REE-4313 Lecture Notes - Lecture 6: Passive Income, Earnings Before Interest And Taxes, Discount Points

• School: FSU
• Department: Risk Management/Insurance, Real Estate and Legal Studies
• Course: REE-4313
• Professor: Dean H Gatzlaff

Document Summary

Interest incurred in producing income: passive income, + ta(cid:454)a(cid:271)le i(cid:374)(cid:272)o(cid:373)e f(cid:396)o(cid:373) (cid:271)usi(cid:374)ess i(cid:374) (cid:449)hi(cid:272)h (cid:374)o (cid:862)(cid:373)ate(cid:396)ial pa(cid:396)ti(cid:272)ipatio(cid:374)(cid:863, + any rental income, = net passive income, ordinary, capital gain, and/or recapture rates. Real estate held as personal residence: possible deductions for taxable income, mortgage interest, discount points at origination fully deductible, discount points on refinancing amortized of life of loan, property tax, capital gains exclusion. Passive activity loss restrictions: taxable income & losses on all passive activities are first netted. In general, to use losses from one passive investment, taxpayer needs other passive activities that are producing positive taxable income: pals (passive activity losses) need pigs (positive income generated) Exemptions to pal limitations: exemption for small individual investors, re(cid:395)ui(cid:396)es i(cid:374)(cid:448)esto(cid:396) to (cid:271)e (cid:862)a(cid:272)ti(cid:448)e pa(cid:396)ti(cid:272)ipa(cid:374)t(cid:863) If ta(cid:454)pa(cid:455)e(cid:396)"s p(cid:396)i(cid:373)a(cid:396)(cid:455) (cid:271)usi(cid:374)ess is (cid:862)(cid:396)eal estate(cid:863) (cid:894)at least 750 hou(cid:396)s pe(cid:396) (cid:455)ea(cid:396)(cid:895: net tax losses from re rental activities may be used to offset income from re services, corporations not subject to pal restrictions.