Ch 18

Tom invested $20,000 in a limited partnership. His share of liabilities from mortgage debt was initially $45,000. The property suffered a loss in income during the first year, of which Tom's share was $5,000. However, in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year). The reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100. What is Tom's basis in the partnership interest at the end of year 4?

$67,900

A partnership agreement provides that, at sale, cash proceeds are distributed first to Mr. Smith in an amount equal to his original investment less any cash distributions previously received, then split 50-50 between Mr. Smith and Ms. Jones. Assume that the cash flows from sale are $1 million. How much would Mr. Smith receive if his initial investment was $400,000 and he previously received $25,000 in distributions?

$687,500

Which of the following BEST defines the term "real estate syndication?"

A group of investors who have combined their financial resources with the expertise of a real estate professional to carry out a real estate project

Noncumulative pari passu distribution refers to:

A preferred payment received by money partners and operating partners

A syndicate that raises capital before identifying any or all of the properties it will eventually own is known as a(n):

Blind pool

Refer to the question above. What is the balance of Tom's capital account at the end of year 4?

$24,000

When one investor receives cash flow to achieve a certain IRR before splitting the remaining cash flow it is referred to as

IRR preference

Interest and real estate tax incurred during construction of real property improvements must be:

Included in depreciable basis of the property

Sharing cash flow in a joint venture in proportion to the capital contribution is referred to as

Pari passu

Which of the following does NOT need to occur for a partnership allocation to have substantial economic effect?

Profits and losses must be allocated to different partners in proportion to their equity contribution

Which of the following imposes certain ownership and minimum capital requirements to avoid "dummy" corporations acting as sole corporate general partners?

Safe harbor rules

In a syndication, when cash is distributed from an investor's partnership basis how is the new basis calculated?

The cash distribution is subtracted from the investor's partnership basis

How should interest prepayments (including points) for income-producing real estate be handled for tax purposes?

They should be amortized over the life of the loan

Which of the following statements is TRUE regarding general partnerships?

They usually are not suggested for groups of individuals that are seeking to form a business entity to invest in real estate because of the unlimited liability of each partner.

Which of the following is NOT one of the criteria used to decide corporation treatment?

Unlimited liability