Deck 22: Tax Aspects of Real Estate Ownership and Transfer

Question 1

The primary purpose of property taxes is to raise revenue for local governments.

Answer 1

True

Question 2

Assessment figures are always true cash value.

Answer 2

False

Question 3

Assessments of real property cannot consider environmental clean-up costs.

Answer 3

False

Question 4

The property tax is an example of an ad valorem tax.

Question 5

Real property tax rates do not vary, but value assessments do.

Question 6

Real property tax rates cannot have maximum limitations.

Question 7

Federal lands are exempt from real property taxes.

Question 8

Ad valorem means all taxpayers pay equal amounts.

Question 9

Due process requires that taxpayers not be required to pay tax until after they have had an opportunity to object.

Question 10

Property taxes are not personal obligations, but obligations of the property.

Question 11

State and local government properties are generally exempt from property taxes.

Question 12

A tax sale requires formal foreclosure to be valid.

Question 13

There is no period of redemption for tax sales.

Question 14

A tax deed is a general warranty deed.

Question 15

A tax sale is a final resolution of property owners' rights.

Question 16

Passive activity losses are not deductible from other income sources.

Question 17

Low income housing investments have a limit of $25,000 on loss deductibility.

Question 18

The Internal Revenue Code defines material participation for purposes of passive losses.

Question 19

Passive losses can be carried forward indefinitely.

Question 20

An investor is "at-risk" only for the amount actually invested.

Question 21

A taxpayer can deduct interest on two residences.

Question 22

The interest on wrap-around mortgages in sales of residences is no longer deductible.

Question 23

Qualified residential interest includes only interest on debt used to purchase a residence.

Question 24

Low-income housing not in compliance with city codes is not eligible for tax credits.

Question 25

The interest on all home equity loans is non-deductible.

Question 26

Taxpayers may be able to deduct interest payments on two homes.

Question 27

In the market approach to valuation, the assessor examines the stream of income.

Question 28

In the cost approach to valuation, the assessor examines replacement cost.

Question 29

The basis of a property = purchase price + improvements less depreciation.

Question 30

The at-risk rules do not apply to real estate investors.

Question 31

Passive or suspended losses can be deducted from ordinary income.

Question 32

Rent controls are generally in place for housing that qualifies for low-income housing credits.

Question 33

Properties used for solar energy development purposes are eligible for rapid five-year depreciation.

Question 34

The sale of a principal residence is subject to capital gains tax on the gain realized.

Question 35

Improvements in property are subtracted from the selling price of the property in determining the capital gains on sale of property.

Question 36

Estate taxes affect the amount of inheritance.

Question 37

Notice of a tax sale requires tax authorities to do something more than simply mail a notice that is returned to them.

Question 38

Taxpayers always have the right to challenge the assessed value of their property.

Question 39

Under the cost method of assessment, the assessor simply compares surrounding property sales and determines assessed values.

Question 40

Depreciation is subtracted from the amount the taxpayer paid for the property as part of determining gains.

Question 41

Improvements to property are subtracted out of the amount the taxpayer paid for the property as part of determining gains.

Question 42

Expenses of selling are subtracted out of the sales proceeds in determining the gain on the sale of property.

Question 43

The environmental clean-up of a property has no impact on the assessed valuation under protections afforded under CERCLA for property clean-ups.

Question 44

The absence of an appeal process to assessed value determinations is a violation of the property owner's due process rights.

Question 45

It is the landowner's responsibility to be certain that the assessor and tax collector have correct notice information for communication regarding property taxes.

Question 46

An assessor mailing property owners notice of assessed value and tax bills does not meet due process standards.

Question 47

MACRS depends upon the type of property.

Question 48

Property exchanges are only for residential properties and not rental properties.

Question 49

There are currently cases challenging the ability of assessors to keep the value of the owner's equity after conducting a tax sale.

Question 50

Which of the following is not a factor used in determining assessed value?

A) Original price or cost
B) Whether it is federal land
C) True cash value
D) Income the land produces

Question 51

What is not required for due process to be satisfied on real property assessments?

A) Notice of valuation
B) Hearing
C) Court hearing
D) Discovery and depositions

Question 52

Which of the following properties are not exempt from property taxation?

