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Useful Tax Glossary and Definitions

As a courtesy to our clients, we have compiled a comprehensive list of common tax terms and definitions for quick reference.

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Glossary of Terms

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R

Term Definition
Real estate investment trust (REIT)

An entity that invests primarily in real estate and mortgages and passes through income to investors.

Real estate professional

An individual who, because of his or her real estate activity, qualifies to deduct rental losses from nonpassive income.

Real property

Land and the buildings on land. Buildings are depreciable.

Recognized gain or loss

The amount of gain or loss to be reported on a tax return. Gain may not be recognized on certain exchanges of property.

Recovery property

Tangible depreciable property placed in service after 1980 and before 1987 and depreciable under ACRS.

Refundable tax credit

A credit that entitles you to a refund even if you owe no tax for the year.

Required Minimum Distributions (RMDs)

Distributions that must be taken annually to avoid a 50% IRS penalty by a traditional IRA account holder starting with the year age 70½ is reached. For qualified plan participants the starting date may be delayed for employees working beyond age 70½. Minimum distribution rules also apply to beneficiaries of qualified plans, traditional IRAs, and Roth IRAs.

Residence interest

Term for deductible mortgage interest on a principal residence and a second home.

Residential rental property

Real property in which 80% or more of the gross income is from dwelling units. Under MACRS, depreciation is claimed over 27.5 years under the straight-line method.

Retirement savers credit

Eligible taxpayers may claim a tax credit for 10%, 20%, or 50% of up to $2,000 of retirement plan contributions.

Return of capital

A distribution of your investment that is not subject to tax unless the distribution exceeds your investment.

Revenue ruling

A revenue ruling is the Commissioner's "official interpretation of the interpretation of the law" and generally is binding on revenue agents and other IRS officials. Taxpayers generally may rely on published revenue rulings in determining the tax treatment of their own transactions that arise out of similar facts and circumstances.

Revocable trust

A trust that may be changed or terminated by its creator or another person. Such trusts do not provide an income tax savings to the creator.

Rollover

A tax-free reinvestment of a distribution from a qualified retirement plan into an IRA or other qualified plan within 60 days.

Roth IRA

A nondeductible contributory IRA that allows for tax-free accumulation of income. Qualifying distributions are completely tax free.

Rule of 72

The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.

For example, the rule of 72 states that $1 invested at 10% would take 7.2 years ((72/10) = 7.2) to turn into $2. In reality, a 10% investment will take 7.3 years to double ((1.10^7.3 = 2).