CCIM 101 TEST PAPER 2025/2026 QUESTIONS WITH
ANSWERS MARKED A+
✔✔Federal Taxation on RE - ✔✔RE income may be taxed as ordinary income (e.g.,
rental income) or at capital gains rates upon disposition, with special rules for
depreciation recapture (cost recovery recapture taxed up to 25%) and capital gains
(typically 0-20% if held long term).
✔✔Taxable Income in RE Investments - ✔✔Income generated by the property, adjusted
by deductions (such as cost recovery) and used to compute the annual tax liability. It
directly affects the calculation of after-tax cash flows.
✔✔After-Tax CFs from Operations - ✔✔Process begins with NOI, subtracts cost
recovery to obtain taxable income, then multiplies by the applicable tax rate to
determine the tax liability from operations. The CF after tax is NOI minus this tax
liability.
✔✔Original Basis - ✔✔Purchase price plus acquisition costs.
✔✔Adjusted Basis - ✔✔Original basis adjusted for capital improvements, cost recovery
taken, and any partial sales—used to calculate gains or losses on disposition.
✔✔Cost Recovery (Depreciation) - ✔✔The annual allocation (using a straight-line
method) of the cost of property improvements that wear out over time. It reduces
taxable income (though it is a non-cash expense) and is calculated as: Residential:
Approximately 100%/27.5 ≈ 3.636% per year; Non-residential: Approximately
100%/39.0 ≈ 2.564% per year. Calculated using the mid-month convention for
properties placed in service after 6/22/84.
✔✔Tax Liability on Sale of RE - ✔✔Calculated based on two components: Cost
Recovery Recapture: All depreciation taken is recaptured and taxed at up to 25%
(ordinary income rates); Capital Gain: The excess gain after subtracting cost recovery is
taxed at long-term capital gains rates (up to 20% if held over 12 months). The net tax on
sale reduces the sale proceeds from the before-tax amount.
✔✔Effective Tax Rate (ETR) in RE Investments - ✔✔A measure of how much an
investor's yield is reduced by taxes, calculated as the difference between before-tax and
after-tax yields divided by the before-tax yield.
✔✔CF Model Without Financing/After-Tax (WF/AT) - ✔✔An RE cash flow model that
adjusts all cash flows for tax impacts: Initial Investment: Purchase price plus acquisition
costs; Annual CFs: Start with NOI, subtract cost recovery to compute taxable income,
then subtract the tax liability (taxable income multiplied by the ordinary tax rate) to
obtain CF after tax; Sales Proceeds After Tax: Calculated as sale price minus cost of
sale, further reduced by tax on sale (cost recovery recapture tax plus capital gains tax
, based on the adjusted basis); Holding Period: Remains as the time the investment is
held, represented in a T-bar showing CF after tax each year with final sale proceeds
added.
✔✔Compounding - ✔✔The process of determining the future value (FV) of money
invested today by reinvesting earned interest.
✔✔Discounting - ✔✔The process of calculating the present value (PV) of future cash
flows, reflecting the time value of money (TVM).
✔✔IRR (Internal Rate of Return) - ✔✔The discount rate at which the net present value
(NPV) of all cash flows from an investment equals zero. It indicates the rate of return
earned on each dollar invested during the holding period.
✔✔NPV (Net Present Value) - ✔✔The sum of the discounted cash flows (both inflows
and outflows) from an investment. A positive NPV indicates that the investment is
expected to yield more than the desired return, while a negative NPV indicates the
opposite.
✔✔Financial Leverage - ✔✔A measure of the degree to which debt is used to finance
an investment. In CRE, leverage is used to boost the expected return on equity (ROE)
but also increases risk, as higher debt levels intensify both potential gains and losses.
✔✔Favorable Leverage - ✔✔When the use of debt results in a higher ROE than an all‐
cash purchase.
✔✔Neutral Leverage - ✔✔When the unleveraged IRR equals the cost of debt.
✔✔Unfavorable Leverage - ✔✔When debt use causes a lower ROE than if the property
were purchased entirely with cash.
✔✔LTV (Loan-to-Value) Ratio - ✔✔The ratio of debt to the property's appraised value
(e.g., $8M debt on a $10M property equals 80% LTV).
✔✔Leverage Ratio - ✔✔The ratio of property value to equity (e.g., a 5:1 ratio indicates
high leverage).
✔✔Reasons for Using Debt Financing - ✔✔Investors may use debt when: They do not
have sufficient cash for full payment. They prefer to retain equity for other uses. Debt
financing is favorable (i.e., the cost of funds is below the expected unleveraged return)
and interest is tax deductible—thus boosting after-tax returns.
