RE Principles Unit 11
use tax
A charge imposed on the use or possession of personal property. Governments employ use taxes to accomplish two purposes. A use tax may be imposed to prevent someone from evading a sales tax by buying goods in a nontaxing state. Use taxes are also used to help defray the cost of public services associated with particular types of personal property.
sales tax
A tax imposed by the government at the point of sale on retail goods and services. It is collected by the retailer and passed on to the state.
benefit assessment
Amount owed by owners of property that is enhanced by the construction or renovation of improvements.
installment sale
An income tax method of reporting gain received from the sale of real estate when the sales price is paid in installments, i.e., where at least one payment is to be received after the close of the taxable year in which the sale occurs. No down payment is required in an installment sale.
veteran's exemption
California war veterans may receive a $4,000 exemption on the full cash value of their homes.
recovery property
Property that can be depreciated for income tax purposes, with the cost of the property deducted from income over a stated period.
ad valorem
The Latin phrase for "according to value."
tax deferred exchange
Under Section 1031 of the Internal Revenue Code, some or all of the realized gain from the exchange of property may not need to be immediately recognized for tax purposes. Both properties in an exchange must be held for productive use in trade or business or for investment and must be of a like-kind.
morgan property taxpayer's bill of rights
A California law effective January 1, 1994, that ensures that taxpayers are provided fair and understandable explanations of their rights and duties with respect to property taxation, prompt resolution of legitimate questions and appeals regarding their property taxes, and prompt corrections when errors have occurred in property tax assessments.
gift tax
A federal tax applied to an individual giving anything of value to another person. It is the giver of the gift who is required to pay the gift tax. The receiver of the gift may pay the gift tax, or a percentage of it, if giver has exceeded his/her annual personal gift tax deduction limit. California's gift tax was repealed by voters in 1982.
straight line method
A method of depreciation, also called the age-life method, that is computed by dividing the adjusted basis of a property by the number of years of estimated remaining useful life.
special assessment
A tax or levy customarily imposed against only those specific parcels of realty that will benefit from a proposed public improvement, as opposed to a general tax on the entire community. Common examples of special assessments are water, sidewalk and sewer assessments.
proposition 13
A voter initiative that added Article XIII A to the California Constitution. It limits property tax rates to no more than 1% of full cash value. Increases in assessed value per year are capped at 2% or the percentage growth in the Consumer Price Index (CPI), whichever is less. The increase has been less than the 2% cap only five times since 1977.
inheritance tax
An "estate" tax imposed by the state on heirs for their right to inherit property. The tax is not levied on the property itself, but rather on the heirs for their right to acquire the property by succession or devise. Therefore, the rates or the deductions may vary depending on the degree of the relationship
homeowner's exemption
An amount of property value of owner-occupied residence excluded from property taxation.
Mello-Roos Community Facilities Act
California law that requires property owners benefiting from public improvements financed by bond issues to repay the bonds; requires notification to a prospective purchaser of lien assessments on the property.
base value
For property tax assessment purposes, the full cash value of a parcel of real estate as of February 28, 1975, or the date of a subsequent sale or other reassessment event.
change in ownership
For property tax purposes, a change in ownership in real property is the transfer of a present interest in real property, including the transfer of the rights to the beneficial use thereof, the value of which is substantially equal to the value of the fee interest.
certificate of redemption
Issued by the county tax collector when all past due amounts have been paid.
boot
Money or other property that is not like-kind, which is given to make up any difference in value or equity between exchanged properties. Boot may be in the form of cash, notes, gems, the market value of an asset such as a mortgage, land contract, personal property, goodwill, a service or a patent offered in an exchange.
documentary transfer tax
Tax applicable to property transfers and affixed to the grant deed; varies from county to county, city to city.
assessed value
The dollar value of an asset assigned by a public tax assessor for the purposes of taxation.
county assessor
The official responsible for determining property values for ad valorem taxation purposes.
tax rate
The tax rate for each taxing body is computed separately. To arrive at a tax rate, the total monies needed for the coming fiscal year are divided by the total assessments of all real estate located within the taxing body's jurisdiction.
