ch 2 unit 9

Carol sold her investment property for $450,000 and had $21,000 in closing costs. The property had a beginning basis of $312,000, capital improvements of $34,000, and depreciation of $80,000. What was Carol's capital gain?

163,000

Mid-month convention

A cost recovery convention that assumes that property is placed in service in the middle of the month that it is actually placed in service.

What is the difference between a realized and an unrealized capital gain?

A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold.

What are the capital gains exclusions associated with the sale of a personal residence and how often can the exclusion be used?

A single seller can exclude up to $250,000 of gain and a couple can exclude up to $500,000. The exclusion can be used once every two years.

What is grandfathered debt?

Debt on mortgages taken out on or before October 13, 1987.

home equity debt

Debt secured by a personal residence to the extent the debt does not exceed the owner's equity in the residence

Home Equity Financing

Greg bought a home for cash 8 years ago. He did not have a mortgage on his home until a year ago when he took out a $15,000 loan, secured by his home, to pay for some unexpected medical bills. This loan is home equity debt.

Home Equity Debt Limit Example

Greta owns a home she purchased in 2001. It has an FMV of $110,000 and her current balance on the original mortgage (home acquisition debt) is $95,000. Heritage Bank offers Greta a home mortgage loan of 125 percent of the FMV of the home, less any outstanding mortgages or other liens. That equates to $42,500. $110,000 x 125% = $137,500 - $95,000 = $42,500 Greta takes out the loan with Heritage Bank. Her home equity debt is limited to $15,000. This is the smaller of: The $100,000 maximum limit. The amount that the FMV of $110,000 exceeds the $95,000 home acquisition debt.

Tom sells an apartment building that he's owned for 10 years. What will his gain be?

Initial Basis $600,000Improvements + 300,000Depreciation (10 years @ $15,000/yr) - 150,000Adjusted Basis $750,000Sale Price $1,250,000Sales Expense - 75,000Amount Realized $1,175,000Amount Realized $1,175,000Adjusted Basis -750,000Gain $425,000 Tom will owe capital gains tax on $425,000.

What is the definition of a like-kind exchange?

One property can be exchanged for another property regardless of the property type, as long as it is held as an investment or for use in a trade or business.

Computing Depreciation

Straight-line depreciation D = (Initial cost - salvage) / number of years Straight Line Salvage Value MACRS Depreciate 0 Recovery Period = Class Life 1/2 Year Convention Multiply percentage in table by the initial cost

Simultaneous Exchange -

The exchange of the relinquished property for the replacement property occurs at the same time.

Active income

This is income for which the taxpayer performs services. Examples are wages, salaries, tips, bonuses, and business and partnership income in which the taxpayer actively participates in the business or partnership.

Passive activity income

This is income from rental activity, limited business interests (such as a real estate limited partnership), or other activities in which the investor does not materially participate.

The Low-Income Housing Credit Program (LIHC)

was established under the Tax Reform Act of 1986 to promote private sector involvement in the retention and production of rental housing that is reserved for low-income households. The LIHC program provides a dollar-for-dollar reduction in federal income tax liability for project owners who develop rental housing that serves low-income households with incomes up to 60% of area median income. The amount of LIHC available to project owners is directly related to the number of low-income housing units that they provide. The LIHC is available to the project owners only for units that are occupied by low-income households. A low-income household is defined as one having an income of 60 percent or less of the area median adjusted for household size.

Sam purchased an apartment building in April of 2017. His initial basis on the building is $395,250. What is his monthly depreciation allowance?

$1,197.73

The total home equity debt on a main and second home is limited by the smaller of these:

$100,000 ($50,000 if married filing separately) The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. The homeowner must determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home.

Matt sold his house for $2,200,000 and had $195,000 in closing costs. His beginning basis was $1,955,000 and he spent $5,000 on capital improvements. What is Matt's capital gain for tax purposes? (assume he doesn't qualify for an exclusion)

45,000

Modified Accelerated Cost Recovery System (MACRS)

A depreciation method that is used for tax purposes.

Home Improvement Loans

A homeowner can fully deduct in the year paid any points paid on a loan to improve the main home if tests 1 through 6 on the previous page are met.

What is the IRS rule about deducting prepayment penalties?

