Income Tax Aspects of Real Estate Exam Results

The capital gains exclusion for couples filing jointly who have lived in their primary residence at least two of the five years immediately preceding the sale of the home is up to $500,000. What is the capital gains exclusion for single taxpayers?

$250,000

Which section of the Internal Revenue Code allows the owner of real property to sell that property, then reinvest the proceeds in a "like-kind" property and defer paying any capital gains taxes?

1031

Capital gains taxes are owed when a property is sold. What percentage is used to calculate capital gains taxes when a person is in the 33% tax bracket?

15%

John wants to do a 1031 tax exchange with a property he just sold. How many calendar days does he have to identify a new property for the exchange?

45 calendar days from the sale.

What type of capital gain is considered short term?

A gain on a property owned on year or less.

What type of professional must an investor use to conduct a tax-deferred exchange?

A qualified intermediary

Which of the following is earned income (i.e., income earned directly through the taxpayers' efforts)?

Active

Which of these best describes boot and it's tax treatment?

Boot refers to any cash received by an investor from the sale proceeds in a 1031 exchange. Boot is taxable.

Payden sold his home and made a nice profit. His real estate agent told him he can offset his capital gains from what home costs?

Capital improvements

In a 1031 tax-deferred exchange, what role does the qualified intermediary serve?

Coordinates the exhange

John sells his single-family home and purchases a new home for his family to reside in. Marcus owns a single-family home, but rents it out to a co-worker while he is on an extended two-year military tour overseas. Donald sells an apartment complex and purchases a new complex in a different part of the city. Which of these consumers is most likely to take advantage of a 1031 tax-deferred exchange?

Donald: Remember, the property must be held for investment or business purposes. Single-family homes don't qualify.

After owning a tattoo parlor for 12 years, Gilbert sold it. Gilberts accountant calculated a $46,000 capital gain. Which one of the following statements is true?

Gilbert will pay tax on the gain at the long-term capital gains rate.

Why do investors have a special interest in the impact income taxes have?

Income tax is a significant factor in return on investment.

Which of the following is a true statement about deducting interest on mortgages taken out in tax years between 2018 and 2025?

Interest on the first $750,000 of mortgage debt is deductible for a married couple filing jointly for married couples filing separately.

A taxpayer can claim a capital gains exclusion ______?

Once every two years.

Which phase of the investment cycle includes deductions for mortgage interest and property taxes?

Ownership

What types of capital gains may property owners encounter?

Short- and long-term

A like-kind exchange, or 1031 exchange, is also referred to as a ______.

Tax-deferred exchange

What is the 200% rule as it relates to tax-deferred exchanges?

The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property.

Regarding 1031 excahnges, which one of these following statements regarding debt load in an exchanged property is true?

The debt load for the new property must be equal to or greater than the debt load for the previous property, or the difference may be taxable.

For tax years 2018 to 2025, a borrower can write off the interest on a home equity loan if _______.

The funds are used to buy, build, or improve the home that secures the loan.

Which one of the following statements about income tax rates is correct?

The tax rate on long-term capital gains is less than the tax rate for ordinary income.

What is the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold.

Which of the following is a true statement about pass-through entities?

Their earnings are taxed at the owners individual tax rates.

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to close on a new property?

180

What is a reverse exchange?

An investor finds and closes on an investment property and then decides to immediately sell another investment property.

In relation to a 1031 exchange, which of these represents "boot?"

Any cash funds the investor receives from the sale proceeds of a 1031 property

What type of IRS deduction can be taken for a vacation home?

Property tax

Which stage of the investment cycle is an investor in when there is depreciated basis and tax-deferral through 1031 exchanges?

Reversion

what types of investment strategy is most similar to a 1031 tax-deferred exchange?

Rolling over funds from one IRA into another