Tax consequences with respect to real estate should be known (a)prior to acquisition. (b)at time of sale. (c)at close of escrow. (d)three months after taking possession.
a
The purpose of the property tax assessed value is to (a)establish the base value (b)equalize property taxes (c)create the transfer tax rate (d)ensure all counties are equal
a
The second property tax installment is due and delinquent on (a)February 1st; April 10th. (b)November 1st; December 10th. (c)December 31st; June 30th. (d)March 1st; July 1st.
a
Unless an extension is given, a federal income tax return must be filed for the preceding tax year by (a)April 15 (b)May 15 (c)August 15 (d)October 15
a
Which of the following is considered an ad valorem tax? (a)real property tax. (b)unit tax. (c)use tax. (d)death tax.
a
The maximum nontaxable amount that can be given as a gift to one donee, in one year, is currently (a)$14,000. (b)$10,000. (c)$5,000. (d)$1,000.
a) A gift is a voluntary transfer by an individual of any type of property for less than full consideration. The giver is the donor; the recipient of the gift is the donee. No gift tax return need be made on a gift to one donee, in one year, of a present interest valued, as of 2013, at $14,000 or less. (A married couple could give $14,000 each, for a total of $28,000 to one donee in one year.) For every year after that, the maximum gift allowed before a gift tax return must be made will be $14,000 per donee plus an adjustment for inflation, although the exclusion will remain at $14,000 for 2014. If the gift is a future interest, a return always must be made.
If Johnson's intent is to accomplish a "tax free" exchange of his apartment building, he should exchange for (a)another apartment building. (b)a personal residence. (c)a second home. (d)an owner-occupied, single-family residence.
a) To be a tax-deferred exchange, as defined in Section 1031 of the Internal Revenue Code, the properties exchanged must be of like kind in nature or character. Most real property can be exchanged for other real property, such as an office building for vacant land. Property held for personal use cannot be exchanged for investment property; for example, a personal residence cannot be exchanged for a house that will be rented.
A manufactured (mobile) home can be either personal property or real property. As personal property, a manufactured home is subject to(a)local property taxation.(b)vehicle license fee status.(c)special tax assessment status.(d)supplemental tax status.
b
A personal residence and business equipment are considered (a)personal property (b)capital assets (c)real property (d)intangible property
b
If a property owner believes that the assessed value on his or her property has been set too high, the owner could file a request to seek a reduction from the (a)County Board of Supervisors. (b)Assessment Appeals Board. (c)Tax Collector. (d)State Board of Equalization.
b
The first property tax installment of the tax year is due on (a)July 1 (b)November 1 (c)February 1 (d)April 1
b
A principal residence must be occupied for how long to take advantage of the maximum exclusion of profit from taxable income? (a)One year (b)18 months (c)Two years (d)Five years
c
A way to spread the cost of acquiring property used in a trade or business over its useful life that is a deduction from adjusted gross income describes (a)reconciliation. (b)recuperation. (c)depreciation. (d)deferred maintenance.
c
An owner occupied residence qualifies for a homeowner's exemption of (a)$1,000. (b)$4,000. (c)$7,000. (d)none of these.
c
In computing transfer tax, the consideration paid for the property excludes (a)the down payment. (b)the deposit. (c)any preexisting liens or encumbrances. (d)any property taxes due.
c
Real property taxes become a lien on (a)November 1 (b)February 1 (c)January 1 (d)July 1
c
Real property taxes become a lien on (a)November 1st. (b)February 1st. (c)January 1st. (d)July 1st.
c
Tax delinquent residential real property not redeemed by the owner during the five year statutory redemption period is deeded to the (a)city. (b)county. (c)state. (d)school district.
