section 4 chapter 4

For tax purposes, the initial cost of an investment property plus the cost of any improvements and minus any depreciation deductions to the property represents the investment's: Select one: a. Adjusted basis. b. Capital gains. c. Equity. d. Salvage value.

adjusted basis

When a city determines its spending level to determine the necessary level of property taxes needed that process is known as: Select one: a. Assessment b. Apportionment c. Appropriation d. Disintermediation

appropriation

To qualify for a tax-deferred exchange, properties MUST: Select one: a. Have the same income. b. Have different incomes. c. Be of like kind. d. Have deeds in corporation names

be of like kind

true or false: Long-term capital gains are financial gains earned from the sale of an asset held for a six month time period or more.

false

true or false: Special assessment taxes are used to generate funds to improve interstate highways.

false

Which is the superior lien in the event of a foreclosure? Select one: a. Tax lien. b. First mortgage. c. Junior Mortgage. d. Home equity loan.

tax lien

Ted and Alice are married and bought a house three years ago for $200,000. Two years later they moved out of the house and rented it out on a one-year lease. At the expiration of the lease they sold the house for $300,000. What is the taxable long-term gain on sale of the property? Select one: a. $100,000 because they did not own the house for five years b. $100,000 because the house had been rented when they sold it c. $0 because long-term gains on a personal residence are never taxable d. $0 because they used it for a personal residence for two of the last five years

$0 because they used it for a personal residence for two of the last five years -For a married couple who lived in the property for 2 of the last 5 years the first $500,000 of capital gains is exempt from taxation. Since they had only $100,000 of capital gains, it is tax-free in its entirety.

Sam bought a house for $175,000. The assessed value of the house is $160,000. The municipality uses a partial assessment of 75% of the assessed value. The property tax rate is 35 mills. What is the annual tax liability on this house? Select one: a. $6,125 b. $5,600 c. $4,593.75 d. $4,200

$160,000 x .75 = $120,000. $120,000 x .035 = $4,200.

John purchased a small apartment complex 10 years ago for $250,000. The complex is now valued at $700,000. He does a 1031 exchange for a small retail center which is valued at $680,000. As part of the exchange, the owner of the retail center paid $20,000 cash to John. John's mortgage before the exchange was $200,000 and was $300,000 after the exchange. What is John's taxable gain on this transaction, if any? Select one: a. $0 b. $20,000 c. $120,000 d. $450,000

$20,000 -1031 exchanges are generally tax-free except to the extent of cash boot received or any reduction in the mortgage amount. John received $20,000 cash so that is taxable. John's mortgage debt actually increased after the exchange, so there is no mortgage relief to consider. John's taxable gain would be only the $20,000 cash boot received.

A business purchased land for $250,000 and spent $750,000 constructing a building it uses for its operations. The recovery period for the property is 40 years. After 10 years, what will be the adjusted cost basis in the property? Select one: a. $1,000,000 b. $812,500 c. $750,000 d. $562,500

$750,000 / 40 years = $18,750 annual depreciation. $18,750 x 10 years = $187,500 total depreciation after 10 years. $250,000 + $750,000 - $187,500 = $812,500 adjusted cost basis.

Broker Lynch has an exclusive listing to sell Jones' hardware store for a $4,500 commission. He took another exclusive listing to sell Brown's grocery store for a $5,000 commission. With the consent of Jones and Brown, Lynch arranges an exchange of these two stores. How much will Lynch make from this exchange? Select one: a. $4,500 b. $5,000 c. $9,500 d. No commission, because an exchange is not a sale

$9,500

A special assessment is a? Select one: a. Re-evaluation of a property's value. b. Tax based upon benefit received. c. Tax levied equally against each property owner in the city or county. d. Tax levied only if ad valorem tax is sufficient to fund the proposed budget.

Tax based upon benefit received.

When a city determines its spending level to determine the necessary level of property taxes needed that process is known as: Select one: a. Assessment. b. Apportionment. c. Appropriation. d. Disintermediation.

appropriation

In order to qualify for long-term capital gains treatment, an investor must own the property for a minimum of: Select one: a. Six months or more b. More than six months c. One year or more d. More than one year

more than one year

Property taxes levied to finance special improvements serving a limited are called: Select one: a. "Ad Valorem" taxes b. Special Assessments c. District levies d. None of the above

special assessments

Sally purchased a home at a tax sale. The state in which the sale occurred has a statutory right of redemption for six months. At the time of the sale, Sally will receive: Select one: a. A warranty deed b. A bargain and sale deed c. A certificate of sale d. A tax deed

A certificate of sale

Fred owns a house and has not paid his property taxes when due. The taxing authority initiates the process of conducting the tax sale. Prior to the sale date, Fred stops the process by paying the back taxes and penalties. Fred has exercised a(n): Select one: a. Equitable right of redemption b. Statutory right of redemption c. Constitutional right of redemption d. None of these choices

Equitable right of redemption

A homeowner sells his principal residence for a profit. Under which of the following circumstances may the homeowner avoid paying taxes on the profit realized from the sale? Select one: a. By using the tax exempt $250,000 exclusion for a principal residence. b. By claiming the once-in-a-lifetime exemption, if the owner is eligible. c. No taxes are due as long as the profit is reinvested in real estate. d. Always, as profits realized from the sale of a residence are never subject to taxation.

By using the tax exempt $250,000 exclusion for a principal residence.

"Ad Valorem" taxes are used to fund: Select one: a. General operations of government b. Improvements serving a limited area c. Both of the above d. None of the above

general operations of government