Tax Glossary

Release of a debt without consideration by a creditor. Cancellations of debt are generally taxable.

The excess of assets over liabilities.

Property subject to capital gain or loss treatment. Almost all assets you own are considered capital assets except for certain business assets or works you created.

Costs that are not currently deductible and that are added to the basis of property. A capital expense generally increases the value of property. When added to depreciable property, the cost is deductible over the life of the asset.

A mutual-fund distribution allocated to gains realized on the sale of fund portfolio assets. You report the distribution as long-term capital gain even if you held the fund shares short term.

The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income.

A capital loss that is not deductible because it exceeds the annual $3,000 capital loss ceiling. A carryover loss may be deducted from capital gains of later years plus up to $3,000 of ordinary income.

Adding a cost or expense to the basis of the property.

A tax technique for receiving a refund of back taxes by applying a deduction or credit from a current tax year to a prior tax year. For example, a business net operating loss may be carried back for two years.

A tax technique of applying a loss or credit from a current year to a later year. For example, a business net operating loss may be carried forward 20 years instead of being carried back.

Reporting income when actually or constructively received and deducting expenses when paid. Certain businesses may not use the cash method.

Loss from an unforeseen and sudden event that is deductible, subject to a 10% income floor and $100 reduction for personal losses.

A credit of up to 30% based on certain care expenses incurred to allow you to work.

Income earned by persons domiciled in community property states and treated as belonging equally to husband and wife.

The seizure of property by a public authority for a public purpose. Tax on gain realized on many conversions may be deferred.

A tax rule that taxes income that is not received by you but that you may draw upon.

Interest incurred on personal debt and consumer credit. Consumer interest is not deductible.

Rule for determining MACRS depreciation in the year property is placed in service. Either a half-year convention or mid-quarter convention applies.

A special account set up to fund education expenses of a student.

A tax credit directly reduces tax liability, as opposed to a deduction that reduces income subject to tax.