Bankrate's financial glossary
Did you run across an unfamiliar term when applying for a mortgage, credit card
or auto loan? Find the meaning here, along with definitions of other financial words
and phrases, in Bankrate.com's financial glossary.
In an income tax sense, active income means wages, tips and profits from your business that you materially participate in, and portfolio income, such as interest and dividends. Generally, you cannot offset active income with passive losses. See also nnpassive icome.
Just what it sounds like: taking an active role in the management of an enterprise. This is a determining factor for the IRS in rental real estate issues. The rules for active participation are much easier to meet than the material participation rules. An active participant may generally deduct up to $25,000 of rental real estate losses against other income. An active participant must not be a limited partner or own 10 percent or less of the property. See also Material Participation.
Actively managed fund
A fund that uses a manager or team to analyze securities and try to beat the market return. The opposite of active management is passive management, found in index funds.
The amount you use to determine your profit or loss from a sale or exchange of property. To determine your adjusted basis for an asset, start with the amount you originally paid, add your cost of improvements and assessments, then subtract deductions you have taken, such as depreciation and depletion.
Adjusted gross income (AGI)
All the income you received over the course of the year such as wages, interest, dividends and capital gains minus things such as business expenses, contributions to a qualified IRA, moving expenses, alimony and capital losses. The adjusted gross income is used to calculate federal income tax.
This is an investment style of funds that hold positions in potential high-growth companies. Aggressive growth funds have high betas, meaning they tend to be more volatile than the stock market.
A measure of a fund's performance relative to its index, adjusted for risk. Beta measures a fund's risk compared to the market. Alpha tells you how the fund is doing relative to its beta.
Alternative minimum tax (AMT)
An IRS method for ensuring that high-income earners pay their fair share of taxes. It disallows many common deductions. If the amount of tax owed under the AMT is higher than what's owed under the regular tax system, the taxpayer pays the AMT.
AMT tax rate
The tax rate for taxable AMT income of $175,000 or less is 26 percent. The rate for taxable AMT income above $175,000 is 28%. The tax rates are lower than what high-income earners pay under the regular tax system, but there are far fewer allowable deductions.
Annual percentage rate (APR)
A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.