✔✔Sensitivity of Leveraged Returns - ✔✔To LTV Ratios - As the LTV increases, the
equity yield becomes more sensitive (both upside and downside). To the Spread - The
ANSWERS MARKED A+
✔✔Federal Taxation on RE - ✔✔RE income may be taxed as ordinary income (e.g.,
rental income) or at capital gains rates upon disposition, with special rules for
depreciation recapture (cost recovery recapture taxed up to 25%) and capital gains
(typically 0-20% if held long term).
✔✔Taxable Income in RE Investments - ✔✔Income generated by the property, adjusted
by deductions (such as cost recovery) and used to compute the annual tax liability. It
directly affects the calculation of after-tax cash flows.
✔✔After-Tax CFs from Operations - ✔✔Process begins with NOI, subtracts cost
recovery to obtain taxable income, then multiplies by the applicable tax rate to
determine the tax liability from operations. The CF after tax is NOI minus this tax
liability.
✔✔Original Basis - ✔✔Purchase price plus acquisition costs.
✔✔Adjusted Basis - ✔✔Original basis adjusted for capital improvements, cost recovery
taken, and any partial sales—used to calculate gains or losses on disposition.
✔✔Cost Recovery (Depreciation) - ✔✔The annual allocation (using a straight-line
method) of the cost of property improvements that wear out over time. It reduces
taxable income (though it is a non-cash expense) and is calculated as: Residential:
Approximately 100%/27.5 ≈ 3.636% per year; Non-residential: Approximately
100%/39.0 ≈ 2.564% per year. Calculated using the mid-month convention for
properties placed in service after 6/22/84.
✔✔Tax Liability on Sale of RE - ✔✔Calculated based on two components: Cost
Recovery Recapture: All depreciation taken is recaptured and taxed at up to 25%
(ordinary income rates); Capital Gain: The excess gain after subtracting cost recovery is
taxed at long-term capital gains rates (up to 20% if held over 12 months). The net tax on
sale reduces the sale proceeds from the before-tax amount.
✔✔Effective Tax Rate (ETR) in RE Investments - ✔✔A measure of how much an
investor's yield is reduced by taxes, calculated as the difference between before-tax and
after-tax yields divided by the before-tax yield.
✔✔CF Model Without Financing/After-Tax (WF/AT) - ✔✔An RE cash flow model that
adjusts all cash flows for tax impacts: Initial Investment: Purchase price plus acquisition
costs; Annual CFs: Start with NOI, subtract cost recovery to compute taxable income,
then subtract the tax liability (taxable income multiplied by the ordinary tax rate) to
obtain CF after tax; Sales Proceeds After Tax: Calculated as sale price minus cost of
sale, further reduced by tax on sale (cost recovery recapture tax plus capital gains tax
, based on the adjusted basis); Holding Period: Remains as the time the investment is
held, represented in a T-bar showing CF after tax each year with final sale proceeds
added.
✔✔Compounding - ✔✔The process of determining the future value (FV) of money
invested today by reinvesting earned interest.
✔✔Discounting - ✔✔The process of calculating the present value (PV) of future cash
flows, reflecting the time value of money (TVM).
✔✔IRR (Internal Rate of Return) - ✔✔The discount rate at which the net present value
(NPV) of all cash flows from an investment equals zero. It indicates the rate of return
earned on each dollar invested during the holding period.
✔✔NPV (Net Present Value) - ✔✔The sum of the discounted cash flows (both inflows
and outflows) from an investment. A positive NPV indicates that the investment is
expected to yield more than the desired return, while a negative NPV indicates the
opposite.
✔✔Financial Leverage - ✔✔A measure of the degree to which debt is used to finance
an investment. In CRE, leverage is used to boost the expected return on equity (ROE)
but also increases risk, as higher debt levels intensify both potential gains and losses.
✔✔Favorable Leverage - ✔✔When the use of debt results in a higher ROE than an all‐
cash purchase.
✔✔Neutral Leverage - ✔✔When the unleveraged IRR equals the cost of debt.
✔✔Unfavorable Leverage - ✔✔When debt use causes a lower ROE than if the property
were purchased entirely with cash.
✔✔LTV (Loan-to-Value) Ratio - ✔✔The ratio of debt to the property's appraised value
(e.g., $8M debt on a $10M property equals 80% LTV).
✔✔Leverage Ratio - ✔✔The ratio of property value to equity (e.g., a 5:1 ratio indicates
high leverage).
✔✔Reasons for Using Debt Financing - ✔✔Investors may use debt when: They do not
have sufficient cash for full payment. They prefer to retain equity for other uses. Debt
financing is favorable (i.e., the cost of funds is below the expected unleveraged return)
and interest is tax deductible—thus boosting after-tax returns.
✔✔Sensitivity of Leveraged Returns - ✔✔To LTV Ratios - As the LTV increases, the
equity yield becomes more sensitive (both upside and downside). To the Spread - The