A) Federal lands
B) Residential properties that are not single-family dwellings
C) Non-profit organization property
D) State and local government property

Question 53

Which of the following is paid first from tax sale proceeds?

A) Mortgage amounts (first lien holders)
B) Taxes, interest, penalties and sales costs
C) Secured creditors interests in fixtures
D) The most recent second mortgage

Question 54

What is included in determining the amount for which an investor is at-risk?

A) Value of the property
B) Personal liability for debts
C) Depreciation formulas used
D) Whether the Subchapter S election has been made

Question 55

Residential investment property purchased after 1986:

A) Is depreciated over a 15-year period.
B) Is depreciated over a 19-year period.
C) Is depreciated over a 27.5-year period.
D) Cannot be depreciated.

Question 56

Losses from passive investment activity:

A) Are limited to $25,000.
B) Are limited to passive investment activity income.
C) Are eliminated on real estate investments.
D) Are limited to the amounts of capital gains an investor has.

Question 57

The amount of home interest on acquisition indebtedness that is deductible is:

A) Total amount of interest collected under initial mortgage (if amount borrowed was at or below market value).
B) Total amount of financing received or the acquisition.
C) Total amount of the home's market value at the time of closing.
D) The amount of interest that would be charged if the homeowner borrowed under a low-credit-risk interest rate.

Question 58

Special tax deferrals for installment sales:

A) Are eliminated.
B) Are limited to residential transactions.
C) Are limited to the at-risk rules.
D) Are subject to SALT limitations.

Question 59

The basis of a property:

A) Excludes depreciation.
B) Is the sale price.
C) Is its fair market value.
D) Is the owner's equity.

Question 60

Under the market approach to valuation which of the following information is not examined?

A) Recent closings on property sales in the area
B) Income generation of the property
C) Building replacement cost
D) Depreciation

Question 61

Which of the following is not qualified residential interest?

A) Interest on a loan used to buy a cabin as a second home
B) Interest on a rental property mortgage
C) Interest on the loan for a $500,000 residence
D) Interest on home equity debt used to make improvements

Question 62

A low-income housing credit is available:

A) Only to those who reside in such housing.
B) At the same rate for federal and state housing.
C) Only if the property is in compliance with codes.
D) For 20 years on most low-income residential housing.

Question 63

Under the cost approach of valuation for assessment:

A) The value of the property is based on sales of similar property.
B) The value of the property is based on the prospective income that will be earned by the land.
C) The value of the property is based on the replacement cost of the buildings on the property.
D) The value of the revenue stream for the property.

Question 64

The maximum amount of home mortgage debt to be able to deduct interest on that debt is:

A) $750,000.
B) Fair market value of the home minus acquisition debt.
C) The mount of the debt less home-equity debt.
D) The least of the debtor's total income per year or the basis of the property.

Question 65

TG&I Industries, Inc., has had a portion of its factory site designated as a CERCLA clean-up area. The cost of the clean-up will be $675,000. The assessor has valued TG&I's plant at $7,000,000. TG&I wants that value reduced by the $675,000.

A)It is against public policy to give TG&I a credit for environmental clean-up costs.
B)TG&I is entitled to the credit of $675,000 only if it did not contaminate the site.
C)TG&I is entitled to a $675,000 credit.
D)TG&I is entitled to one-half of $675,000 as a credit.

Question 66

MACRS is:

A)A method of real property valuation.
B)A method of depreciation.
C)Eliminated after 1986.
D)Not applicable to commercial property.

Question 67

Property exchanges involving residential property that is a second home:

A) Have no tax consequences.
B) Never result in gains.
C) Are illegal.
D) Require some rental use of the property.

Question 68

A 1031 property exchange:

A) Allows a taxpayer to defer capital gains.
B) Is a way to accelerate depreciation.
C) Is a way around the limits on home mortgage interest deduction limitations.
D) Was eliminated following the 2017 tax reforms.

Question 69

Under the U.S. Supreme Court's holding on notice in tax sales:

A) The tax agency only needs to mail notice to the property owner.
B) The tax agency must show the notice process is reasonably likely to reach the property owner.
C) The tax agency must use certified mail to notify the property owner.
D) The agency must personally serve the property owner.

Question 70

How long must an owner hold title to property in order to qualify for the lower capital gains rate for sale proceeds?

