An investor closed on a property, then decided to sell a property other than the one initially marked for the exchange. What is this an example of?
A buy and hold
A fickle investor
A fix and flip
A reverse tax-deferred exchange
Which one of the following is a description of economic depreciation?
Investors can take a business deduction for annual depreciation.
The asset is worth less because the economy took a downturn.
The asset is worth more because of capital improvements.
The owner/investor is making less income from the property than previously.
What is defined as an asset’s reduction in value?
Appreciation
Depreciation
Gain
Loss
What advantage does the 1031 tax-deferred exchange offer?
It allows investors to avoid ever paying taxes from gains realized on their investments.
It allows investors to defer capital gains taxes when selling a property, provided they buy another property.
It offsets capital gains for homeowners who have lived in the home for at least two years.
It provides a tax shelter for non-real estate investments.
Investors may be allowed to deduct operating expenses, real estate taxes, mortgage interest, and what else?
Appreciation
Depreciation
Land appreciation
Mortgage principal
Which of the following could an investor who sells an apartment house buy using a 1031 exchange?
Duplex, office building, or warehouse
Duplex only
Office building only
Warehouse or office building only
Which of the following do investors like to avoid?
High tax liabilities
Long-term appreciation
Positive cash flow
Tax write-offs
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
John
John and Donald
Marcus
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?
Cash position
Depreciable basis
Income baseline
Investment basis
What types of capital gains may property owners encounter?
Before- and after-tax
High and low
Short- and long-term
Temporary and permanent
In a 1031 tax-deferred exchange, what role does the qualified intermediary serve?
Acts as trustee
Coordinates the exchange
Insures the replacement property
Records the deed
Your clients, Mr. and Mrs. Thompson, recently sold their home. What’s the amount that they made on the sale called?
Benefit
Capital gain
Capital loss
Income tax
What type of gain is considered long term?
A gain on a property owned more than 10 years
A gain on a property owned more than five years
A gain on a property owned more than one year
A gain on a property owned more than six months
A like-kind exchange, or 1031 exchange, is also referred to as a ______.
Incentive exchange
One-to-one exchange
Property swap
Tax-deferred exchange
A comparison of before-tax cash flow to cash invested is known as ______.
After-tax cash flow
Cash-on-cash return
Income rate value
Return on investment
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 cost recovery
Economic depreciation and physical deterioration
Operating depreciation and taxing authority
Tax depreciation and physical deterioration
What type of professional must an investor use to conduct a tax-deferred exchange?
A certified public accountant
A licensed real estate professional
An appraiser or real estate broker
A qualified intermediary
The couple you’re working with purchased their home five years ago, which was valued at $175,000 at the time. Property values have increased by about 1% a year for the last five years. What is the property’s current value (rounded to the nearest dollar)?
$178,517
$180,302
$182,105
$183,927
Your client, Amber, asks you for more information about the tax implications of buying real estate. What should you tell Amber?
Amber should see her tax advisor for the specific tax implications of either buying or selling real estate.
Amber’s taxes will go up if she buys real estate.
Amber will be able to deduct all of her real estate interest if she buys a home.
Amber will receive a tax shelter if she buys real estate.
What is the 95% 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 95% of the relinquished property.
The fair market value of the relinquished property must be 95% more than the property (or properties) being exchanged.
The total value of the property being sold is at least 95% of the value of the profit to be made on the property (or properties) being exchanged.
The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold.
To whom would a 1031 tax exchange usually appeal?
Investors
Retailers
Traditional homebuyers
Wholesalers
Which of the following statements related to 1031 tax-deferred exchanges is true?
Foreign investors may not participate.
Foreign investors may participate.
Investors may not participate.
Residential homeowners may participate.
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?
1030
1031
180
360
Which of the following is an appreciating asset?
A retail addition added to owned property
Company vehicles
New office equipment
Office equipment purchased over the course of five years
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?
180
30
45
60
For how long may a commercial income-producing property be depreciated?
27.5 years
39 years
Commercial properties cannot be depreciated.
Indefinitely
What is the 200% rule as it relates to tax-deferred exchanges?
The capital gains realized from the property sale cannot be more than 200% of the original purchase price.
The capital gains realized from the property sale cannot be more than 200% of the sale price.
The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property.
The fair market value of the relinquished property must be 200% more than the property (or properties) being exchanged into.
What’s an income shelter?
A deductible allowance from after-tax cash flow
A deductible allowance from gross income
A deductible allowance from net income
A deductible allowance from petty cash flow
How can investors use depreciation when valuing assets?
Depreciation is only used for residential properties.
Investors are not allowed to take a business deduction for annual depreciation.
Investors can depreciate an appreciating asset.
Most investors try to avoid depreciation.
Kayla purchased a home in January, fixed it up, and then sold the property in May of the same year for a gain of $45,000. What type of capital gain is this?
