ch 14 gottlieb

A set of flashcards covering key vocabulary and concepts related to the tax consequences of home ownership.

Principal Residence

A dwelling unit that qualifies for tax benefits based on personal use.

Taxable Gain

The profit from the sale of a residence that may be subject to taxes.

Home Mortgage Interest Deduction

A tax deduction for interest paid on a mortgage used to acquire, construct, or substantially improve a primary residence.

Real Property Taxes

Taxes paid on real estate that can be deducted from taxable income.

Rental Days

Days when property is rented at fair market value and used for rental income.

Personal-Use Days

Days when the owner or relatives use the home without rental income.

Nonresidence

Property primarily used for rental purposes, not as a personal home.

Exclusion of Gain

A tax provision that allows certain gains from the sale of a primary residence to be excluded from taxable income.

Ownership Test

The requirement that a taxpayer must own the property for at least two years within a five-year period to qualify for capital gain exclusion.

Use Test

The requirement that the property must have been used as a principal residence for at least two of the past five years.

Points

Upfront fees paid to reduce the interest rate on a mortgage, which can be tax deductible under specific conditions.

Passive Activity Loss

Losses from rental activities that can only offset passive income.

Short-Term Capital Gain

Profit from the sale of an asset held for one year or less and taxed at ordinary income rates.

Tier 1 Expenses

Fully deductible rental expenses incurred to acquire tenants.

Tier 2 Expenses

Expenses deductible up to the amount of rental income after accounting for Tier 1 deductions.

Passive Activity Loss Limitation

Limits on the deduction of passive losses against other sources of income for taxpayers.

Home Office Deduction

A tax deduction for self-employed individuals who use part of their home for business purposes.

Simplified Method

A method for calculating the home office deduction based on square footage.

Actual Expense Method

A method allowing itemized deduction of actual expenses incurred for business use of a home.

Real Estate Taxes Deduction Limit

Capped amount for itemized deductions for state and local taxes, including real property taxes.

Nonqualified Use Limitation

Reduction of gain eligible for exclusion due to periods when the home was not the taxpayer's principal residence.