A homeowner may deduct the penalty as home mortgage interest provided the penalty is not for a specific service performed or a cost incurred in connection with the mortgage loan.

What is the definition of a low-income household?

A low-income household is defined as one having an income of 60 percent or less of the area median adjusted for household size.

home acquisition debt

A mortgage a taxpayer takes out to buy, build, or substantially improve a qualified home.

Mortgage Interest

A mortgage interest deduction is allowed on a qualified home - defined as the main or second home. That home may be a house, condominium, cooperative, mobile home, house trailer, or boat that has sleeping, cooking and toilet facilities. The homeowner can usually deduct all of the mortgage interest as long as he or she itemizes the deductions and is legally liable for the loan. A person cannot deduct interest on payment he or she makes on someone else's loan. Interest paid on a mortgage that is not the primary or second home may be deductible if the loan proceeds are for business, investment or other deductible uses. If not, the interest would be considered personal and cannot be deducted.

What kinds of mortgage loans are eligible for interest tax deductions?

A mortgage to buy a home A second mortgage A line of credit A home equity loan

Reverse Exchange

A situation where the replacement property is acquired prior to transferring the relinquished property. The IRS has offered a safe harbor for reverse exchanges. A "safe harbor" reverse introduces an Exchange Accommodation Titleholder (EAT) to the process. An EAT is a single member limited liability company established by a Qualified Intermediary for use specifically in a reverse exchange. The EAT takes title to, or parks, a property for the taxpayer and holds it until the taxpayer is able to sell the old property. There is also a time restraint on the taxpayer for a reverse exchange. The EAT must convey the title on or before 180 days from the date of the EAT's purchase. When the EAT parks the new property, the taxpayer is required to identify the old property on or before 45 days from the EAT's purchase.

What is the difference between active income and passive activity income?

Active income is income for which the taxpayer performs services. Passive activity income is income from rental activity, limited business interests or other activities in which the investor does not materially participate.

Calculating the Depreciable Basis

Again using Jim's apartment building as an example: Initial basis was $551,850 Calculated depreciation was $70, 235.34 (rounded to $70,235) $551,850 - $70, 235 = $481, 615 - new basis Jim sold the property for $970,500. $970,500 - $481,615 = $488,885 - taxable gain

Define the terms amount realized, basis and adjusted basis.

Amount realized - The sale price of the property minus the costs of the sale. Basis - A measurement of how much is invested in the property for tax purposes. Adjusted basis - The initial or beginning basis, plus capital improvement, minus exclusions, credits or other amounts received.

Capital Loss

An individual has a capital loss if he or she sells an asset for less than the purchase price. Capital losses can reduce capital gains. A taxpayer can deduct the net capital loss from taxable income in an amount up to $3,000 annually. Any loss above that amount can be carried forward to deduct in future years. Note: A capital loss can never be claimed on a personal residence, only on income-producing property.

boot

Any cash or relief one party receives in addition to the actual property is called. The person who receives the boot has a net gain and must pay taxes on it. In a situation like this, the exchange is not fully tax-deferred, only partially so. Exchanges are particularly popular among investors who own apartment buildings and commercial real estate. Many of these owners are already in high income tax brackets, so exchanging gives them the opportunity to acquire more valuable property without the high tax consequences. They can keep their money invested in real estate holdings by "rolling over" the properties - which mimics selling and buying at the same time.

What is the IRS rule about deducting the full amount of points in the year they are paid?

As a general rule, a homeowner cannot deduct the full amount of points in the year they are paid. Because they are prepaid interest, the borrower will usually deduct them equally over the life of the mortgage. However if the homeowner meets a set of nine tests the IRS has set out, the full amount of the points may be deducted in the year paid.

The basic formula for adjusted basis is:

Beginning basis + Capital improvements - Exclusions, credits or other amounts received Adjusted basis Example Looking again at the example from the previous page, Larry and Mary originally paid $100,000 for their home. They spent an additional $5,000 on a new central heating and cooling unit. Their adjusted basis at the time of selling it is therefore $105,000. $100,000 + 5,000 $105,000

List three kinds of property eligible for like-kind exchange.

Commercial property Industrial property Leaseholds greater than 30 years

What tax deduction can an owner of an income-producing property take that the owner of a personal residence cannot take?

