Investment Analysis and Tax Benefits in Texas UNIT EXAM

Tyrell and Barb bought a commercial investment property in 2009 during the real estate market downturn. Through what year will they be able to depreciate the investment?

2048

Morgan is a single taxpayer and real estate investor. She buys homes for cheap, fixes them up while living in them, and sells them for a profit. How much can she exclude if she realizes a gain from the sale of her current property (assuming she meets all the criteria to exclude the gain)?

250,000

The sales price, acquisition costs, and capital improvement costs (such as renovations or additions) of a property combine to make up what?

BASIS

What type of investment strategy is most similar to a 1031 tax-deferred exchange?

Rolling over funds from one IRA into another

Which of the following would be a description of economic depreciation?

The asset is worth less because it's deteriorating physically.

What is the capital gains exclusion amount?

$250,000 for single taxpayers, $500,000 for married couples filing jointly

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

Bob just closed on his investment property. He's already identified a replacement property that he'll be exchanging into by using a 1031 tax-deferred exchange. How many days does he have to close on his replacement property?

180

Jim and Crystal bought their rundown little "shack" 15 years ago. Over the years, they've made structural improvements, built additions, and remodeled nearly every square inch of the property. They're ready for their next adventure and have sold their property for a capital gain of $300,000. Assuming they meet all the criteria to qualify for the capital gain exclusion (and are married filing jointly), how much of this gain can they exclude?

300,000

Your client, Joseph, has a commercial income-producing property. How long does he depreciate this property?

39 years

A property is generating $100,000 in income and has expenses of $25,000. The investor pays $3,000 toward mortgage principal each year and $32,000 toward interest, plus another $4,000 in income taxes. What is the before-tax cash flow?

40,000

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

45

What does "cash-on-cash return" mean?

A comparison of before-tax cash flow to cash invested

What type of capital gain is considered short term?

A gain on a property owned one year or less

Jose is an investor who found and closed on an investment property, then decided to sell a property other than the one originally marked for the exchange. What is this an example of?

A reverse tax-deferred exchange

What is the definition of "before-tax cash flow"?

Cash flow before taking income taxes into account.

Which of the following could an investor who sells an apartment house buy using a 1031 exchange?

Duplex, office building, or warehouse

In investments, each type of depreciation is defined by a particular event. Which of the following best describes a depreciation type and an event it's tied to?

Economic depreciation and physical deterioration

Investor Igor made $120,000 last year, but had $25,000 in losses from his rental properties. Can Igor take the full $25,000 deduction on his taxes, assuming he is actively involved in the management and operation of his rental properties?

No. Igor's $25,000 deduction will be decreased by 50 cents for every dollar he makes over $100,000.

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

TAZ 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.

The Siegels are purchasing a commercial investment property and plan to use straight-line depreciation on their financial statements and tax calculations. Which of the following would NOT be included in the Siegels' depreciation basis calculations?

The loan origination and lender fees that they paid at closing

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.

A comparison of before-tax cash flow to cash invested is known as ______.

cash on cash return

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

coordinates the exchange

Malcolm purchased an old convenience store, and after renovations will open a small vegan grocery. He paid $517,000, of which $417,000 was for the building, and renovations cost him $107,000. What does the amount $524,000 represent?

depreciable basis

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

Which of the following statements related to 1031 tax-deferred exchanges is true?

foreighn investors may participate

To whom would a 1031 tax exchange usually appeal?

investors

Which of the following statements about investors and tax depreciation is true?

investors can depreciate an appreciating assett

Donald purchased a property five years ago. He lived in the property for a year, then rented it out to a family friend. Now he is selling the property for a capital gain of $10,000. Can he exclude the gain from his taxes?

no he didnt live in the home for 2 of the proceeding 5 years

How often can the capital gains exclusion be claimed?

once very 2 years

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

Jimmy is a real estate investor who owns several rental properties in the area. After the economy took a turn, he was relying on TRA 86 to be able to deduct some of his losses. He is active in the management of the properties and his taxable income is $90,000. What is the maximum deduction Jimmy can claim on his taxes to make up for his losses on those rental properties?

25,000

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

A qualified intermediary

Under the Tax Reform Act of 1986, real estate investors are allowed to take a maximum of $25,000 in losses to offset their income, under certain conditions. These losses can only be taken if they apply to which type of property?

rental property

In investments, there are two types of depreciation, and each is defined by a particular event. Which of the following most accurately pairs the depreciation type with the event it is tied to?

tax depreciation & cost recovery

Recently, Francine and her husband, Frank, decided to purchase and restore a historic home in the downtown area. To be eligible for the tax credit for these renovations, Francine and Frank must follow specific federal guidelines when they renovate and restore the home. In addition, the home must be designated as an actual historic property by which of the following?

the department of the interior

Maya owns a small graphics shop and is meeting with her tax professional to review the year's receipts and other tax documentation. Her tax advisor lets her know that she has an appreciating asset, which makes Maya very happy! Which of the following is Maya's appreciating asset?

the retail addition she put into the building she already owned

Jennifer is the owner of the single-family residence in which she resides. How long can she take to depreciate her property?

zero you cannot depreciate a personal residence