Question 1

16-16.The following tax law has an effect on the value of real estate:

Accepted Answer

All three options listed (capital gains treatment, length of depreciation for real property, and passive loss limitation) can impact the value of real estate, and thus all of the above options are correct.

Capital gains treatment determines the tax rate applied to any profit earned on the sale of real estate. This tax rate can affect the amount of money someone is willing to pay for a property, and thus impact its value.

The length of depreciation for real property refers to how long an owner can claim depreciation deductions on their tax returns for a property. This can impact the amount of taxes an owner pays on their property, which can impact its value.

Passive loss limitations refers to restrictions on how much loss (i.e. expenses exceeding income) from a real estate investment can be deducted from an investor's taxes. This can impact the profitability of a property and thus its value.

Question 2

16-15.The following will negatively affect real estate as a tax shelter:

Accepted Answer

An extension of the depreciation period would reduce the annual depreciation expense, thereby decreasing the tax shelter benefits of real estate investments.

Question 3

16-12.Section 1031 limits the amount of personality included in an exchange to ______________________ of the aggregate value of the replacement property:

Accepted Answer

Section 1031 limits the amount of personality included in an exchange to 20% of the aggregate value of the replacement property.

Question 4

16-11."Boot" refers to:

Accepted Answer

"Boot" in the context of a transaction, such as a 1031 exchange, refers to any additional value that is given to equalize the exchange. This can include cash (A), non-like-kind property (B), and relief of debt (C), making all of the above (D) the correct answer.

Question 5

The Tax Act of 1993 raised the marginal tax rates on ordinary income to:

Accepted Answer

The Tax Act of 1993 increased the marginal tax rates on ordinary income from 31% to 36% and then to 39.6% for individuals with income above $250,000. Therefore, the correct answer is B.

Question 6

16-13.Passive loss limitation rules allow active participants in a real estate investment to offset up to _________________ of income from other classes:

Accepted Answer

Passive loss limitation rules allow active participants in a real estate investment to offset up to $25,000 of income from other classes. This amount is subject to phase-out for taxpayers with an adjusted gross income (AGI) above $100,000 and is completely phased out for AGIs of $150,000 or more.

Question 7

Generally,the capital loss limitation rule allows taxpayers to offset capital losses against:

Accepted Answer

The capital loss limitation rule allows taxpayers to offset capital losses against capital gains. This means that if a taxpayer has capital losses in a tax year, they can use those losses to offset any capital gains they had in that same year. If the amount of capital losses exceeds the amount of capital gains, the excess can be carried forward to future tax years to offset future capital gains. Capital losses cannot be used to offset ordinary income, passive gains, or portfolio income.

Question 8

A test that determines if the original issue discount (OID)rules apply is the:

Accepted Answer

The time value of money test and the adequacy of interest test are both used to determine if the OID rules apply to a bond. Therefore, the correct answer is D, as it includes both options. The risk-return test is not directly related to OID rules.

Question 9

16-17.Presently the tax laws that favor investment in real estate include those related to:

Accepted Answer

The answer of 16-17.Presently the tax laws that favor investment...

Question 10

Tax law changes that would affect the value of real estate include:

Accepted Answer

Changes in marginal rates (bracket rates) can affect the overall amount of taxes owed by property owners, which can in turn affect the demand for real estate. Changes in depreciation allowance can affect the tax benefits of owning property and may also influence investment decisions. Changes in capital gains rates can impact the profitability of selling property, which can have a ripple effect on the real estate market. Therefore, all of the above options (A, B, and C) are tax law changes that can impact the value of real estate.

Question 11

Factors that affect the value of tax savings from depreciation include:

Accepted Answer

All three factors - amount of depreciation, acceleration of depreciation, and marginal tax rate - have an effect on the value of tax savings from depreciation. The greater the amount of depreciation and the more accelerated it is, the greater the tax savings will be. Additionally, the marginal tax rate of the company will affect the value of the tax savings, as a higher tax rate will result in greater savings. Thus, all of the above factors should be considered when analyzing the value of tax savings from depreciation.

Question 12

Income from a limited partnership is classified as:

Accepted Answer

Income from a limited partnership is considered passive income, as the limited partner is not involved in the day-to-day operations of the partnership and is not responsible for its debts or liabilities. This income is therefore not considered active income, which would include wages, salaries, and self-employment income, nor is it portfolio income, which would include income from investments such as stocks and bonds. Deferred income refers to income that is earned in one period but not received until a later period, which does not apply in this scenario.

Question 13

Alternative Minimum Tax rules were established in:

Accepted Answer

The answer of Alternative Minimum Tax rules were established in:
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Question 14

For a real estate partnership investment the "at-risk" amount is:

Accepted Answer

The "at-risk" amount for a real estate partnership investment includes the investor's cash contribution and the tax basis of any property contributed. Non-recourse debt borrowed from the partnership does not count towards the investor's "at-risk" amount. Therefore, the correct choice is E, which includes both the investor's cash contribution and the tax basis of any property contributed.

Question 15

Loan discount points:

Accepted Answer

Loan discount points are fees paid by the borrower to the lender in exchange for a lower interest rate on the loan. This means that by paying discount points, the effective yield to the lender is actually raised, as they are receiving more money upfront. The borrower benefits by securing a lower interest rate, but it does not have an impact on the effective yield to the lender.

Question 16

16-10.The major changes incorporated in the Tax Reform Act of 1986 were:

Accepted Answer

The Tax Reform Act of 1986 incorporated all three major changes listed: lengthening the period of depreciation, defining real estate income as passive income, and lowering the top marginal tax rate.

Question 17

16-14.A tax credit is given for investing in:

Accepted Answer

Tax credits are typically provided for investments in rehabilitating historic structures and low-income housing, but not generally for personal residences for disabled people.

Quiz 16: Federal Taxation and Real Estate Finance