Taxes Cheat Sheet

Taxes will more than likely be one of the worst & most painful expenditures of your life. The below terms will help you understand some of the more common words used in tax-related endeavors.

Taxes Terminology:

Abatement
Forgiveness of a debt completely or partially
Acquisition Indebtedness
Technical term that Congress uses for what most of us call home mortgage debt, on which the interest is deductible. To qualify, the debt must be used to buy, build or improve your principal residence or second home and must be secured by the property. The interest paid on up to $1 million of acquisition indebtedness is deductible if you itemize deductions
Active Participation
The level of involvement that real estate owners must meet to qualify to deduct up to $25,000 of passive losses from rental real estate. Failure to pass this test could make such losses nondeductible under passive-loss rules
Ad Valorem Tax
A tax based on the value of real estate or personal property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT); cities, countries and school districts acquire much of their revenue from ad valorem taxes on property; millage is the general term used for this tax
Back Taxes
Unpaid property taxes that can become a lien on a piece of property; if they are not paid within an agreed upon time frame, the property in question may be sold by the tax appraiser to satisfy the debt
Capital Gain
The profit from the sale of such property as stocks, mutual-fund shares and real estate. Gains from the sale of assets owned for 12 months or less are "short-term capital gains" and are taxed in your top tax bracket, just like salary. For most assets owned more than 12 months, profits are considered "long-term capital gains" and are taxed at 0, 15, or 20 percent. Taxpayers who otherwise fall in the 10 percent or 15 percent bracket get an even better deal. Their rate on long-term gains is 0% percent for 2008 through 2014.
Circuit Breaker
Any property tax relief that limits or reduces property taxes for certain individuals
Comparable Sales Method
Using sales of similar properties to guess approximately the market value of a piece of property
Effective Tax Rate
The millage payment compared with the market value of the property; offers a comparison of the tax burden for properties in various jurisdictions that utilize different assessment ratios
Equalization Rate
A ratio of total assessed value for properties in a community to those property’s true market values. This number represents the state or localities judgment of how closely assessed values match the market value.
Federal Tax Lien
A debt attached by the government to a property for unpaid federal income taxes; lets the IRS to secure or requisition the property for payment
Homestead Deduction
An assessment reduction given to homeowners who use their homes as their primary residence
Special Assessments
Non ad valorem taxes; fees levied according to the value of a property; most condominiums levy "special assessments" when the property has endured large amounts of damage and there is not enough money in reserves to cover the cost; also one-time taxes levied on a property to pay for some public improvement that benefits the property
Tangible Personal Property
Property other than real estate that can be held and touched. For example: a car or office furniture. Some states and cities tax the value of tangible personal property
Tax
A government charge levied on people or property
EX: sales tax, income tax, property tax, county tax, school tax
Tax Lien
A lien attached against a property for failure to pay taxes; can be levied for failing to pay the following taxes: estate, county, city, payroll, school, or sales

2015 Consumer Reviews




Other Home Buying Cheat Sheets: