questions your clients might have.-You should point your

Section 22: Tax Aspects of Property Ownership in Delaware

Flashcards Ownership Life Cycle: Acquisition Stage-Points deduction-Tax credits-Penalty-free early IRA

distribution options for first time home buyersNote: Closing

costs aren't deductible Capital lossWhen an asset is sold at a loss. Capital losses can be used to offset capital gains, and net capital losses may be deducted from taxable income.Income Tax Issues and the Role of the Licensee Responsibilities of a licensee:-You should know what income tax options exist so that you can answer any basic questions your clients might have.-You should point your clients to a tax professional for specific advice.-You should know how and when taxes and real estate interact.1031 Tax ExchangeThese are used when investors are selling one property and immediately purchasing another investment property with the profits from the sale.Home acquisition financingInterest can be deducted from a mortgage used to buy, build, or improve a main home or even a second home, with the loan amount secured by the property itself.The loan must only be for the purchase and improvement of the property. Married homeowners who file jointly may deduct interest on up to $750,000 in debt, whereas married homeowners who file separately may deduct interest on up to $375,000 in debt.Assessor parcel numberNumber assigned to each plot of land by a county tax assessor Capital gainthe difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller Long-term capital gains-Before 2013, the highest rate paid on long-term capital gains was 15%. As of 2013, depending on income levels, taxpayers pay either 15% or 20%.-Taxpayers who fall in the 39.6% income tax bracket for ordinary income may be taxed at a rate of 20% for long-term capital gains.-In addition, another 3.8% may apply to net investment income for those in the highest tax bracket, making an effective long-term capital gains tax rate of 23.8%.Adjusted BasisThe adjusted basis is equal to the original cost plus improvements and related expenses minus depreciation deductions and depletion. The IRS has strict rules about what can and can't be added to the basis, but fortunately those specifics are beyond the scope of this course.Example.Using the same example of property, let's

assume we added $118,000 in capital improvements (perhaps some new equipment and a new roof).$900,000 (the original basis) + $118,000 equals $1,018,000 (adjusted basis).$1,800,000 (sales price) - $1,018,000 (adjusted basis) equals $782,000 (capital gain).The income tax deductions homeowners are permitted to take on a primary residence while they own the home include mortgage interest and property taxes.The capital gains exclusion for couples filing jointly who have lived in their primary residence at least two of the five

years immediately preceding the sale of the home is up to $500,000. What is the capital gains exclusion for single taxpayers?

$250,000

How Much Is the Transfer Tax?Transfer tax rates vary by locality. The rate is usually expressed as either a percentage of the total sale price, or a dollar amount per $1,000 of the sale price (or $500, or even $100, in some states).The transfer tax in Delaware was increased from 3% to 4% of a property's total sale price, and the new rate went into effect for contracts signed after August 1, 2017. No state exemptions apply. However, each county offers exemption for first-time homebuyers on the county portion of the transfer tax.Which of the following describes property taxes? Taxes that are raised and spent locally to finance public services. Property taxes are locally imposed and benefit local improvements and infrastructure.Buying a Home and the Income Tax Implications Buying a primary residence comes with income tax implications, such as points, closing costs, and income tax deductions.Tax RateDetermined by the budgetary needs of local government, and used, along with the assessed value, to calculate the amount of real property tax Property TaxesProperty taxes pay for services like the fire department, police, schools, state aid and roadways-basically everything that keeps a town running. On top of that, assessed values , which are used to determine property tax rates, are also used to calculate state aid for education, which is the second largest revenue source for schools.Ed is a licensee who's always eager to help his clients in any way he can. One of his current clients has received an offer that will give her a tidy profit on her home. She tells Ed she's worried about her tax liability when the home sells. What can Ed tell her that will be most helpful?"I believe you'll be allowed to exclude some of that profit from your taxable income, but you should definitely consult with a tax professional to find out the best way to handle it." Home equity loanHomeowners can deduct interest on funds used to improve the home securing the loan.A property tax deduction applies to any type of real property you own, including your personal residence, a vacation home, investment property, vacant land, time share, etc. Property taxes are subject to the combined limit of $10,000 for all state and local taxes (income, property tax, sales tax). Homeowners can itemize this deduction on Schedule A for a primary residence and on Schedule E for a rental property.Kent CountyHas an average effective property tax rate of 0.48%

Reversion (Sale)To calculate adjusted basis:Basis (purchase price + closing

costs) + Improvement costs made during ownership - Accrued depreciation = Adjusted BasisTo calculate a gain

or loss when selling an investment property:Net Sales

Proceeds - Adjusted Basis = Capital Gain/Loss3.8% Net Investment Income Tax Income Thresholds