Lesson 20 – Ch 15 Vocabulary Quiz

Any economic benefit realized by a taxpayer that is not excluded from income by the tax code.

An expense that can be used to reduce taxable income

A taxpayer’s investment in her property for income tax purposes

The original acquisition cost of a property, how much it cost to acquire the property. also called the cost basis or the unadjusted basis

A gain or a loss is realized when it is separated from the asset. This separation generally occurs when the asset is sold

A gain is said to be recognized when it is taxable. It it recognized in the year it is realized, unless recognition is deferred by the tax code.

A sale in which less than 100% of the sales price is received in the year of the sale

The tax rate that applies to the last dollar that a taxpayer earns

When a property is converted to cash without the voluntary action of the owner, as when a property is destroyed and the owner receives insurance proceeds

Deductions from the taxpayer’s income to allow the cost of an asset to be recovered. These are allowed only for depreciable property that is held for the production of income or used in a trade or business. Also called cost recovery deductions

Money spend on repairs to keep property in ordinary, efficient operating condition

Money spend on improvements to property, which add to it’s value or prolong its economic life

When like-kind property is exchanged, allowing taxation of the gain to be deferred. Also called a Section 1031 Exchange

In a tax-free exchange, property received that is one of the same kind as the property transferred. Any two pieces of real estate are considered to be of like kind

Something given or received in a tax-free exchange that is not like-kind property, such as cash