Depreciation

Tax Rate On Depreciation

During the time that a property owner holds an investment property, he or she can take a tax deduction known as depreciation, which we will discuss in detail later in this chapter. When the owner sells the property, the basis of the property is reduced by the amount of depreciation that was taken. We illustrated this in Jim's example on the previous page, where we subtracted the $70,000 in depreciation from Jim's beginning basis. If the sale price is larger than amount of depreciation that has been taken, the difference will be reported as either ordinary income or capital gain. The depreciation portion of the gain is taxed as capital gain. This process is called recaptured depreciation. All property sold after May 7, 1997 is recaptured at a 25 percent rate. In Jim's case, $70,000 of his $463,650 gain will be "recaptured" at 25 percent. The remaining $393, 650 will be taxed at the 15 percent maximum capital gains tax rate.

The gain on sale of a primary residence is represented by the basic formula:

Example Let's look at Larry and Mary's situation again. Selling price of old home $175,000 - Selling costs 17,500 Amount realized $157,500 Beginning basis of old home$100,000+ Capital improvements 5,000 Adjusted basis of old home $105,000 Amount realized $157,500 - Adjusted basis 105,000 Gain on sale $ 52,500 In the case of Larry and Mary, their capital gain was $52,500. They will owe tax on this amount in the year they sell their home, unless they qualify for the exclusion we'll be describing shortly.

Home Sales

For "married-filing-jointly" taxpayers, the law exempts the first $500,000 gained from the sale of a primary residence. Single persons can exclude up to $250,000 in gains from taxation. We'll discuss this in more detail later in this chapter.

What do we call debt on mortgages taken out prior to October 13, 1987?

Grandfathered debts

What is home acquisition debt?

Home acquisition debt or financing is a mortgage that was taken out after October 13, 1987 to buy, build or substantially improve a qualified home - defined as a main or second home.

Construction Financing

Homeowners can typically deduct the interest on construction financing. The home under construction can be treated as a qualified home for a period of up to 24 months, but only if it becomes the qualified home at the time it is ready to be occupied. The 24-month period can start anytime on or after the day construction commences.

Line-of-Credit Mortgage on Grandfathered Debt

If a homeowner had a line-of-credit mortgage on October 13, 1987 and he or she borrowed additional funds against it after that date, the additional funds are either home acquisition debt or home equity debt depending on how the homeowner used the proceeds. The balance on the credit line before the additional amounts were borrowed is still grandfathered debt.

Refinanced Grandfathered Debt

If a homeowner refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then it is still treated as grandfathered debt. To the extent that the new debt is more than that mortgage principle, it is treated as home acquisition debt or home equity debt, depending on how the homeowner uses the proceeds.

What is boot and is it taxable?

In a like-kind exchange, any cash or relief one party receives in addition to the actual property is called boot. The person who receives the boot has a net gain and must pay taxes on it.

Refinancing

In most cases, points paid to refinance a mortgage are not deductible in full in the year they were paid - even if the new mortgage is secured by the main home. However, if the homeowner uses part of the refinanced proceeds to improve the main home AND he or she meets tests 1 through 6 on the previous page, the homeowner can fully deduct the part of the points related to the improvement in the year he or she paid them. The homeowner can take this deduction, as long as the points were paid with his or her own private funds and not from the proceeds of the new loan. The rest of the points are deducted over the life of the loan.

Formula for Calculating Net Income

Income - Expenses = Net income

Dan and Gail purchased a home 15 years ago for $200,000. They have done some recent remodeling that cost another $50,000. They sold their home for $350,000 and paid $25,000 in selling expenses. What is their gain and on what part of that will they owe taxes?

Initial Basis Improvements Adjusted Basis Sale Price Sales Expenses Amount Realized Amount Realized Adjusted Basis Gain (before exclusion) $200,000 + 50,000 $250,000 $350,000 - 25,000 $325,000 $325,000 - $250,000 $75,000 Since Dan and Gail are allowed an exclusion of $500,000, they will not owe any taxes on their gain.

Alan and Amanda purchased a home 20 years ago for $100,000. They have done some recent remodeling that cost another $150,000. They sold their home for $950,000. What is their gain?

