Glossary of Terms

The 90-Percent Test is applied by taking the average of the percentage of qualified opportunity zone property held by the QOF (1) on the last day of the first six-month period of the taxable year of the QOF and (2) on the last day of the taxable year of the QOF.

Small, relatively permanent statistical subdivisions of a county or equivalent entity that are updated by local participants prior to each decennial census as part of the Census Bureau's Participant Statistical Areas Program.  The primary purpose of census tracts is to provide a stable set of geographic units for the presentation of statistical data.

A low-income community census tract has an individual poverty rate of at least 20% and median family income up to 80% percent of the area median [Section 45D(e)].

Short-term tenancy terms in which a tenant rents from a landlord month to month. Although increasing vacancy and turnover risk, month-to-month tenancy offers several advantages to landlords that include the chance to negotiate lease terms more often, providing the opportunity to raise rent, while also providing the ability to get rid of troublesome tenants. Often times long-term leases convert to month-to-month tenancies at the end of the original lease term, if another lease has not been signed. This type of tenancy is most commonly found in residential leases, but can include commercial leases as well.

Designed to increase the flow of capital to businesses and low-income communities by providing a modest tax incentive to private investors.

Step 1:  An investor with a recently realized capital gains elects to invest this gain into the Qualified Opportunity Fund (QOF), taking stock or a partnership interest in return.  By so doing, the investor gets to defer capital gain income.

Tangible personal property is everything other than real estate that is used in a business or rental property.

Tax basis, in the context of commercial real estate, is the original purchase price or cost of an investment property plus any out-of-pocket

A tax credit reduces the amount of taxes owed to the government. Tax credits shouldn’t be confused with tax deductions and exemptions, which reduce taxable income. Tax credits provide a dollar for dollar reduction in taxes owed, making them more favorable than deductions and exemptions.

Tax credits come in three types — nonrefundable, refundable, and partially refundable. Each type of credit will reduce your taxes. A nonrefundable credit can’t create a refund, while a refundable credit can create a refund. A partially refundable credit allows, in some cases, taking part of the credit as a refund.

A congressional revenue act originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA).  Public law no. 115-97 ("the Act") amended the Internal Revenue Code of 1986 based on tax reform advocated by congressional Republicans and the Trump administration.

Tax deductions help to reduce taxes owed at the end of the year for individuals and companies. Deductions can come in the form of expenses incurred throughout the year or as itemized deductions. If an individual adds up all of their eligible deductions for the year and they don’t equal the standard deduction, the person can elect to take the higher standard deduction.

Some examples of (itemized) deductions include healthcare, mortgage interest, property taxes, and home office and related job expenses. Up to $3,000 in losses on investments can also be used to reduce tax liability. Investment losses from the previous year can be carried forward into the current year for up to $3,000 in total investment losses.

Tax deferred is an instance where investment earnings such as interest, dividends, or capital gains accumulate tax-free until the payment of taxes related to the

A tax liability is the total amount of taxes owed by an individual taxpayer, corporation, or other organization. Payable to federal, state and local taxing authorities, tax liabilities are derived from income earned, capital gains on the sale of an asset, or other events that are considered taxable by the Internal Revenue Service (IRS).

Tax liabilities are not determined just from the income from a given year, and may include back taxes (taxes payable from a previous year), or other write offs that actually reduce taxable income, such as loss carryforwards. An individual’s tax liability, or tax rebate, is calculated using an IRS 1040 Form, while corporations use an IRS Form 1120.

A governmental claim on real property when a taxpayer fails to make property tax payments or has outstanding income taxes. While federal and state governments have the ability to assess liens over unpaid income taxes, local governments may assess liens over unpaid local income taxes and property taxes. Tax liens give taxing authorities priority over other creditors that may have claim to the property when liquidated.

In addition to affecting a taxpayer’s credit, a tax lien may affect the marketability of real property. While the lien is in-place, a taxpayer may not be able sell or refinance the property until the lien is satisfied. The two most basic ways to satisfy a tax lien is through the repayment of outstanding taxes or dismissal through bankruptcy court.

As laid out by the IRS, this policy allows an investor to use current realized losses to offset future taxable capital gains. Different from a NOL Carry Forward, this type of tax benefit can only offset gains made on the sale of assets, thus reducing your tax liability on this account in future years.

A document filed with the IRS that reports income, expenses, and other related tax information for an individual or entity. Tax returns allow taxpayers to calculate their taxable income and tax liability, while providing a medium to request tax refunds in situations that a taxpayer has overpaid. Typically, tax returns are filed annually.

Tax returns can be broken down into three sections: income, deductions, and tax credits. The income section lists all sources of income, including capital gains. The deduction section lists anything that reduces taxable income, such as interest deductions and charitable donations. Similar to deductions, tax credits will reduce taxable income as well, and typically includes credits given for the care of dependent children and seniors, education, and saving for retirement.

