Glossary of Tax Terms

Real Estate Investment Trust (REIT)

A trust that invests primarily in real estate and mortgages and passes income, losses, and other tax items to its investors.

Back to top

Real Estate Professional

A person who meets the qualifications to treat rental real estate losses as nonpassive losses and to use the losses to offset nonpassive income. For real estate professional qualifications, see IRS Publication 527, Residential Rental Property.

Back to top

Real Property

Real estate. Real property is permanent, nonmovable property, such as land and buildings.

Back to top

Recapture

In some tax situations, you must add back to your income an amount you deducted in prior years. This is called recapture, and it may occur when you sell an asset or no longer use it primarily for business. A common example is recapture of depreciation.

Back to top

Recapture of Depreciation

Inclusion of part or all of the depreciation you deducted in previous years in this year's taxable income.,br>
For instance, if you sell or exchange depreciable property at a gain, you may have to report as income all or part of the gain that is due to depreciation. If you have taken a Section 179 deduction for an asset, and before the end of the asset's useful life you no longer use it predominantly in business, you must recapture part of the Section 179 deduction.

Back to top

Recognized Gain or Loss

The amount of gain or loss you report for income tax purposes. You may be able to defer recognizing gain or loss on certain property exchanges, such as like-kind exchanges.

Back to top

Recovery Property

A term generally used for tangible, depreciable business property placed in service after 1980 and before 1987.

Back to top

Refund

Relating to income tax, the excess of your withholding and estimated tax payments for the year over your tax liability. Federal income tax refunds are not taxable. State income tax refunds may be taxable if you itemized your deductions in the year the state taxes were paid or withheld.

Back to top

Refundable Credit

A tax credit that is not limited by the amount of your total tax. The earned income credit is a refundable credit.

Back to top

Related Persons

For purposes of related party transactions:

• Members of your family, including only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and your lineal descendents (child, step-child or foster child, and grandchildren.)
• Businesses, organizations, and persons who have certain business relationships with you or your business and whom the IRS does not consider disinterested parties. For specific rules, see "Related Party Transactions" in IRS Publication 17, Your Federal Income Tax.

For dependency exemption purposes, see relationship or member of household test.

Back to top

Relationship or Member of Household Test

One of the five tests to see if you can claim someone as your dependent. To pass the relationship test, the person must be related to you in at least one of the following ways:

• Lineal descendant (child, grandchild, great-grandchild; step-lineal descendants such as stepchildren are included).
• Brother or sister (including stepbrothers and stepsisters and half-brothers and half-sisters).
• Lineal ancestor (parent, grandparent, great-grandparent, and on up the lineal trunk of the family tree; step-lineal ancestors are included).
• Niece, nephew, aunt, or uncle (not including relations by marriage).
• In-law (father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, and sister-in-law).
• Anyone else who is not related to you, but who lived in your home for the entire year (and is not your spouse).

Back to top

Resident Alien

A person who is a permanent resident, but not a citizen, of the United States.

Back to top

Residential Rental Property

Real property, such as houses or apartment complexes, rented primarily for use as dwelling units.

Back to top

Restricted Stock

Stock, transferred to an employee of a company, that is subject to a risk of forfeiture and that has limits on transferability. If you receive restricted stock, you do not need to include its value in excess of the amount you paid for it in your income, unless you make an election to do so. However, when the restrictions are lifted and you are free to sell or transfer your stock, you will need to include its value in your taxable income.

Back to top

Return of Capital

A distribution you receive from an investment that is not income, but rather a return of a portion of your investment. A return of capital is not taxable unless it exceeds your investment.

Back to top

Revocable Trust

A trust that can be changed or terminated at any time by its creator or another person. A revocable trust does not have the tax advantages of an irrevocable trust.

Back to top

Rollover

For IRAs, the tax-free reinvestment of a distribution from one qualified retirement plan into another within 60 days.

Back to top

Roth IRA

Although contributions to a Roth IRA are not deductible, if you meet the qualifications, your withdrawals - including interest - will be completely tax free.

Back to top

Royalty Income

Payment for the use and exploitation of certain kinds of property, such as artistic or literary works, patents, and mineral rights.

Back to top