REE 4204 Exam Questions| Already
Answered| GRADED A+
What are the four requirements for tax-deferred exchange? - ANSWER-1. it must be like-kind and help
for trade, business, or investment (can do farmland to apartments) CANT DO owner-occupied residential
(primary residence)
2. help for trade, business, or investment (can do farmland to apartments) CAN'T DO owner-occupied
residential (primary residence)
3. The exchange must occur cant sell for cash and immediately purchase
4. basis acquired for property is equal to the basis of relinquished property
What is the boot? - ANSWER-a term that represents non-like-kind property
e.g if Property A is worth 10 the owner can exchange it for Property worth 8 and 2 in cash
in this example, the 2 in cash is the boot and is a taxable portion of the exchange.
Time limits in tax deferred exchanges - ANSWER-3 requirements
1. replacement property must be identified by the owner of the relinquished property during the
identification period of 45 days ( starts the day the relinquished property is transferred and ends 45 days
after)
2. the exchange must happen within the exchange period. (starts the day the relinquished property is
transferred and ends 180 days after)
3. the owner of the relinquished property must not be in constructive receipt of the proceeds from the
transfer of the property.
, In tax-deferred exchanges where real estate is involved,
the tax laws clearly distinguish and prohibit exchanges between different types of real property such as
apartments and office buildings. - ANSWER-False
Exchanges can be made between different types of non-residential properties like apartments and office
buildings, but can not be made between owner-occupied properties.
What is an Installment sale? - ANSWER-it occurs when a seller takes back a promissory note from the
buyer and instead of receiving the full payment of the sale price in the year of the sale the seller will
receive a series of payments (installments) over a specified time
What are the benefits of an installment sale? - ANSWER-by reviving the payments in increments it
lowers (places you in) the marginal tax rate (only going to be taxed on the amount received in a given
year)
In an installment sale the gross profit % is the portion of capital gain that is taxed in each year -
ANSWER-since you only taxed on the gain from the sale this tells you how much of your payment each
year is taxable
The effect of an installment sale is a spreading of the gain and the resulting tax over the period of the
installment sale. - ANSWER-True
Imputed Interest Rule - ANSWER--Requires a fair interest rate to be charged
-A seller may have an incentive to set an interest rate higher below the market and raise the contract
price to recapture lost interest because (capital gains tax is at a lower tax rate say 15%)
In you installment agreement you are going to have an installment period and debt amortization -
ANSWER-they may be equal but the amort period can be longer than the installment period to cover
debt service cheaper (more affordable)
Answered| GRADED A+
What are the four requirements for tax-deferred exchange? - ANSWER-1. it must be like-kind and help
for trade, business, or investment (can do farmland to apartments) CANT DO owner-occupied residential
(primary residence)
2. help for trade, business, or investment (can do farmland to apartments) CAN'T DO owner-occupied
residential (primary residence)
3. The exchange must occur cant sell for cash and immediately purchase
4. basis acquired for property is equal to the basis of relinquished property
What is the boot? - ANSWER-a term that represents non-like-kind property
e.g if Property A is worth 10 the owner can exchange it for Property worth 8 and 2 in cash
in this example, the 2 in cash is the boot and is a taxable portion of the exchange.
Time limits in tax deferred exchanges - ANSWER-3 requirements
1. replacement property must be identified by the owner of the relinquished property during the
identification period of 45 days ( starts the day the relinquished property is transferred and ends 45 days
after)
2. the exchange must happen within the exchange period. (starts the day the relinquished property is
transferred and ends 180 days after)
3. the owner of the relinquished property must not be in constructive receipt of the proceeds from the
transfer of the property.
, In tax-deferred exchanges where real estate is involved,
the tax laws clearly distinguish and prohibit exchanges between different types of real property such as
apartments and office buildings. - ANSWER-False
Exchanges can be made between different types of non-residential properties like apartments and office
buildings, but can not be made between owner-occupied properties.
What is an Installment sale? - ANSWER-it occurs when a seller takes back a promissory note from the
buyer and instead of receiving the full payment of the sale price in the year of the sale the seller will
receive a series of payments (installments) over a specified time
What are the benefits of an installment sale? - ANSWER-by reviving the payments in increments it
lowers (places you in) the marginal tax rate (only going to be taxed on the amount received in a given
year)
In an installment sale the gross profit % is the portion of capital gain that is taxed in each year -
ANSWER-since you only taxed on the gain from the sale this tells you how much of your payment each
year is taxable
The effect of an installment sale is a spreading of the gain and the resulting tax over the period of the
installment sale. - ANSWER-True
Imputed Interest Rule - ANSWER--Requires a fair interest rate to be charged
-A seller may have an incentive to set an interest rate higher below the market and raise the contract
price to recapture lost interest because (capital gains tax is at a lower tax rate say 15%)
In you installment agreement you are going to have an installment period and debt amortization -
ANSWER-they may be equal but the amort period can be longer than the installment period to cover
debt service cheaper (more affordable)