A) More than six months
B) More than one year
C) More than five years
D) Ten years or less

Question 71

Lee and Carol Parton have sold their home for $750,000. They have lived in the home for 22 years. They are planning to retire and travel. They purchased the home for $200,000 and have made $50,000 in improvements. Their total gain realized on the sale is:

A) $550,000.
B) $500,000.
C) $750,000.
D) $250,000.

Question 72

Lee and Carol Parton have sold their home for $750,000. They have lived in the home for 22 years. They are planning to retire and travel. They purchased the home for $200,000 and have made $50,000 in improvements. Lee and Carol will owe how much in capital gain taxes on the sale of their home?

A) $100,000
B) $250,000
C) $275,000
D) -0-

Question 73

The tax assessor for Clark County sent a delinquent notice to Rob Newton at the property address. There was no response to the notice of delinquency. The assessor had a different address for Mr. Newton but sent it only to the property address. Rob challenged the tax sale for lack of notice.

A) As long as Clark County complied with its required procedures the sale is valid.
B) Under recent court rulings, Clark County cannot ignore the alternate address.
C) The sale cannot be set aside as long as the sale brought a reasonable amount for the property.
D) Under recent court rulings, the notification to the property address is all that is required of the assessor.

Question 74

Ralph purchased a home in 2012 for $600,000. Ralph added a pool and landscaping for $36,000. Ralph lost his job and had to sell the home In a short sale for $420,000. Ralph had depreciated $32,000. The real estate commission was $28,000. What is the capital gains computation for Ralph?

A)A gain of $392,000
B)A gain of $212,000
C)A loss of $212,000
D)A loss of $280,000

Question 75

The Scribners purchased property on which they subsequently discovered there was barium contamination that resulted from former land ownership by Jasco-Sun Steel. The Scribners were unable to sell their property, but the valuation for tax purposes remained the same following the barium discovery. Which of the following is correct?

A) Environmental contamination is not used in property valuation.
B) Environmental contamination is not used in property valuation when the landowner is not responsible.
C) Environmental contamination is a factor in valuation.
D) Environmental contamination affects the rate but not the valuation.

Question 76

Tom Comstock was under water in his house, with a mortgage of $320,000 and a property value of $200,000. He walked away from the property. When taxes became due, the mortgage company did not pay them as usual because the mortgage company had gone into bankruptcy. The assessor tried to send a notice to Tom, but he was not at the address. The assessor sold the property at a tax sale. Tom is trying to set aside the sale because he was not notified. Which of the following is correct?

A) The assessor had to do more than just mail the notice to the property address.
B) The assessor is not required to do more than mail the notice to the property address.
C) The assessor cannot conduct the tax sale until it notifies Tom.
D) The assessor must serve Tom personally.

Question 77

The county assessor for Cuyahoga County has determined that a property located in the downtown area of Cleveland, which is currently being used as a storage facility, could be used as a casino and its revenue would be triple its current gross revenue. As a result, the assessor increased the property's valuation by 20%. Which method of valuation is the assessor using?

A) Market approach
B) Income approach
C) Cost approach
D) Basis of the property approach

Question 78

The county assessor for Cuyahoga County has determined that a property located in the downtown area of Cleveland, which is currently being used as a storage facility, could be used as a casino and its revenue would be triple its current gross revenue. Suppose that the assessor has looked at comparable properties in the area and their sale prices. As a result of this study, the assessor reduced the valuation of the property by 10%. Which method of valuation is the assessor using?

A) Market approach
B) Income approach
C) Cost approach
D) Basis of the property approach

Question 79

The county assessor for Cuyahoga County has determined that a property located in the downtown area of Cleveland, which is currently being used as a storage facility, could be used as a casino and its revenue would be triple its current gross revenue. Suppose that the assessor used a computation for replacement of the storage facility if it were damaged. Which method of valuation is the assessor using?

A) Market approach
B) Income approach
C) Cost approach
D) Basis of the property approach

Question 80

What is the effect on the assessment of a contaminated property after having the contamination removed?

A) Generally no effect because increased taxes would be a disincentive for owners to clean up the property
B) Generally an increase in assessed value for the clean property
C) Assessors are not permitted under CERCLA to increase the assessed value of property that has had the contamination removed
D) Assessors have no way of knowing about contamination or clean-ups.