Transfer of Property
Mrs. Johnson owned an income property with an adjusted cost basis of $150,000 and a fair market value of $200,000. She exchanged the property for another income property which had a fair market value of $210,000. Both properties had no loans against them and no adjustments were made for the differences in value. For federal income tax purposes, the new property will have a basis for Mrs. Johnson of:
$150,000 Cost Basis of exchanged property: Absent any Boot given or received, the Cost Basis of the old property being sold will be the same as Cost Basis of the new property being acquired.
Boot refers to
1031 exchanges. Boot is money or other property that is not like-kind, which is given to make up any difference between exchanged properties in a 1031 tax deferred exchange.
The construction of a family room, additional bedroom, and extra bath has been completed on the owner's home. Before the addition can be used, which of the following is TRUE?
A certificate of occupancy must be issued. A certificate of occupancy grants permission to occupy a completed building structure after it has been inspected. A building inspector may inspect the plumbing during the actual building process before completion. A building permit is issued before construction begins. A conditional use permit does not relate to actual building construction but permits use of a property for a use related to, but not permitted by, zoning ordinances.
Recorded title to a parcel of real property was vested in Jill Martinez, a single woman. After her marriage to Josh Cohen, she executed a deed to the property only in the name of Jill Cohen, a married woman. The discrepancy in the grantor's name:
A defect which may cause a cloud on the title A Cloud on Title means that there is something affecting the title that may prevent its transfer. [For example, if a single woman gets married and she purchased real property prior to marriage, and executed the grant deed in her married name, a discrepancy would arise regarding the grantor's name, and this might constitute enough of a defect to result in a Cloud on the Title.]
Under the federal Lead-Based Paint Hazard Reduction Act, which statement is TRUE?
A disclosure statement must be included with all sales contracts and leases involving residential properties built prior to 1978. Although no remediation of the property is required, a lead-based paint warning disclosure statement must be completed and signed by the parties and a copy included with any sales contract or lease for a residential property built before 1978. In the disclosure statement, buyers and renters acknowledge receiving a HUD booklet about protecting their families from lead-based paint hazards. The pamphlet "Protect Your Family From Lead in the Home" must be provided to lessees as well as to buyers. The length of time given the buyer to inspect the property is listed in the lead-based paint disclosure provided by the seller.
A buyer would want which of the following removed from a preliminary title report:
A mechanic's lien. A preliminary title report is a title report that is issued early in the transaction for the purpose of revealing all matters that presently have an effect on the title. Such as liens or judgments on the property, or easements and covenants.
Roberto owns an apartment building and wants to exchange his property in a 1031 tax deferred exchange in order to defer paying taxes in the year of the exchange. He could exchange his apartment building for:
A more valuable apartment building, exchanging loans and paying money to the other party to equalize the values A 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.
A standard title insurance policy insures against:
A recorded deed in the chain of title that was not properly delivered Standard policy of title insurance protects against forgery and improper delivery, however it does not include a survey or on-site inspection.
A riparian owner owns land which borders on:
A stream Riparian Rights are water rights in regard to a moving body of water like a river or a stream. Littoral rights are in regards to body of waters that stand still such as a lake.
The seller conveyed a quitclaim deed to the buyer. Upon receipt of the deed, the buyer may be certain that:
All of the seller's interests in the property belong to the buyer. It's important to remember that quit claim deeds have no guarantees beyond the signer's declaration that he or she is giving up all claims to the title. Accordingly, they are generally used to clear up minor issues and almost never as the primary form of transferring ownership.
An agreement wherein one party agrees to reimburse the other party for damages suffered in the event of a clearly defined risk, in exchange for payment of monetary consideration, is commonly known as:
An insurance policy Insurance is the promise of reimbursement for damages for the promise to pay. With respect to Fire Insurance, the policy should allow the insured to neither gain nor lose in the event of claim.
When a dam broke, the flow of water cut away a strip of land from the riverbank. This would be known as:
Avulsion Avulsion is an abrupt change in the course of a stream that forms the boundary between two parcels of land resulting in the loss of part of the land. [For example, if a dam breaks and the rushing water washed away a strip of land, this would constitute a Loss of Title by Avulsion.] Accretion is an increase by natural growth or addition.Alluvion is the increase of land when waterborne soil is gradually deposited.Reversion refers to when somebody loses title and title "reverts" back to another party.
What do liens and easements have in common?
Both are encumbrances. Liens are, of course, serious in that they indicate the owner has failed to pay a debt secured directly or indirectly by the property. Easements, on the other hand, are generally a practical necessity for most residential properties.
