Real Estate Chapter 3

When married homeowners who file jointly realize a profit from the sale of their home that exceeds $500,000, which of these is TRUE?

The answer is the profit exceeding $500,000 will be taxed at the current applicable capital gains rate. For capital gains beyond these $500,000/$250,000 exclusions, the tax rate has varied over the past decade and depends upon what tax bracket an individual or married couple falls into.

An unmarried homeowner has $80,000 in equity in his primary residence of three years. The owner sells the residence for $135,000. The broker's commission was 5.5%, and other selling expenses amounted to $1,200. What is the owner's taxable gain on this transaction?

The answer is $0. Taxpayers who file singly are entitled to a $250,000 exclusion. The exemption is available so long as the homeowners have owned and occupied the property as their primary residence for at least two of the past five years.

A man incurs the following expenses: $9,500 in interest on a mortgage loan on his residence, $800 in real estate taxes plus a $450 late payment penalty, and a $1,000 loan origination fee paid in the course of purchasing his home. How much may be deducted from his gross income?

The answer is $11,300. $9,500 + $800 + $1,000 = $11,300. Late payment penalties may not be deducted.

A building that is remodeled into residential units and is no longer used for the purpose for which it was originally built is an example of

The answer is a converted-use property. Converted-use properties are factories, warehouses, office buildings, hotels, schools, churches, and other structures that have been converted to residential use.

A highrise development that includes office space, stores, theaters, and apartment units is an example of

The answer is a mixed-use development (MUD). Highrise developments [also called mixed-use developments (MUDs)] combine such elements as office space, stores, theaters, and apartment units into a single vertical community. MUDs are usually self-contained, offering convenient options (such as spas or exercise facilities) to those living there.

In determining whether a prospective buyer can afford a certain home purchase, lenders will consider

The answer is all of these. To determine whether a prospective buyer can afford a certain purchase, most lenders use automated underwriting and credit scoring. Pretax monthly income and payments on all debts—total housing plus any long-term debts such as car payments, student loans, or other mortgages—are taken into consideration. Credit scores and down payments play a key role when lending institutions decide whether to lend money.

Theft, smoke damage, and damage from fire are covered under which type of homeowners insurance policy?

The answer is basic form. The most common homeowners policy is called a basic form. It provides property coverage against such losses from fire and lightning, damage from smoke, vandalism and malicious mischief, theft, and loss of property removed from the premises when it is endangered by fire or other perils.

Which clause is found in MOST homeowners insurance policies?

The answer is coinsurance clause. Most homeowners insurance policies contain a coinsurance clause. This provision usually requires that the owner maintain insurance equal to a specified percentage (usually 80%) of the replacement cost of the dwelling (not including the price of the land).

The portion of an owners' property value that exceeds the amount of their mortgage debt is called

The answer is equity. As the total mortgage debt is reduced through monthly payments, the owner's actual ownership interest in the property increases. This increasing ownership interest is called equity and represents the paid-off share of the property held free of any mortgage.

Which of these is NOT covered in either a basic form or a broad form homeowners insurance policy?

The answer is flood. A basic form policy provides property coverage against fire and lightning, explosion, and windstorm and hail. Owners in flood-prone areas called special flood hazard areas (SFHAs) are required to obtain flood insurance.

Examples of policy efforts to increase home ownership include

The answer is lower closing costs for first-time homebuyers. Increasing the supply of affordable housing is a key concern for many members of Congress, state legislatures, and local governments.

One result of the capital gains tax law is that MOST homeowners

The answer is may use the $250,000 capital gains exclusion if they lived in the property for two out of the last five years. The $250,000/$500,000 exclusion from capital gains tax is available so long as the homeowners have owned and occupied the property as their primary residence for at least two of the past five years.

Each room of a house was preassembled at a factory, driven to the building site on a truck, and then lowered onto its foundation by a crane. Later, workers finished the structure and connected plumbing and wiring before the owners moved in. Which term BEST describes this type of home?

The answer is modular. Each room in a modular home is pre-assembled at a factory, driven to the building site on a truck, and then lowered onto its foundation by a crane. Later, workers finish the structure and connect plumbing and wiring.

The real cost of owning a home includes certain costs/expenses that many people overlook. Which of these is NOT such a cost/expense of home ownership?

The answer is personal property taxes. The basic costs of owning a home, known by the acronym PITI, include the mortgage principal and interest, real estate taxes, and homeowners insurance. Home ownership also involves many other expenses, including trash removal fees, sewer charges, and maintenance and repairs.

A community that merges housing, recreation, and commercial units into one self-contained development is called a

The answer is planned unit development (PUD). Planned unit developments (also called master-planned communities) merge such diverse land uses as housing, recreation facilities, and commercial concerns in one self-contained development.

Homeowners may deduct which of the following expenses when preparing their income tax return?

The answer is real estate taxes. To encourage home ownership, the federal government allows homeowners certain income tax advantages. Homeowners may deduct from their income some or all of the mortgage interest paid, as well as real estate taxes and certain other expenses.

Which of these is NOT a cost or expense of owning a home?

The answer is taxes on personal property. The basic costs of owning a home, known by the acronym PITI, include the mortgage principal and interest, real estate taxes, and homeowners insurance. Home ownership also involves many other expenses, including trash removal fees, sewer charges, and maintenance and repairs.

A couple paid $56,000 for their property 20 years ago. Today, the market value is $119,000, and they owe $5,000 on their mortgage. Regarding this situation, which of these is TRUE?

The answer is the $114,000 difference between the market value and the amount owed on the mortgage is their equity. As the total mortgage debt is reduced through monthly payments, the owner's actual ownership interest in the property increases. This increasing ownership interest is called equity and represents the paid-off share of the property held free of any mortgage.

A lot is valued at $25,000, and the house is valued at $75,000. If the house is totally destroyed by fire, under a guaranteed replacement cost policy with a coinsurance clause, which of these would MOST likely occur?

The answer is the insurance company would pay $60,000 to the owner. Most homeowners insurance policies contain a coinsurance clause. This provision usually requires that the owner maintain insurance equal to a specified percentage (usually 80%) of the replacement cost of the dwelling (not including the price of the land).

A single woman bought a home 18 months ago and is now selling because she found a new job in another city. A married couple filing joint taxes has owned a nine-bedroom home for three years. Now, the couple wants to move to a small condominium unit. A single man owned his home for 17 years, sold it, and will use the proceeds from the sale to purchase a larger house. Based on these facts, which of these people is entitled to the $500,000 capital gains exclusion?

The answer is the married couple. The federal government enacted several federal tax reforms that significantly changed the importance of tax considerations for most homesellers. For example, $500,000 is excluded from capital gains tax for profits on the sale of a principal residence by married taxpayers who file jointly. Taxpayers who file singly are entitled to a $250,000 exclusion. The exemption is available so long as the homeowners have both owned and occupied the property as their primary residence for at least two of the past five years. The term capital gains refers generally to the profit made when an asset is sold.