Appreciated
Long-term
Short-term
Temporary
What does “cash-on-cash return” mean?
A comparison of before-tax cash flow to cash invested
Making money hand over fist
Net income after taxes are deducted
Trading international currency
A group of investors 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 their depreciation basis calculations?
The cost of the electrical system upgrades they did after purchase
The cost of the title insurance for the property
The loan origination and lender fees that they paid at closing
The price that they paid for the property, minus any land costs
It is necessary to know the ______ in a home to determine any gain or loss when it is sold.
Basis
Capital gain
Capital loss
Taxes
What can tax losses be used to offset?
Active income only
Both passive and active income
Earned income only
Passive income only
What is a reverse exchange?
A homeowner finds and closes on a house and then decides to sell their existing home.
A homeowner sells a property and then finds and closes on a new property.
An investor finds and closes on an investment property and then decides to immediately sell another investment property.
An investor sells a property and then finds and closes on another investment property.
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
30
45
60
An investor owns a commercial property. They receive $100,000 in income from the property but is only taxed on $75,000. What might explain this?
Some of their income is portfolio income and not taxable.
Their accountant miscalculated his taxes.
They may have an income shelter.
They took a capital gain exclusion.
What does income shelter mean?
It is a type of bank account that investors use to save money.
It means that the income received cannot be sheltered from taxation.
It means that the income received is sheltered from taxation.
It means that the income received is taxed at a higher rate.
What is before-tax cash flow?
Cash flow after property taxes are considered.
Cash flow before property taxes are considered.
Cash flow before taking income taxes into account.
Cash flow taking income taxes into account.
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
30
45
60
What is it called when a property’s value increases over time?
Appreciation
Debt
Depreciation
Investment
What is the three-property rule as it relates to tax-deferred exchanges?
An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met.
An investor cannot exchange into more than three properties per exchange.
An investor can only perform an exchange with three properties.
An investor must own three properties before they qualify for tax-deferred exchanges.
What is the amount that sellers make on the sale of their home called?
Benefit
Capital gain
Capital loss
Income tax
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?
$36,000
$40,000
$45,000
$50,000
In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______.
The basis of the original property is cancelled.
The new property must be lower value than the relinquished property.
The property in an exchange must be like-kind.
The replacement property has to come with less debt load.
What type of capital gain is considered short term?
A gain on a property owned 10 years or less
A gain on a property owned five years or less
A gain on a property owned one year or less
A gain on a property owned two years or less
Daniel purchased a home in January of 2010 and then sold the property in October of 2014 for a gain of $5,500. What type of capital gain is this?
Appreciated
Long-term
Short-term
Temporary
What is after-tax cash flow?
Cash flow after considering income taxes
Tax basis after deductions are applied
Tax refund
Tax windfall
What type of investment strategy is most similar to a 1031 tax-deferred exchange?
Buy and hold
Fix and flip
Rolling over funds from one IRA into another
Wholesaling
What type of property cannot be depreciated?
Commercial
Investment
Office building
Personal residence
Breeja sold her investment property for $330,000. Her adjusted basis in the property was $253,000. The difference between this sale price and the adjusted basis is ______.
A capital gain
After-tax cash flow
A rate of return
The finance rate
17sect.unit5.CeSh.PreLic.Qonly.txt
Which method to estimate a business’s value examines the ability of the business to generate income?
Comparable sales analysis
Income analysis
Liquidation analysis
The cost approach
Which of the following is an intangible asset?
A company’s inventory
A company’s machinery
A company’s real estate
A company’s reputation for excellence
Jerry is a business enterprise broker. Which of the following must be true?
He deals with the sale and purchase of larger businesses.
He deals with the sale and purchase of smaller businesses.
He does not deal with the sale and purchase of personal property.
He is not required to have a real estate license.
What is the name for a type of asset which cannot be touched?
Fixed
Intangible
Physical
Tangible
Which method of estimating a business’s value considers the sales prices of similar businesses and accounts for basic differences to arrive at a market value?
Comparable sales analysis
Cost approach
Income analysis
Liquidation analysis
In the sale of a business, which generally involves 12 steps, something happens with the assets early in the process. What is it?
Business assets and personal assets are combined.
Business assets are separated from personal assets.
Business assets are subtracted from liabilities.
Business assets are subtracted from the value of the business.
Poor Sarah! John has died and she no longer wishes to continue with their custom cabinet business, SJ Cabinets. John made the cabinets, after all! She wants to sell off all of their assets and inventory instead of selling the business itself. What method would most likely be used to estimate the value of SJ Cabinets?
Comparable sales analysis
Income analysis
Liquidation analysis
The cost approach
What is one fundamental difference between real estate brokerage and business brokerage?
Business brokerage does not require a real estate license.
Business brokerage has a geographically smaller market scope.
Business brokerage may or may not involve real estate.
Business brokerage never involves real estate.