terminology behind tax-efficient debt strategies.

Term Collection

1

Strategic Refinancing

Strategic refinancing involves proactively restructuring existing real estate debt to achieve specific long-term investment objectives, such as optimizing cash flow, expanding a portfolio, or reducing overall risk exposure.

Advanced5 min
2

Liquidity Strategy

A liquidity strategy in real estate investing is a proactive plan to ensure an investor has sufficient accessible cash or assets that can be quickly converted to cash to meet financial obligations and capitalize on opportunities.

Intermediate5 min
3

S-Corp Distribution

An S-Corp distribution refers to the disbursement of profits or assets from an S corporation to its shareholders, typically tax-free up to the shareholder's basis and the Accumulated Adjustments Account (AAA), with specific tax implications for real estate investors.

Advanced7-9 min
4

Tax-Exempt Debt

Tax-exempt debt refers to bonds or other debt instruments issued by governmental entities or qualified private entities, where the interest earned by the bondholder is exempt from federal, and often state and local, income taxes.

Advanced8-9 min
5

Limited Liability Company

A Limited Liability Company (LLC) is a business structure that protects its owners' personal assets from business debts and liabilities, while offering flexible taxation options.

Intermediate13-14 min
6

Loan Proceeds (Taxation)

Loan proceeds are generally not considered taxable income because they represent a debt that must be repaid, not an increase in wealth, under the Accession to Wealth Doctrine.

Intermediate1-2 min
7

Interest Expense Tracing Rules

Interest Expense Tracing Rules, codified under Treasury Regulation § 1.163-8T, are IRS guidelines that dictate how taxpayers must allocate interest expense based on the use of the debt proceeds, thereby determining its deductibility for tax purposes.

Advanced8-9 min
8

S Corporation

An S Corporation is a federal tax designation for eligible domestic corporations that allows profits and losses to be passed directly to the owners' personal income without being subject to corporate tax rates, avoiding double taxation.

Intermediate5-6 min
9

Taxable Event

A taxable event is any transaction or occurrence that results in a tax liability, requiring an individual or entity to pay taxes to a government authority. In real estate, these often involve the sale of property, depreciation recapture, or certain refinancing scenarios.

Intermediate3 min
10

Accession to Wealth Doctrine

The Accession to Wealth Doctrine is a fundamental tax principle asserting that all undeniable accessions to wealth, clearly realized, over which taxpayers have complete dominion, are taxable as gross income, regardless of their source or form.

Advanced8 min
11

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
12

Depreciation Cliff

The Depreciation Cliff describes the abrupt reduction in depreciation tax deductions for real estate investors, typically after accelerated or bonus depreciation periods conclude, leading to a sudden increase in taxable income.

Intermediate1-2 min
13

Adjusted Basis (S-Corp Shareholder)

Adjusted basis for an S-Corp shareholder represents their investment in the company's stock and debt, crucial for determining the taxability of distributions, deductibility of losses, and gain or loss on sale of stock.

Advanced8-9 min
14

Debt Financing in Real Estate

Debt financing in real estate involves borrowing money from a lender to acquire, develop, or refinance properties, using the property itself as collateral. It allows investors to leverage capital, amplify returns, and scale their portfolios.

Intermediate5 min
15

Refinance

Refinancing in real estate involves replacing an existing mortgage with a new one, typically to secure more favorable terms, lower interest rates, or access accumulated equity.

Intermediate5 min

Common Questions