When a judgment is duly recorded, subsequent buyers and innocent purchasers who are ignorant of the recording have received:
Constructive notice Constructive Notice attaches once a document is recorded. Once recorded, subsequent buyers will be deemed to have received "Constructive Notice" regarding the document and its effect on the property in question. This could also be taken by taking possession. Actual Notice is when an individual has first-hand knowledge of something. [For example, if a buyer has knowledge that someone has taken possession of the property that is for sale.]
Which of the following would alienate title to property:
Conveying title. Conveying the title will alienate (transfer from one owner to another) the title to property.
What kind of lien is created as a result of a judgment, estate or inheritance taxes, the decedent's debts, or unpaid federal income taxes?
General Tax lien or judgment lien that attaches to all personal and real property of a person or firm (the lienee), making it a general lien. The attachment of judgement liens to personal property can vary state-by-state but is recognized at the national level.
A quitclaim deed to a parcel of real property conveys only the present interest, right and title of the:
Grantor The "grantor" is the one conveying the property, so he or she signs the deed. An easy way to remember is that when a title ends with an "or" it is the giver, or the givOR if that helps you remember. A title that ends with "ee" such as a "grantee" is the receiver because they recEEve the item.
What is a will written and executed entirely in the handwriting of the testator?
Holographic Will A holographic will is a written will and executed entirely in the *handwriting* of the testator. A written will is usually typed.
When a real estate broker speaks of "tax shelter," he/she is referring to:
Income tax. Tax shelter is a general term used to include any property or other investment which gives the owner certain income tax advantages, such as deductions for property taxes, mortgage interest or depreciation.
What type of title insurance policy covers everything?
No title insurance policy covers everything Be careful of absolute words such as words like ALL, EVERYTHING, ALWAYS or NEVER.
Until the land contract is paid in full, what is the status of the purchaser's interest in the property?
Purchaser has equitable title in the property. Equitiable title indicates the right to use and possess and enjoy the equity gained.
When a project is "turn key" is said to be:
Ready for occupancy Turnkey Project is term used for a property that is ready for occupancy, ready to be put into immediate use; equipped with, or including, everything needed to operate it.
The buyer of a commercial property under a sale/leaseback arrangement would be least concerned with:
The depreciated book value of the building In a Sale-Leaseback the Seller becomes a Tenant, thus allowing the Seller to deduct all of his future rent payments as business expenditures. In a Sale-Leaseback arrangement, the Buyer should not be concerned with the Seller's Book Value.
Which of the following best describes earnest money?
The money provided by the purchaser at the time of entering into a contract. An earnest payment is a specific form of security deposit made in some major transactions, such as real estate dealings. It is a "good faith" deposit to demonstrate that a purchaser is serious about wanting to complete the transaction.
There are several differences between an extended coverage policy of title insurance and a standard coverage policy of title insurance. Which of the following is insured under the extended policy, but not under the standard policy?
The possibility that some improvements on the insured property are located on adjoining land Extended policy covers improvements on adjoining land.
The "marginal tax rate" is defined as:
The tax rate which is applied to the next dollar earned Marginal Tax Rate is the tax rate that is applied to the next dollar of taxable earned income.
The IRS (Internal Revenue Service) would define marginal tax rate as:
The tax rate which is used for the next dollar of taxable income Marginal Tax Rate is the tax rate that is applied to the next dollar of taxable earned income.
Which is true about restrictive covenants?
They are placed by private parties in a deed. Restrictive covenants are most commonly associated with subdivisions and community management associations and are intended to maintain consistency within the neighborhood. While viewed as a benefit by most, they do limit the owner's use of the property and are binding on future owners. They are usually put on by the grantor or the developer.
The primary purpose of a deed is to:
Transfer title rights. A deed is the instrument by which ownership of a property is transferred from one person to another, while a title is evidence of that ownership.
In which of the following situations would property be reassessed?
When Sold Property is always reassessed upon sale. This reassessment usually results in a supplemental tax bill. The payment of any increase in property tax due to the reassessment and any resulting supplemental tax bill would then become the responsibility of the buyer.
"Boot" is a term used in a 1031 Exchange when which of the following happens?
When there is a difference between the equity of properties being exchanged. The term "boot" is not used in the Internal Revenue Code or the Regulations, but is commonly used in discussing the tax consequences of a Section 1031 tax-deferred exchange. Boot received is the money or the fair market value of "other property" received by the taxpayer in an exchange.
A title insurance company official would have known that an "abstract of title" is a:
Written summary of documents relating to the title of the property An abstract of title is a summary of the history of the ownership of a property, starting with the original grant, and including all subsequent encumbrances and conveyances.
In a settlement statement, the selling price ALWAYS is
a debit to the buyer. On a closing statement for a real estate sale, a debit is an item that is charged to a party.