Initial Basis$100,000Improvements+ $150,000Adjusted Basis $250,000Sale Price $950,000Sales Expenses - 6,500Amount Realized $943,500Amount Realized $943,500Adjusted Basis - 250,000Gain (before exclusion) $693,500Gain (before exclusion) $693,500Exclusion - 500,000Gain (after exclusion) $193,500 Alan and Amanda will have to pay capital gains tax on $193,500.

Jim sold his property on December 2, 2006 for $970, 500. Over the period of time he held the property, he made $50,000 in capital improvements and he was able to take $70,000 in depreciation. (We'll discuss depreciation in detail a bit later in this chapter.) Note that, as we determined on the previous page, Jim's beginning (initial) basis was $551,850.

Jim's gain on the sale is $413,650. Here's how we determine the gain: (Amount realized from sale - Adjusted basis) = Capital Gain; where Amount realized from sale = (sale price - selling costs); and Adjusted basis = (beginning basis + improvements - depreciation) In columnar format, the formulas look like this: Beginning basis + Capital improvements - Depreciation = Adjusted basis Sale price - Selling costs = Amount realized Amount realized - Adjusted basis = Capital gain Beginning basis + Capital improvements - Depreciation = Adjusted basis Sale price - Selling costs = Amount realized Amount realized - Adjusted basis = Capital gain $551,850 + 50,000 - 70,000 $531,850 $970,500 - 25,000 $945,500 $945,500 - 531,850 $413,650

On June 20, 2003, Jim purchased an apartment building on the following terms: $100,000 in cash at closing, with Jim taking the title subject to an existing mortgage note, which had a remaining balance of $400,000. Jim also signed a note and second mortgage for $50,000. Jim paid $5000 into a property tax and insurance escrow account, and paid $300 for the seller's prepaid water bill, $800 for heating oil that remained in the building's tanks, and $50 for document recording. He also paid $1500 for legal representation, $300 for an owner's title insurance policy, $475 for a lender's title insurance policy and $180 for a credit report.

Jim's initial tax basis is $551,850. Here's how we determined it: Purchase price: $550,000 Cash down payment$100,000 Second mortgage note$50,000 First mortgage note$400,000$550,000Attorney fee $1,500Owners title policy $300Recording fee $50Initial basis $551,850

Section 1031 exchanges.

Like-kind exchanges are sometimes wrongly called "tax-free" exchanges. They are not tax free; they are tax deferred. The legislation that deals with like-kind exchanges is contained in Section 1031 of the IRS code. To qualify as a like-kind exchange, the property being transferred must have been held for productive use in a trade or business or held as an investment and must be exchanged for property that will also be used in a trade or business or be held as an investment. Qualifying properties can fall into either of these categories. In other words, a property that is used in a trade or business may be exchanged for an investment property and vice versa.

grandfathered debt.

Mortgages taken out on or before October 13, 1987.

Points

Points (Loan Discount Points) are fees paid to increase the yield on a mortgage. They are customarily paid by the buyer or seller to obtain a lower interest rate. Points are a form of interest and are deductible under certain circumstances. Loan origination fees are not points but are fees charged by the lender to place the loan. Generally, fees are not deductible. Obtain accountant advice on this issue. The IRS says that as a general rule, a homeowner cannot deduct the full amount of points in the year they are paid. Because they are prepaid interest, the borrower will usually deduct them equally over the life of the mortgage. However under certain conditions, the full amount of the points may be deducted in the year paid.

Second Home

Points paid on a second home cannot be fully deducted in the year paid. They can only be deducted over the life of the loan

Eligible Property

Property that is eligible for like-kind exchange includes: Apartments and residential rentals Commercial property Industrial property Farms Leaseholds greater than 30 years Unimproved land (non-dealer held property) Hotels or motels

What did the Taxpayer Relief Act do with regard to capital gains?

Reduced the top rate on profits from 28% to 20% for assets held at least 18 months, retroactive to May 7, 1997. Taxpayers in the 15% bracket now pay 10% tax.

What is the class life for residential and non-residential buildings?

Residential is 27.5 years. Non-residential is 39 years.

Types of Capital Gains

Short-term capital gains are profits received from the sale of capital assets that were held for less than a year. These gains are taxed at the individual's marginal tax rate. Long-term capital gains are profits on capital assets held for longer than a year. These profits are taxed at the rate of 15 percent for individuals whose marginal rate is above 15 percent and at the rate of 5 percent for individuals in the 15 percent or lower bracket.

