chapter 4 home ownership

straight line depreciation

A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement.

Make a 40 percent down payment upfront

A seller has accepted an offer from John. John wants to remodel and add an outdoor pool when he has enough equity built up to cover the project. Which loan arrangement will help him build equity faster than the others? Make a 40 percent down payment upfront Negotiate the highest interest rate Opt for a shorter loan term Owner finance to avoid PMI

modular

A system for the construction of dwellings and other improvements to real property through the on-site assembly of component parts (modules) that have been mass produced away from the building site.

While talking to a client about non-federal tax liabilities, Dana mentioned local property taxes. She told her client that tax assessments are based on _____ but every district offers discounts to certain groups, such as people over 65 and permanently disabled individuals. A- Market value B- Original purchase price C- Adjusted value based on age, ethnicity and work status D- age of the home

A- market value

capital gains

At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value). Used for income tax computations. Gains are called short or long based upon the length of the holding period after acquisition. Usually taxed at lower rates than ordinary income.

$47,600

Bill, who is unmarried, is selling his rental home and plans to put off buying another home for five years. He earns $325,000 annually, putting him in the highest tax bracket at 23.8 percent. If he nets $200,000 on the transaction, how much will his tax liability be for the capital gain portion of his return only? $47,600 $49,400 $50,000

Capital gains or losses

Brenda has lived in her home for ten years. Her job is transferring her to another state, and she can't decide whether to convert her home to a rental property or sell it outright. Her real estate agent reminds her that if she sells her property, she can deduct mortgage origination points when reporting ............ on her federal taxes. Capital gains or losses non-farming business activity relocation expenses none of the answer choices provided are correct

An apartment building, owned by a corporation and in which tenancy in an apartment unit is obtained by purchase of shares of stock of the corporation and where the owner of such shares is entitled to occupy a specific apartment in the building.

Cooperative

A- 20 %

Denis bought a home fresh out of college from his parents for $10,000. He is ready to sell the home now, 20 years later, which substantially increased in value. He is concerned about paying capital gains taxes. His real estate agent told him that the long-term tax rate for most homeowners ranges from zero to ............, depending on several factors, and referred him to a tax accountant to discuss his particular situation in detail. A- 20 % B- 10% C-5% D35%

$750

James and three college friends want to buy a houseboat, with each of them owning an equal share. If the lender issues a joint 1098 showing interest, PMI, and points paid in the amount of $3000, how much can James deduct as expenses on his federal tax return? $750 $1,000 $1,500 $3,000

A- Over renovating doesn't guarantee a quick and high-profit turnover.

Katlin told her real estate agent that she is looking for an investment property. She recently took a class on buying low and selling high, so she plans to buy a home in a low-income neighborhood, furnish it with high-end appliances and all the latest in home technology. Her real estate agent cautions her against this strategy, because...? A- Over renovating doesn't guarantee a quick and high-profit turnover. B- Buyers are suspicious of a home that looks too nice for the neighborhood. C- She may make the neighbors mad if her rehabilitation forces their property value down. D-Only market conditions increase property values.

Tenant Coverage

Lisa is a real estate agent who also helps clients lease single-family homes. She advises every potential tenant to purchase HO-4, also known as ............, because it is a perils content policy. Tenant Coverage Dwelling & Content Coverage Named Perils Coverage Comprehensive Coverage

He should rent a home, as it offers more flexibility

Mark is trying to decide if he should rent or own a home. His job requires that he frequently travel, sometimes even for long periods of time. As Mark's real estate agent , what should you suggest to Mark? He should rent a home, as it offers more flexibility He should buy a single family home using all cash He should buy a home using a conventional mortgage He should buy a condominium apartment

A- planned unit development (PUD)

Mike is working with an investor/developer who wants to create a new mixed-used area that combines individual homes, retail space, multi-family housing, and public recreation spaces. He will need to get approval before starting this ............ project because zoning and density guidelines are not within the established comprehensive plan. A- planned unit development (PUD) B-modified residential subdivision C- modified commercial subdivision D- Multi-family business district

appreciation

Monetary gain resulting from the increase in the market value of an investment, excluding additions of capital. For example, a house which is sold five years after it was purchased for 50% more than the purchase price.

