Chapter 6 ASREB Review Questions and Answers
Adjusted Basis - Answers-the purchase price of a property (basis) minus accumulative
depreciation, plus acquisition costs, plus capital improvements. also called: Adjusted
Purchase Price
.Adjusted Sales Price - Answers-sales price minus costs of sale (commission and
closing costs)
.Appreciation - Answers-an increase in the value of property due to a positive
improvement in the area or the elimination of negative factors
.Basis - Answers-a buyer's initial cost for a real estate purchase; the dollar amount the
Internal Revenue Service attributes to an asset in determining annual gain or loss, or
depreciation, on the sale of the asset
.Boot - Answers-taxable, not like-kind property used in an exchange, such as cash or
other personal property that is used to balance an exchange of real property; can be
borrowed
.C Corporation - Answers-a legal entity owned by its shareholders that has limited
liability. the corporation is taxed as an entity as well as the dividends received by the
shareholders, therefore, double taxation
.Capital Gains - Answers-the gain from the sale of a capital asset, i.e., one held for
investment purposes
.Cash Flow - Answers-the net spendable income from an investment after operating and
fixed expenses including set service. if expenses exceed income, the cash flow is
negative. also called: Cash Throw-Off
.Cash-On-Cash Return - Answers-the bottom line of any investment expressed as a
percentage by dividing the investment's cash flow by the down payment and settlement
costs
.Depreciation - Answers-1. the decrease in value to real property improvements caused
by deterioration or obsolescence; 2. a loss in value as an accounting procedure for use
as a tax deduction for income tax purposes. investors use depreciation as a tax shelter
.Diversification - Answers-a risk management technique that mixes a wide variety of
investments within a portfolio
Adjusted Basis - Answers-the purchase price of a property (basis) minus accumulative
depreciation, plus acquisition costs, plus capital improvements. also called: Adjusted
Purchase Price
.Adjusted Sales Price - Answers-sales price minus costs of sale (commission and
closing costs)
.Appreciation - Answers-an increase in the value of property due to a positive
improvement in the area or the elimination of negative factors
.Basis - Answers-a buyer's initial cost for a real estate purchase; the dollar amount the
Internal Revenue Service attributes to an asset in determining annual gain or loss, or
depreciation, on the sale of the asset
.Boot - Answers-taxable, not like-kind property used in an exchange, such as cash or
other personal property that is used to balance an exchange of real property; can be
borrowed
.C Corporation - Answers-a legal entity owned by its shareholders that has limited
liability. the corporation is taxed as an entity as well as the dividends received by the
shareholders, therefore, double taxation
.Capital Gains - Answers-the gain from the sale of a capital asset, i.e., one held for
investment purposes
.Cash Flow - Answers-the net spendable income from an investment after operating and
fixed expenses including set service. if expenses exceed income, the cash flow is
negative. also called: Cash Throw-Off
.Cash-On-Cash Return - Answers-the bottom line of any investment expressed as a
percentage by dividing the investment's cash flow by the down payment and settlement
costs
.Depreciation - Answers-1. the decrease in value to real property improvements caused
by deterioration or obsolescence; 2. a loss in value as an accounting procedure for use
as a tax deduction for income tax purposes. investors use depreciation as a tax shelter
.Diversification - Answers-a risk management technique that mixes a wide variety of
investments within a portfolio