Property Taxes

State and local property taxes can be deducted as an expense against the owner's income; however the real estate taxes are only deductible in the year they are actually paid to the government. Taxes on non-income property are included as itemized deductions on Schedule A of the personal return. Deductions for investment property are taken on a special schedule for that purpose - Schedule E. Property taxes can be deducted for any or all of the following: Personal residence Second home Time-share property Vacant lot or land Income property Inherited property

What is straight-line depreciation?

Straight-line depreciation means that the depreciation is computed by dividing the building's cost by the number of years of its class life.

An Important Note About Depreciation

Tax depreciation is an accounting concept only - taken on paper. In reality the property that is being depreciated may actually appreciate in value. Appreciationrefers to the increase in value of an asset over time. When a property actually sells, the investor may have to pay tax on the real appreciation and the recapture of the artificial tax depreciation.

How does the IRS definition of a first-time home buyer differ from the standard definition?

Technically, the person doesn't have to be purchasing his or her very first home. The person qualifies under the tax rules as long as that person did not own a principal residence at any time during the two years prior to the acquisition date of the new home.

IRA Funds for Down Payment

The IRS definition of first-time home buyer is also a plus. The first-time home buyer may be an individual, the individual's spouse, or the child, grandchild or parent of the individual or spouse. Technically, the person doesn't have to be purchasing his or her very first home. The person qualifies under the tax rules as long as that person did not own a principal residence at any time during the two years prior to the acquisition date of the new home. The acquisition date is the date the title to the property transfers. In these instances, the penalty for early withdrawal is also waived, but the buyer may owe tax on the money depending on the type of IRA. The home buyer can use the IRA funds for costs including settlement, financing, or other closing costs. The buyer can even use that tax-free money for costs associated with building or re-building a home. Whatever money is withdrawn from the IRA must be used within 120 days of the withdrawal.

Retirement Savings

The act created a tax-free IRA (individual retirement account) alternative. The money put in is taxed, but the account's earnings become tax-free after five years and the person reaches age 59 1/2. The yearly limit to the amount that can put into a conventional IRA was increased, and penalty-free withdrawals are permitted for first-time home buyers or educational expenses.

Amount Realized

The amount realized, also known as net proceeds from sale, is expressed by the formula: sale price - costs of sale amount realized The sale price is the total amount the seller receives for the home. This includes money, notes, mortgages or other debts the buyer assumes as part of the sale. Costs of sale include brokerage commissions, relevant advertising, legal fees, seller-paid points and other closing costs. Example Larry and Mary sold their home for $175,000. Their selling costs, including the commission they paid Broker Betty and amounts paid to inspectors, a surveyor, and the title company, amounted to ten percent of the selling price, or $17,500. The amount they realized from the sale was therefore $157,500. $175,000 - 17, 500 $157,500

In a 1031 exchange, what is the period within which a person who has sold the relinquished property must receive the replacement property?

The exchange period

Which of the following would prevent the homeowner from deducting home mortgage interest?

The homeowner is not legally liable for the loan.

What are the two critical timelines that apply to 1031 exchanges?

The identification period, during which the party selling a property must identify other replacement properties that he or she proposes or wishes to buy. This period is scheduled as exactly 45 days from the day of selling the relinquished property. The exchange period, within which a person who has sold the relinquished property must receive the replacement property. This period ends at exactly 180 days after the date on which the person transfers the relinquished property or the due date for the person's tax return for the taxable year in which the transfer of the relinquished property took place.

Qualified intermediary (QI)

The person entrusted to coordinate a 1031 exchange; may not be involved in the transaction in any other way and can't have worked with the investor within the past two years. A Qualified Intermediary is responsible for performing the following activities in a 1031 Exchange: Acquiring the relinquished property from the taxpayer Transferring the relinquished property to the buyer Acquiring the replacement property from the seller Transferring the replacement property to the taxpayer

Second Home/Vacation Home

The special exclusion can work for a second or vacation home also under certain circumstances. If the taxpayer uses the second or vacation home as a primary residence for two of four years - for example he lives in the primary home and the second home every other year - at the end of the four years, both homes would technically be eligible for the exclusion. However, the exclusion can only be used every two years. So the taxpayer would have to sell one home as soon as it met the criteria and then wait two years to sell the other one.

