Unit 11 Terms

ad valorem

"according to value."

The maximum nontaxable amount that can be given as a gift to one donee, in one year, is currently

$14k A gift is a voluntary transfer by an individual of any type of property for less than full consideration. The giver is the donor; the recipient of the gift is the donee. No gift tax return need be made on a gift to one donee, in one year, of a present interest valued, as of 2013, at $14,000 or less. (A married couple could give $14,000 each, for a total of $28,000 to one donee in one year.) For every year after that, the maximum gift allowed before a gift tax return must be made will be $14,000 per donee plus an adjustment for inflation, although the exclusion will remain at $14,000 for 2014. If the gift is a future interest, a return always must be made. You are viewing Unit Eleven: Section 13 of 23:

Which of the following is a tax consideration for the homeowner?

(a)mortgage interest deductions (b)tax credits (c)capital gains exclusion

The depreciable value of real estate owned as of January 1, 1987, can be deducted over

27½ years (residential rental property) or 39 years (most other commercial real property), in equal amounts each year. This is called the straight-line method of computing depreciation.

Use tax

A charge imposed on the use or possession of personal property. Governments employ use taxes to accomplish two purposes. A use tax may be imposed to prevent someone from evading a sales tax by buying goods in a nontaxing state. Use taxes are also used to help defray the cost of public services associated with particular types of personal property.

Sales tax

A tax imposed by the government at the point of sale on retail goods and services. It is collected by the retailer and passed on to the state.

homeowner's exemption

An amount of property value of owner-occupied residence excluded from property taxation. First $7,000

18: An investor can take advantage of all of the following EXCEPT

An investor cannot take advantage of the homeowner's exemption from federal income taxation but receives other benefits of property ownership.

An owner occupied residence qualifies for a homeowner's exemption of

An owner-occupied residence, including a condominium or duplex unit, qualifies for a homeowner's exemption of the first $7,000 of full cash value.

Broker sales of manufactured homes

As an agent, the broker should be aware that the sale of a manufactured home that is subject to property tax will involve neither sales tax nor use tax. The purchaser of a manufactured home that is not subject to property tax will be charged use tax on the purchase price.

If a property owner believes that the assessed value on his or her property has been set too high, the owner could file a request to seek a reduction from the

Assessment Appeals Board.

A way to spread the cost of acquiring property used in a trade or business over its useful life that is a deduction from adjusted gross income describes

Depreciation is an expense deduction taken for an investment in depreciable property to allow for the recovery of the cost of the investment. The annual amount of the depreciation deduction results from an arbitrary apportionment of the investment in the building systematically spread over its useful life.

In computing transfer tax, the consideration paid for the property excludes

In computing transfer tax, the consideration paid for the property excludes any preexisting liens or encumbrances that were not removed by the sale (such as an assumed loan).

An income tax method of reporting gain received from the sale of real estate when the sales price is paid in installments, i.e., where at least one payment is to be received after the close of the taxable year in which the sale occurs. No down payment is required.

Installment sale

A manufactured (mobile) home can be either personal property or real property. As personal property, a manufactured home is subject to

Manufactured (mobile) homes can be either personal property or real property. As personal property, a manufactured home is subject to vehicle license fee status. Vehicle license fee status means that title to the manufactured home is registered with the Department of Housing and Community Development (HCD). If treated as real property, a manufactured home is subject to local real property taxation.

Capital Gain

Profit earned from the sale of an asset, where the sales price was greater than the adjusted basis. The holding period for long-term capital gains tax treatment is 12 months. Gains on investment real estate are taxed generally at 5% to 15%. There is a depreciation recapture rate (tax on prior depreciation deductions) of 25%

Installment Sales

Spreading out the reporting of income usually favors the taxpayer/seller, who may avoid a step up to a higher tax bracket or who may not want to pay the required tax in the year of sale. Investment property probably will have been depreciated by the taxpayer, and the taxpayer's cost basis in the property reduced accordingly. To the extent that the installment contract price exceeds the property's reduced basis, it must be reported as gain in the year of sale.

Tax delinquent residential real property not redeemed by the owner during the five year statutory redemption period is deeded to the

State

Which of the following is true regarding current federal estate tax law?

The American Taxpayer Relief Act of 2012 established a federal estate tax exemption of $5 million per person, indexed for inflation. The estate is taxed at a 40% rate on any estate value over that amount. The exemption was $5.25 million for 2013 and is $5.34 million for 2014. The exemption is reduced by any large gifts (those subject to gift tax) made during the decedent's lifetime.

The California sales tax is a(n)

The California State Sales Tax is imposed upon retailers for the privilege of selling tangible personal property at retail.

Real property taxes become a lien on

The next tax year's real property taxes become a lien on January 1st.

Recognizing that many older people on fixed incomes have trouble paying property taxes, the Property Tax Postponement Law was passed to allow

The state recognizes that many older people on fixed incomes are property owners but have little funds to set aside for taxes. The Property Tax Postponement Law allows a senior citizen (person aged 62 or older) to postpone payment of taxes on his or her personal residence. Postponement also may be made by persons who are blind or disabled, as defined in the law. If the applicant is married, only one spouse need qualify. Houseboats and floating homes on which the property taxes are delinquent at the time of application are not eligible for postponement.

19: If Johnson's intent is to accomplish a "tax free" exchange of his apartment building, he should exchange for

To be a tax-deferred exchange, as defined in Section 1031 of the Internal Revenue Code, the properties exchanged must be of like kind in nature or character. Most real property can be exchanged for other real property, such as an office building for vacant land. Property held for personal use cannot be exchanged for investment property; for example, a personal residence cannot be exchanged for a house that will be rented.

15: Tax consequences with respect to real estate should be known

Virtually all important decisions affecting tax liability must be made before a transaction in negotiated. At any other time, it may be too late.

The second property tax installment is due and delinquent on

You must know the fiscal tax year for the state exam.Memorization Aid: No, Darn, Foolin, Around February 1st; April 10th November 1: First installment due December 10, 5 PM: Delinquent date for 1st installment February 1: Second installment due April 10, 5 PM: Delinquent date for 2nd installment

If a county has adopted a transfer tax, a XXX within the county may adopt a similar ordinance.

city

When a business is sold, fixtures are subject to sales tax, but XXX is not.

inventory

20: An installment sale represents a tax advantage because

it defers payment of capital gains. An installment sale allows the taxpayer to postpone the receipt and reporting of income to future years when his or her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale.

Which of the following is considered an ad valorem tax?

real property tax

Which of the following can a property owner expect after sewer lines are installed in front of his/her property?

special assessment

21: A buyer does not have to withhold a portion of the sales price from a seller when

the sales price does not exceed $100,000. California Withholding on the Sale of Real Property: Effective January 1, 2003, buyers must withhold and transmit a portion of the sales price to the Franchise Tax Board (FTB) regardless of whether the seller is a California resident, unless an exemption applies. Buyers must withhold 3 1/3 percent of the gross sales price on sales of California real property interests when:1) the seller is an individual (a "natural person") (Rev. & Tax Code SS 18662(e)(1)); or2) the seller is not an individual and the funds will be transferred to a seller with a last known street address outside of California or to the seller's financial intermediary. (Rev. & Tax Code SS 18662(f)(1)). The exemptions for individuals selling real property include the sale of property for less than $100,000, the sale of a principal residence, an IRC SS 1031 exchange, an involuntary conversion under IRC SS 1033, and the sale of property at a loss for California income tax purposes.