Question 1

Changes to the federal tax code can be retroactive.

Accepted Answer

The federal government has the authority to enact tax laws that apply to previous tax years, making them retroactive.

Question 2

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

Accepted Answer

A like-kind exchange, under IRS Section 1031, involves exchanging similar types of property, typically real estate for real estate, not real estate for personal property like a car.

Question 3

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

Accepted Answer

A real estate developer's profits are generally considered ordinary income, which is subject to regular income tax rates.

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.

Accepted Answer

The federal income tax code is complex because it has been developed incrementally over many years, with numerous amendments and additions, leading to its intricate nature.

Question 5

Finding legal ways to lower your tax bill is called:
A) tax evasion.
B) tax avoidance.
C) forbearance.
D) tax aversion.

Accepted Answer

Tax avoidance is the legal way to lower your tax bill.

Question 6

The current cap on capital gains is:
A) 30%.
B) 45%.
C) 15%.
D) 5%.

Accepted Answer

The current cap on long-term capital gains tax for most individuals in the United States is 15%, although it can vary based on income level.

Question 7

Closing costs that may be tax deductible may include:
A) prepaid interest.
B) prepaid taxes.
C) points.
D) all of the above.

Accepted Answer

Prepaid interest, prepaid taxes, and points are all closing costs that may be tax deductible.

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.

Accepted Answer

Depreciation refers to the reduction in value of an asset over time due to wear and tear, age, or obsolescence. It is typically applied to tangible assets like machinery, vehicles, and buildings, but not to land, as land does not wear out or get used up.

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.

Accepted Answer

When converting a rental property into a personal residence, you must subtract any depreciation claimed during the rental period from the property's basis when calculating gain upon sale.

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.

Accepted Answer

In a like-kind exchange, the taxpayer defers paying gain on the sale of investment property by exchanging it for a similar property, rather than avoiding it entirely.

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%.

Accepted Answer

The low-income housing tax credit can be used to offset taxes due on various types of income, making it versatile for taxpayers.

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.

Accepted Answer

The low-income housing tax credit requires that a certain percentage of units be occupied by individuals earning below a specified percentage of the area's median income.

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.

Accepted Answer

Boot refers to any additional cash or non-like-kind property added to a like-kind exchange, which is taxable.

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.

Accepted Answer

The answer of Start-up costs for a business:
A) may be...

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

Accepted Answer

Business losses can be carried back to offset gains for three of the previous tax years.

Question 16

Define "after-tax return."

Accepted Answer

The answer of Define "after-tax return."...

Question 17

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

Accepted Answer

The answer of Name the four classifications of real estate...

Question 18

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

Accepted Answer

The answer of Define "dealer property." What is the tax...

Question 19

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

Accepted Answer

The answer of Name two ways that the federal tax...

Question 20

Define "business property."

Accepted Answer

The answer of Define "business property."...

Quiz 13: Property Management and Leasing

Changes to the federal tax code can be retroactive.

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

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

The federal income tax code is very complex because:

Finding legal ways to lower your tax bill is called:

The current cap on capital gains is:

Closing costs that may be tax deductible may include:

Depreciation is:

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

In a like-kind exchange, the taxpayer:

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

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

For tax purposes, 'boot' refers to:

Start-up costs for a business:

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

Define "after-tax return."

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

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

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

Define "business property."