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Most people have questions about taxes in a real estate transaction. It may not be apparent, but taxation is an indirect—yet important—factor affecting the value of property. In this course, we will see how taxes impact buying and selling real property. As a student, use this unit for general knowledge about real estate taxation; however, always refer your clients and customers to an expert for their own tax information as well as current tax laws. The federal government taxes individuals and other entities based on their earnings by means of a progressive income tax. In a progressive tax, the more you earn, the higher your tax rate. The important consideration of a progressive tax is that the taxpayer’s obligation increases as income increases, moving the taxpayer to higher tax brackets. One of the reasons for buying real estate is to get relief from taxes. The tax benefits of homeownership differ from those available to owners of investment property. The legal reduction of tax liability, otherwise known as a tax shelter, is available to all owners of a primary residence as well as to a taxpayer owning investment property. However, different rules apply to each type of property. The rules must be followed carefully to earn the desired tax shelter.