Which of the following is a means of transferring title from one party to another?000
a deed Deeds are the written form by which land is transferred from one owner to another. In order to be legal, they must be executed, delivered by the current owner and accepted by the new owner.
The recorded history of matters that affect the title to a specific parcel of real property is called a(n):
abstract of title. Abstracts give an at-a-glance history of all the recorded documents associated with a property, including changes in title, liens, mortgages taken out and paid off, transfers through death and so forth.
The transferring of title to real property to another is defined as:
alienation. In property law, alienation is the voluntary act of an owner of some property transferring, or otherwise disposing, of the property.
All of the following are examples of private controls of real property EXCEPT:
certificates of occupancy. Certificates of occupancy are public control created by zoning laws. Deed conditions, Owner association or cooperative fees and covenants on paint color are all private controls.
An example of involuntary alienation of property is
condemnation. Condemnation is the operation of a government to take private property for public use and is an involuntary transfer of the property. Property inherited or given as a gift transfers voluntarily. A quitclaim deed voluntarily transfers the interest a grantor may have in a property to a grantee with no covenants or warranties.
The covenant in a deed which states that the grantor is the owner and has the right to convey the title is called:
covenant of seisin Another outgrowth of the feudal system, "seisin" derives from the French meaning to "sit upon or own" and gives owners the right to sell or transfer property at will.
On a settlement statement, prorations for real estate taxes paid in arrears are shown as a:
debit to the seller and a credit to the buyer. On a closing statement for a real estate sale, a debit is an item that is charged to a party. Taxes "paid in arrears" are charged after the taxes have been assessed (as opposed to prepaid taxes), so the seller will owe the buyer for a proration of the taxes that haven't been paid yet. This shows up on the settlement statement as a debit to the seller and a credit to the buyer.
The term "boot" would probably be considered in connection with
exchange. The term "boot" is not used in the Internal Revenue Code or the Regulations, but is commonly used in discussing the tax consequences of a Section 1031 tax-deferredexchange. Boot received is the money or the fair market value of "other property" received by the taxpayer in an exchange.
According to income tax laws, which of the following is true about depreciation of land?
land is not depreciated An Income property owner is allowed to take Depreciation Deductions on his property, but in order to qualify for this type of Deduction, he must have made some kind of improvement or improvements to the property in question. [The Depreciation Deduction is based on the cost of the improvements that were made. The LAND does not depreciate]
All of the following may be added to the original cost basis of a property to arrive at an adjusted basis for federal income tax purposes, except:
mortgage payments. According to the IRS, "Your adjusted basis is generally your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases." An example would be the addition of a concrete patio on the personal residence. Mortgage payments are not included under the IRS's definition.
Sam owned a triplex valued at $160,000 with an adjusted basis of $70,000. King owned a duplex valued at $155,000. Both properties were owned free and clear. They exchanged their properties, with King giving Sam $5,000 in cash. For federal income tax purposes:
sam has a recognized gain. In a 1031 tax-deferred exchange, "boot" refers to cash (or other dissimilar property) that is utilized to balance out the equities of the properties being exchanged. Note that receipt of boot may result in a recognized gain.
To rehabilitate real property usually means
the property will be restored to a good condition. Rehabilitation of property means restoring real property to an improved state. The restoration is usually needed because the property's condition has worsened.
The right of alienation is defined as
the right to transfer an interest in real property. Alienation (property law) In property law, alienation is the voluntary act of an owner of some property disposing of the property, while alienable is the capacity for a piece of property or a property right to be sold or otherwise transferred from one party to another.
Which of the following provides a buyer with the best assurance of clear, marketable title?
title insurance Title insurance provides the best assurance of marketable title.
A partition suit is used for which of the following?
to force a division of property without all the owners consents Partition suits are typically pursued when a co-owner of a property wants to sell his or her share and the other owners are opposed. Since it is a legal action involving the courts, it is an expense with often unsatisfactory results.
If a developer wants to build a commercial building closer to the street than is permitted by the local zoning ordinance because the shape of the lot makes a standard setback impossible, the developer should seek a
variance. A variance is a request to deviate from current zoning requirements. If granted, it permits the owner to use his land in a way that is ordinarily not permitted by the zoning ordinance. It is not a change in the zoning law, but a waiver from the requirements of the zoning ordinance.
Joe conveys property to Vivian by delivering a deed. The deed contains five covenants. This is MOST likely a:
warranty deed. A warranty deed is a type of deed where the grantor (seller) guarantees that he or she holds clear title to a piece of real estate and has a right to sell it to the grantee (buyer). Warranty deeds typically convey properties with certain covenants or warranties. This is in contrast to a quitclaim deed, where the seller does not guarantee that he or she holds title to a piece of real estate.
