Deck 13: Property Management and Leasing

Question 1

Changes to the federal tax code can be retroactive.

Answer 1

True

Question 2

In a like-kind exchange, a person might sell a condominium and buy a Porsche convertible.

Answer 2

False

Question 3

A real estate developer typically pays regular income tax on his or her profits.

Answer 3

True

Question 4

The federal income tax code is very complex because:

A) it has been put together piecemeal over time.
B) it was written to confuse the average taxpayer.
C) it was written by lawyers.
D) it was written by accountants.

Question 5

Finding legal ways to lower your tax bill is called:

A) tax evasion.
B) tax avoidance.
C) forbearance.
D) tax aversion.

Question 6

The current cap on capital gains is:

A) 30%.
B) 45%.
C) 15%.
D) 5%.

Question 7

Closing costs that may be tax deductible may include:

A) prepaid interest.
B) prepaid taxes.
C) points.
D) all of the above.

Question 8

Depreciation is:

A) the amount of value lost because an item is wearing out over time.
B) taken for land and buildings on the land.
C) taken for land only.
D) taken on a person's primary residence.

Question 9

What are the tax consequences of converting a rental into a personal residence?

A) There are no consequences.
B) You may continue to deduct repairs but cannot continue to deduct depreciation.
C) If you sell the house, you must subtract accrued depreciation in calculating your gain.
D) You cannot deduct repairs but can continue deducting depreciation.

Question 10

In a like-kind exchange, the taxpayer:

A) avoids paying gain on the sale of investment property.
B) defers paying gain on the sale of investment property.
C) may use the exchange and then deduct a loss on the exchange.
D) is limited to a 5% capital gains tax.

Question 11

A special advantage of the low-income housing tax credit is:

A) the credit may be used to offset taxes due on all types of income.
B) it is unlimited in amount.
C) it is unlimited over time.
D) it automatically lowers the taxpayer's tax by 50%.

Question 12

To qualify for the low-income housing tax credit, the units must meet a use test, which says:

A) units must be occupied by people that the builder/developer deems are low income.
B) units must be occupied only by people who also receive food stamps.
C) certain percentages of the units must be occupied by people who earn less than certain percentages of the median income for the area.
D) certain percentages of the units must be occupied by people who are placed there by the local housing authority.

Question 13

For tax purposes, 'boot' refers to:

A) taking a tax loss after being fired from your job.
B) the tax consequences of a divorce.
C) the amount of taxable assets added to a like-kind exchange.
D) the time period in a like-kind exchange in which you have to locate another piece of property.

Question 14

Start-up costs for a business:

A) may be deducted in full in the year the company began.
B) must be prorated over the life of your company.
C) have a cap of $50,000.
D) have a cap of $1,000,000.

Question 15

Business losses can be carried back to offset gains for how many of the previous tax years?

A) Three
B) Five
C) One
D) None

Question 16

Define "after-tax return."

Question 17

Name the four classifications of real estate for income tax purposes.

Question 18

Define "dealer property." What is the tax consequence of dealer property?

Question 19

Name two ways that the federal tax code encourages investment in real estate.

Question 20

Define "business property."

Question 21

It is said that everyone needs to take into account the federal income tax consequences of whatever they are thinking of buying or selling. Why? And explain why sometimes all the planning in the world won't make any difference.

Question 22

Your brother needs a home desperately, and you have been transferred to Jakarta. He cannot get a conventional loan because he has terrible credit. You decide to sell him your house, with a right of first refusal. You do a seller-financed transaction even though you are pretty certain that your brother will never pay much on the debt. Because he is your brother, you decide to charge him no interest. If the IRS finds out about this arrangement, what might be the tax consequences?