Sale of a Primary Residence

The tax laws allow a special exclusion on capital gains for homeowners selling their own home. A seller can exclude up to $250,000 of any capital gain on the sale. If the sellers are a married couple, they can exclude up to $500,000 in gain. This exclusion can be used once every two years. Looking at our previous example of Larry and Mary's situation, since their gain was computed at $52, 500, they will not owe any tax on this profit. Even though federal law allows this exclusion every two years, the law states that the seller must have lived in the home for two out of the last five years to qualify for the exclusion. For example, if a client lived in a home for two years, rented it for two more, then sold it, the client would qualify for the $250,000 exclusion. However if the client lived in the home for only one year and then rented it for two more, the client would not qualify for the exclusion unless he or she moved back into the home for another year before selling it.

Home Acquisition Debt Limit

The total amount that can be treated as home acquisition debt at any time on the main and second home cannot be more than $1 million ($500,000 if married filing separately). This limit is reduced by the amount of any grandfathered debt, which we defined earlier as mortgages taken out on or prior to October 13, 1987. Again, any debt over the limit may qualify as home equity debt.

Portfolio income

This is income from such sources as dividends, interest, capital gains, and royalties.

The Identification Period

This is the critical period during which the party selling a property must identify other replacement properties that he or she proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days timeline must be followed and cannot be extended for any reason, even if the 45th day falls on a Saturday, Sunday or legal US holiday.

Delayed Exchange

This is the most common type of exchange. A delayed exchange occurs when there is a time gap between the transfer of the relinquished property and the acquisition of the replacement property. A delayed exchange is subject to strict time limits, which we discussed on the previous page

The Exchange Period

This is the period within which a person who has sold the relinquished property must receive the replacement property. This period ends at exactly 180 days after the date on which the person transfers the relinquished property or the due date for the person's tax return for the taxable year in which the transfer of the relinquished property took place, whichever situation is earlier. The 180 day timeline must also be adhered to under all circumstances and cannot be extended in any situation, even if the 180th day falls on a Saturday, Sunday or legal (US) holiday.

Alternate Minimum Tax

This tax on small businesses was eliminated, while eligibility for individuals was expanded.

Build-to-Suit (Improvement or Construction) Exchange

This technique allows the taxpayer to build on, or make improvements to, the replacement property, using the exchange proceeds.

Interest Deductions

Usually, home mortgage interest is any interest a homeowner pays on a loan secured by the home - either a main home or a second home. The loan may be any of the following: A mortgage to buy a home A second mortgage A line of credit A home equity loan As we said on an earlier page, a homeowner can deduct home mortgage if he or she meets all of the following conditions: The homeowner itemizes deductions on Schedule A of Form 1040 The homeowner is legally liable for the loan The homeowner has a true debtor-creditor relationship with the lender The mortgage is a secured debt on a qualified home

The Low-Income Housing Credit Program provides ______________ in federal income tax liability for project owners who develop rental housing that serves low-income households with incomes up to 60% of area median income.

a dollar-for-dollar tax credit

The party who receives boot in a tax- free exchange has

a net gain and must pay taxes on the difference.

capital gains tax

a tax levied on the returns that people earn from capital investments, like the profits from the sale of stocks or a home.Reduced the top rate on profits from 28% to 20% for assets held at least 18 months, retroactive to May 7, 1997. Taxpayers in the 15% bracket will pay 10% tax.

Tax depreciation

is a deduction that allows an investor to write off the cost of his or her investment in income-producing property.

Basis

is a measurement of how much is invested in the property for tax purposes. When a property is purchased, the beginning basis is the cost of acquiring the property. As we discussed on the previous page, the cost includes cash and debt obligations, and such other settlement costs as legal and recording fees, abstract fees, surveys, charges for installing utilities, transfer taxes, title insurance, and any other amounts the buyer pays for the seller.

Capital gain

is the amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. For most investments sold at a profit, the individual will owe the IRS capital gains tax.

A/n ______________ is the financial result of an investment that has been sold at a profit.

realized capital gain

What is the formula to calculate straight-line depreciation on an income property?

the depreciation is computed by dividing the building's cost by the number of years of its life