A tax shelter is a financial technique used by taxpayers to reduce taxable income. Tax shelters include both investments and investment accounts that provide favorable tax treatment, as well as deductions as laid out by the Internal Revenue Service (IRS).

Typical investment accounts that shelter returns from taxes are 401(k) accounts and traditional IRAs. Other items that lead to tax efficiency are interest expenses and depreciation, which are deductible from taxable income. In some cases, a taxpayer may be able to realize a loss after these deductions are factored in, resulting in tax loss carryforwards that may be able to offset future profits.

Certain real estate investments may provide income tax shelters through mortgage interest deductions and depreciation allowance and, depending on the legal structure, may provide the ability to defer capital gains via a 1031 exchange.

Tax-Optimized Real Estate™ is a proprietary investment process that seeks to maximize an individual investor's long-term after-tax cash flow and total returns on commercial real estate within their risk tolerance and unique tax situation.

Taxable income is calculated as total revenue less total expenses and applicable deductions and exemptions that are allowed in that tax year.

Tenant improvement allowance is a leasing incentive offered by a landlord in order to entice tenants to lease space. The tenant improvement allowance is the dollar amount, typically

Tenant improvements are the customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that

Any syndicated investment created through a Tenant-In-Common (TIC) structure. Under a Tenant-In-Common structure, each investor

Tenant-in-common properties are any property purchased by multiple investors via a Tenant-In-Common structure. See Tenant-In-Common Investments.

The individual or company that packages and markets Tenant-In-Common (TIC) properties. The sponsor is in charge of a variety of different

Tenants-In-Common is a type of shared ownership of property, where each owner owns a share of the property. Unlike in a joint tenancy, these shares can be of unequal size,

The estimated or actual cap rate of a property on date of disposition or sale. Also known as the Exit Cap Rate. The terminal cap rate, also known as

The value of an investment at the end of its holding period. In the context of commercial real estate, the terminal value of an investment property is

The Three Property Rule is defined under IRC Section 1031, which states that an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of

Time value of money is the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Title company is a company that examines and insures title claims for real estate purposes. The title company verifies legal title to a property through a review of

Title holding trust is a fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or private basis to better protect an investor’s assets.

Insurance that protects the holder from financial loss resulting from defects in title to real estate. The most prominent form of title insurance is lender’s title insurance, which usually must be obtained to secure a mortgage, however owner’s title insurance does exist as well. Whereas lender’s insurance is usually paid for by the buyer, owner’s title insurance is paid for by seller.

Total return is the actual rate of return of an investment or a pool of investments over a given evaluation period which includes income and appreciation.

Countries are constantly importing and exporting goods. But when more is imported than exported, a trade deficit occurs. Trade deficits aren’t bad and can occur for a number of reasons. Countries may import more than they export because the economy is growing so quickly. Also, wealthy individuals in the country may be buying luxury items from other nations.

When a country can’t produce enough for its residents, either because of its fast growth or lack of resources, it imports what’s needed from other nations. This kind of import/export imbalance leads to a trade deficit. After a while, imports and exports come back into alignment. A result of trade deficits is an outflow of domestic currency.

Traded REITs are a type of security that invests in real estate properties and mortgages, and trades like stock on major exchanges. Like any REIT, traded REITs must pay out at least 90 percent of the company’s taxable income each year in the form of shareholder dividends. Unlike non-traded REITs, however, traded REITs are very liquid and relatively easy to value, a tribute to it’s existence on a major exchange. 

A retirement account that allows an individual to allocate pretax income toward investments that can grow tax-deferred. Income contributed to the account is limited, and may be deductible from taxable income based on the taxpayers amount of income and filing status. Capital gains taxes or dividend income taxes are only assessed once funds are withdrawn from the account.

Tranche is a slice of the capital stack that reflects an investor’s credit or equity ownership position in a company or project. Different tranches have different cash flows and risks involved, as well as different claims to cash distributions.

A lease agreement that states the tenant is solely responsible for all of the costs relating to the property being leased in addition to the rent.

An irrevocable trust is a trust that cannot be modified or terminated without the permission of the beneficiary. The grantor effectively gives up all of his or her rights to the trust.

Land trust is a fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or

Living trust is an arrangement created during a person’s life, in which the trustee holds legal title to assets for a beneficiary.

Trust, Real Estate is real property owned through a trust rather than by an individual. In this context, the exact legal form of ownership may take a variety of forms

A fully renovated property that is ready to be inhabited once purchased. Turnkey properties are often acquired from companies that focus on this type of property, restoring older properties to be bought by potential investors. These restorations can range from plumbing repairs to repainting. Often times, these same companies may offer on-going property management services to buyers, further reducing the time and effort of for the prospective buyer. As the name suggests, all the buyer has to do is “turn the key.”

Although a common term used for investment properties, a turnkey property can be used to describe residential properties as well. Similar in scope to commercial, residential turnkey properties have been renovated, and are capable for move-in by homeowners.