Tax Deduction

Case: Which of the following is generally income tax deductible in home ownership?

Points paid to obtain the load
Down payment on the property
Major home improvements
Maintenance on the property

Case: Which of the following could be deducted as expenses from annual income taxes on an reinvestment property?

Painting a structure
Making additional principal payments
Replacing a roof
Installing a new furnace

Case: When projecting property values for tax purposes, the investor should explore all the following of depreciation

Physical Depreciation
Functional Depreciation
External Depreciation

Case: To qualify as a tax-deferred exchange, a property must be

Held for productive use in trade of business
A principle residence

Tax Deferred Exchanges under section 1031 of the IRS code:“ To encourage investment in investment real estate, investors are permitted to exchange or trade their property for other U.S. investment property and may be able to do so without having a current taxable event. The general rules are:
-> Must be U.S. Property
-> Must be like kind property (real estate exchanged for real estate)
-> Must trade equal or up in value
-> Must trade equal or up in debt on property
If any of these rules are broken the exchange treatment may be lost. Remember that the purpose of the tax deferred exchange is to delay the payment of taxes on the capital gain to some point into the future when the actual cost of the taxes may be lower as a result of inflation. If future dollars will buy less as a result of inflation, those dollars are worth less. If the deferred taxes are paid with depreciated dollars the effective tax is less.