bus 160 exam 3 prep (snyder)
itemized deduction
expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable donation, casualty losses, work related expenses
A lease is mainly designed to protect the rights of the landlord (T/F)
false
a general sales tax is also referred to as an excise tax
false
an electric bill is commonly considered a fixed living expense (T/F)
false
conventional mortgage usually have a rate that changes as market interest rates change (T/F)
false
cooperative housing involves the purchase of an individual living unit a multiunit complex or building(T/F)
false
enrolled agents are IRS authors who visit people's homes to verity deducitons
false
most mortgage rates are established by government agencies(T/F)
false
most people mail the full amount owed in federal income tax each april
false
saving money for a down payment to buy a house is usually a short term goal (T/F)
false
several financial benefits are associated with renting your place of residence (T/F)
false
tax deduction directly reduces the amount of taxed owed
false
taxable income refers to the amount deducted from a person's pay
false
closing costs
fees & charges paid when a real estate transaction is complete; also called settlement costs
disadvantages of renting
few financial benefits, restricted lifestyle, legal concerns
disadvantages of owning a home
financial uncertainty, limited mobility, high living cost
cooperative housing
form of housing where a building containing a number of housing units is owned by a nonprofit organization whose members rent the units
adjusted gross income (AGI)
gross income reduced by certain adjustments, contributions to the (IRA) & alimony payments
Balloon mortgage
has a very large final payment
what services are available to home buyers from real estate agents?
help assess housing needs, determine the amount a person can afford to spend, have info on available homes & obtaining a mortgage
passive income
income resulting from business activities in which you do not actively participate
tax-exempt income
income that is not subject to tax
tax-deffered income
income that will be taxed at a later date
what factors affect a person's ability to qualify for a mortgage?
income, other debts, amount available for down payment, length of loan, current mortgage rates
condominium
individually owned housing unit in a building w several such units
excise tax
tax imposed on goods & services like gas, cigs, alcoholic drinks, tires, air travel
main sources of money for a down payment
personal savings, pension plan funds, investments, assistance from relatives
points
prepaid interest charged by the lender
financial benefits
a common advantage associated with home ownership
how can the quality of a school system benefit even homeowners who dont have school aged kids?
a high quality school system will stabilize & increase property values
adjustable-rate mortgage
a home loan with an interest rate that can change during the mortgage term due to changes in the market interest rates
guidelines to determine the amount that individuals should spend for a home purchase?
a person should make payments on the purchase of a home that involve 25 to 30 percent of his or her income, could be affected by amount available for a down payment/other house expenses
inheritance tax
a tax levied on the value of property left by a deceased person
estate tax
a tax on the value of a person's property at the time of death
Second Mortgage
allows a person to borrow on the paid-up value of a home
exclusion
amount not included in gross income
tax credit
amount subtracted directly from amount of taxed owed
tax deduction
amount subtracted from adjusted gross income to arrive at taxable income
how do changing interest rates affect amount of mortgages a person can afford?
as interest rates decline, home buyers can afford to take on a larger mortgage
how do closing costs affect a person's ability to afford a home purchase?
closing costs can add several thousand $ to price of home, homebuyer must have funds available
mortgage interst
deductible as an itemized deduction
tax audit
detailed examination of tax return by the IRS
deed
document that transfers ownership of property from one party to another
appraisal
estimate of the current value of a property
IRA contributions
example of an adjustment to income
interest from municipal bonds
example of tax-exempt income
title insurance
insurance during mortgage term that protects owner or lender against financial loss resulting form future defects in the title & from other unforeseen property claims not excluded by policy
tax shelter
investment that provides immediate tax benefits & a reasonable expectation of a future financial return
lease
legal document that defines the conditions of a rental agreement
what factors affect the selling price of a house?
location, size, condition, features, current market demand
mortgage
long-term loan on a specific piece of property such as a home or real estate
some opportunity costs associated with the selection of housing
lost interest on a down payment, security deposit & travel time to work when living in the country
buyer's market
lots of homes available with low demand
what actions are recommended when planning to sell your home
make repairs, new paint, clear our areas, remove unnecessary things
Main benefits of renting
mobility, fewer responsibilities, lower initial costs
earned income
money received for personal effort, ex: wages, salary, commission, fees, tips, bonuses
investment income
money received in form of dividends, interest, rent from investments: portfolio income
escrow account
money usually deposited w the lending financial institution for the payment of property taxes & homeowners insurance
35%
most lending institutions believe that a person can afford a monthly payment of about _______ of gross income less any long-term debt
loctation
most real estate professionals believe that the most important factor in selecting a home is
taxable income
net amount of income after allowable deductions which income tax in computed
seller's market
not alot of homes available with high demand
what should you consider when deciding to sell your home on your own or to use a real estate agent?
on your own, you will have to price, advertise & show the house, this saves money, if you want someone else to handle then use a REA
advantages of owning a home
pride of ownership, financial benefits, lifestyle flexibility
capital gains
profits from the sale of a capital asset such as stocks, bonds, real estate
marginal tax rate
rate used to calculate tax on last dollar of taxable income
exemption
reduction from adjusted gross income
amortization
reduction of a loan balance through payments made over a period of time
most negotiable components of a lease
rent, amount of security deposit, start date of lease, decorating
zoning laws
restrictions on how the property in an area can be used
paying points
result in obtaining a lower mortgage rate
standard deduction
set amount which no taxes are paid
applicant's credit rating
the major factor that affects a person's qualifications for a mortgage is
how do DISCOUNT POINTS affect mortgage?
they increase initial cost of mortgage
average tax rate
total tax due divided by taxable income
financial risks are associated with the purchase of a home(T/F)
true
tax evasion
use of illegal actions to reduce one's taxes
tax avoidance
use of legitimate methods to reduce one's taxes
field audit
when an IRA agent visits your home to verify tax records
under what conditions might an adjustable rate mortgage be appropriate
when interest rates are high & they are expected to decline. benefits the borrower as rates decline, or homeowner may refinance when rates drop low
when is refinancing a mortgage advisable?
when interest rates decline & a homeowner plans to stay in the same house long enough for the savings from lower mortgage payments to recover the cost of refinancing