Content

Mortgage lenders generally require a policy that covers specific perils for structures and dwellings at full replacement value, without depreciate. However, they do not require coverage for...? Content fire damage flood damage wind damage

All of these statements are true

Peggy does not have any savings other than $126,000 in a 401K. What IRS rule(s) will affect whether she can use any, or all, of her retirement fund to purchase a home? All of these statements are true She can withdraw up to $50,000 to spend on a home purchase She will avoid taxes and fees as long as she makes all payments on time, including interest. She will avoid taxes and fees as long as she makes all payments on time, including interest. She can use 401k savings for a down payment or to buy down parts

A- Personal liability, personal property (like a renters policy) and walls, ceilings, floors, and some other structural features inside the home, but don't cover common areas of the building envelope.

Richard recently bought a condominium. When he contacted an insurance agent, he was surprised to learn that there are insurance policies specifically for condos. These policies provide peril coverage for..? A- Personal liability, personal property (like a renters policy) and walls, ceilings, floors, and some other structural features inside the home, but don't cover common areas of the building envelope. B- Contents and structural components inside the home, plus common areas managed by the HOA. C- Personal property and contents, but exclude all structural features and personal liability. D- Only structural components and personal liability.

The straight-line method 27.5

The most common type of depreciation is the ______ You calculate the annual depreciation by dividing the value of the home by ___? The straight-line method 27.5 The straight-line method 30 The general depreciation system(GDS), either 39 or 40 The general depreciation system (GDS), 25

single-family home

The most common type of residential dwelling in the United States is the..? single-family home condominium time-share multi- family building

Tax-differed exchange

The trade or exchange of one real property for another without the need to pay income taxes on the gain at the time of trade.

PMI is usually only required on conventional loans with a down payment less than 20%, or if the buyer wants to refinance a home with less than 20% equity built up.

What statement is true of PMI? PMI is usually only required on conventional loans with a down payment less than 20%, or if the buyer wants to refinance a home with less than 20% equity built up. PMI is equally divided among all installments payments for the life of the loan. PMI is typically required for loans processed with a minimal down payment. Homeowners purchase PMI through independent agents and make separate payments directly to the insurance company.

A-Business to business 1031 exchange for like-kind properties.

What type of real estate transaction allows owners to swap property under certain conditions without creating a capital gain tax liability. A-Business to business 1031 exchange for like-kind properties. B-A transaction between one private condo owner and a private single-family homeowner. C-A business to private owner swap that transfers ownership of a multi-family apartment complex in exchange for one or more single-family units. D-A bank transfer of commercial property to a private owner who wants to convert property to a personal residence.

a fee- simple time-share is deeded in perpetuity

Which characteristic differentiates a Fee- simple time-share from a Leasehold time- share purchase? a fee- simple time-share is deeded in perpetuity a leasehold time-share is deeded in perpetuity fee- simple time-share expires in 10 years A leasehold time-share is not deeded

A- FEMA

Which federal agency oversees and manages the National Flood Insurance Program (NFIP) A- FEMA B-EPA C-HUD D-FHA

Renting a home

Which of the following typically offers the most flexibility ? Renting a home Owning a single family home Owning a condominium Owning a multi family building

An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map, or condominium plan. condominium

condominium

A structure transportable in one or more sections, designed and equipped to contain not more than two dwelling units to be used with or without a foundation system.

mobile-home

A form of subdivision of real property into rights to the recurrent, exclusive use or occupancy of a lot, parcel, unit, or segment of real property, on an annual or some other periodic basis, for a specified period of time.

time-share