c
Taxes charged in direct relation to property value are (a)illegal (b)paid annually (c)ad valorem taxes (d)paid upon a sale only
c
The California sales tax is a(n) (a)ad valorem tax. (b)tax paid on real estate. (c)tax paid on tangible personal property. (d)tax paid on all personal property.
c
The second property tax installment is delinquent after (a)December 10 (b)February 1 (c)April 10 (d)May 16
c
Which of the following can a property owner expect after sewer lines are installed in front of his/her property? (a)supplemental assessment (b)general assessment (c)special assessment (d)All of the above
c
An investor can take advantage of all of the following EXCEPT (a)depreciation. (b)deductions for expenses of operation. (c)homeowner's exemption from federal income tax. (d)deduction of rental property losses.
c) An investor cannot take advantage of the homeowner's exemption from federal income taxation but receives other benefits of property ownership.
A buyer does not have to withhold a portion of the sales price from a seller when (a)the property is residential. (b)the seller refuses to pay the withholding. (c)the sales price does not exceed $100,000. (d)None of the above
c) California Withholding on the Sale of Real Property: Effective January 1, 2003, buyers must withhold and transmit a portion of the sales price to the Franchise Tax Board (FTB) regardless of whether the seller is a California resident, unless an exemption applies. Buyers must withhold 3 1/3 percent of the gross sales price on sales of California real property interests when:1) the seller is an individual (a "natural person") (Rev. & Tax Code SS 18662(e)(1)); or2) the seller is not an individual and the funds will be transferred to a seller with a last known street address outside of California or to the seller's financial intermediary. (Rev. & Tax Code SS 18662(f)(1)). The exemptions for individuals selling real property include the sale of property for less than $100,000, the sale of a principal residence, an IRC SS 1031 exchange, an involuntary conversion under IRC SS 1033, and the sale of property at a loss for California income tax purposes.
Recognizing that many older people on fixed incomes have trouble paying property taxes, the Property Tax Postponement Law was passed to allow (a)senior citizens to postpone payment of property taxes. (b)blind or disabled people to postpone payment of property taxes. (c)both (a) and (b) are correct. (d)certain individuals to postpone property taxes on houseboats and floating homes.
c) The state recognizes that many older people on fixed incomes are property owners but have little funds to set aside for taxes. The Property Tax Postponement Law allows a senior citizen (person aged 62 or older) to postpone payment of taxes on his or her personal residence. Postponement also may be made by persons who are blind or disabled, as defined in the law. If the applicant is married, only one spouse need qualify. Houseboats and floating homes on which the property taxes are delinquent at the time of application are not eligible for postponement.
In California, the inheritance and gift taxes have been (a)increased (b)reduced (c)combined (d)abolished
d
The person responsible for determining assessed values is the (a)county tax collector (b)county supervisor (c)sheriff (d)county assessor
d
Which of the following is a tax consideration for the homeowner? (a)mortgage interest deductions (b)tax credits (c)capital gains exclusion (d)All of the above
d
An installment sale represents a tax advantage because (a)it reduces tax rates. (b)it eliminates taxes all together. (c)it is a tax exemption. (d)it defers payment of capital gains.
d) An installment sale allows the taxpayer to postpone the receipt and reporting of income to future years when his or her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale.
Which of the following is true regarding current federal estate tax law? (a)The American Taxpayer Relief Act of 2012 established a federal estate tax exemption of $5 million per person, indexed for inflation. (b)The exemption was $5.25 million for 2013 and is $5.34 million for 2014. (c)The exemption is reduced by any large gifts (those subject to gift tax) made during the decedent's lifetime. (d)All of the above
d) The American Taxpayer Relief Act of 2012 established a federal estate tax exemption of $5 million per person, indexed for inflation. The estate is taxed at a 40% rate on any estate value over that amount. The exemption was $5.25 million for 2013 and is $5.34 million for 2014. The exemption is reduced by any large gifts (those subject to gift tax) made during the decedent's lifetime.