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Real Estate Chapter 4

Terms in this set (18)

List the four classes of real property
1. Real Estate held for personal residence
2. Real Estate held for sale to others- dealer property
3. Real Estate held for use in a trade or business- trade or business property
4. Real Estate held as an investment for production of income- investment property
List the three types of income subject to federal taxation
Active, Portfolio, Passive
For the purposes of federal income tax, an apartment complex purchased and held by an investor renting space to tenants is classified as:
A. Investment property
B. Income producing property
C. Business property
D. Dealer property
C
The dividends distributed to investors in a real estate investment trust are classified as:
A. Unearned income
B. Earned income
C. Passive activity income
D. Portfolio income
D
Under current federal income tax law, for property obtained after 1994, the allowable cost recovery period for owner-occupied single-family residential income property is:
A. 27.5 years
B. 31.5 years
C. 39 years
D. None of the above
D, owner occupied residential property is not depreciable
The total tax paid by a taxpayer, divided their taxable income is termed:
The average tax rate
For individuals and partnerships, tax losses from passive activities can be used to offset positive taxable income from
Other passive activities
If a real estate investor (sole owner) is an active participant, passive tax losses from the investment may in some cases be used to offset
All of the above, wages and salary, dividend income, and portfolio income.
Real property held for resale to others by contractors and brokers is classified by the IRS as "business property"
False this would be dealer property
Income earned from salaries, wages, and commissions is termed earned income
False this would be active income
When evaluation whether to invest in a project, the investment analysis should consider the investors marginal tax rate, as opposed to the investors average tax rate.
True
The income and expenses associated with directly owning rental property, either in the form of a sole proprietorship or a partnership, are included as "income from rental real estate, royalties, and partnerships" on the federal tax form.
True
If the taxable income on a property is greater than the before tax cash flows, the property has tax sheltering characteristics
False, to have sheltering characteristics the taxable income on a property should be less than the before tax cash flows.
Reserves are set aside to be used in the future to replace capital item can be deducted from the property's income for tax purposes
False, reserves for replacement cannot be expensed
For income property, up-front financing costs are not fully deductible in the year in which they are paid. The costs must be amortized over the term of the loan.
True
Raw land purchased by an investor looking to develop a residential subdivision in the future can be depreciated
False, land is not a depreciable asset
Residential income propeorty purchased today is depreciated over a 29.5 year period
False, its 27.5 cost recovery period
Tax credits on low income housing may be applied to the reduce the taxes on active and portfolio income, regardless of whether the developer materially participates.
True
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