| Term |
Definition |
| Railroad Retirement
Tax Act |
See RRTA. |
| Realized Gain or Loss |
The difference between
the amount received upon the sale or other
disposition of property and the adjusted basis of
the property. |
| Real Property |
Also known as real
estate, includes land, buildings, and their
structural components. |
| Recapture |
The inclusion of a
previously deducted or excluded amount in gross
income or tax liability. Recapture may be
applicable to accelerated depreciation, cost
recovery, amortization, and various credits. |
| Recapture of
Depreciation or Cost Recovery |
Each year that a
depreciable business asset is owned, depreciation
is claimed that theoretically corresponds with
the using up of the property through normal wear,
obsolescence, etc. Thus, the property should be
worth approximately its adjusted basis. If the
property is sold for more than its adjusted
basis, section 1245 of the tax Code requires that
the gain on personal property and certain
nonresidential real property (to the extent of
depreciation claimed) be recaptured; that is,
included as ordinary income on the tax return.
The purpose of this recapture is to prevent
capital gain treatment of gain resulting from
claiming depreciation. The recapture of
depreciation or cost recovery rules don't apply
when the property is disposed of at a loss. |
| Recognized Gain or
Loss |
The portion of realized
gain or loss that is subject to income taxation. |
| Recovery |
The amount of a
deduction or creditable expense paid in a
previous year that is later refunded to the
taxpayer. The recovered amount must usually be
included in income in the year it is received, to
the extent of the previous tax benefit. |
| Recovery Exclusion |
The portion of an item
deducted in a prior year and recovered in whole
or part in a later tax year, which did not
generate any tax benefit for the taxpayer.
Because no tax benefit was derived from this
portion of the recovered amount, it is not
taxable. |
| Recovery of Cost |
The amount that was paid
for income received--usually a factor only in
income from sales of items purchased for resale,
income from sales of property, and income from
pensions or annuities. The portion of income that
represents recovery of cost is not taxable. |
| Recovery Period |
A period of years during
which the cost of business assets is written off
under ACRS or MACRS. |
| Recovery Property |
Tangible depreciable
property that is not excluded from ACRS (Accelerated
Cost Recovery System) or MACRS (Modified
Accelerated Cost Recovery System). Generally,
this property acquired for use in a trade or
business or property held for the production of
income. |
| Refundable Credit |
A credit for which the
IRS will send the taxpayer a refund for any
amount in excess of the taxpayer's tax liability. |
| Regular Method (Automobile
Expenses) |
A deduction for business
use of the taxpayer's vehicle based on actual
cost of gas, oil, repairs, tires, washing, etc.
plus a deduction for depreciation. |
| Regulated Investment
Company (Mutual Fund) |
A company or trust that
uses its capital to invest in other companies.
The two principal types are closed-end and open-end
mutual funds. Shares in closed-end mutual funds,
some of which are listed on stock exchanges, are
readily transferable on the open market and are
bought and sold like other shares. Open-end funds
sell their own new shares to investors, stand
ready to buy back their old shares, and are not
listed. |
| Regulations |
The IRS Commissioner
publishes his interpretation of the tax Code in
the form of regulations. They do not have the
force and effect of law except in those cases in
which the law on a particular subject calls for
rules on that subject to be expounded through
regulations. |
| Reinvested Dividends |
Earnings that the
shareholder has accepted as additional shares of
stock rather than as cash. They are taxable in
the year constructively received. |
| Rental Income |
Income received by the
taxpayer for allowing another person's use of the
taxpayer's property. Rental income includes
advance rental payments, late payments, and
current payments. Payments received for lease
cancellation and forfeited security deposits are
rental income the year received or forfeited.
Rental income is considered passive income for
purposes of the passive loss rules, except for
that of qualified real estate professionals. |
| Repairs |
Current expenditures to
restore business-use property to an original
condition or maintain the property through minor
alterations rather than to extend its useful life.
The cost of repairs normally is deductible
annually. Substantial repairs that increase the
value or extend the life of the property are
treated as capital improvements and must have
their cost recovered over a number of years. |
| Repossession |
Taking possession of
property that was earlier sold on an installment
contract because the buyer defaults on payment of
the debt. |
| Resident Alien |
A citizen of another
country who lives in the United States and/or has
resident status by law or visa, or passes the
substantial presence test. |
| Returns of Capital (Nontaxable
Distributions) |
A return of a
shareholder's investment generally made because
an excess amount of capital has been accumulated.
Returns of capital may be received in cash or
reinvested to acquire additional shares at the
shareholder's request. Amounts received that are
not in excess of the basis of the stock on which
they are paid are not taxable. The basis of the
stock on which returns of capital are paid must
be reduced. Amounts received in excess of the
basis of the stock on which returns of capital
are paid are reported on Schedule D, in Part I if
stock has been owned short term, or in Part II if
stock has been owned long term. |
| Right |
The opportunity a
corporation gives a shareholder to buy additional
shares at a special price for a limited time.
Shareholders who don't use their rights can sell
them to other investors. |
| Rollover |
The conversion of an
employer distribution or an existing IRA to
another IRA without taxable consequences. This
action must take place within 60 days of
receiving the distribution. |
| Roth IRA |
Contributions to Roth
IRAs, which were introduced in 1998, are not
deductible. Earnings grow tax free and qualified
withdrawals are also tax free. |
| Royalty |
A payment received for
the right to exploit a taxpayer's ownership of
natural resources or a taxpayer's literary,
musical, or artistic creation. |
| Royalty Interest |
An interest in the oil
and gas in place that entitles the holder to a
specified fraction, in kind or in value, of the
total production from the property, free of any
expense of development and operation. |
| RRTA (Railroad
Retirement Tax Act) |
The law that provides
for railroad retirement benefits. |
