REE 3043 Exam 2 -FSU Woodyard
Final Test Questions Fully Solved.
List 4 classes of real property - Answer personal residence
dealer property
trade or business property
investment property
List three kinds of income subject to federal taxation - Answer Active income
Portfolio income
Passive income
For the purpose of federal income tax, an apartment complex purchased and held by an
investor renting space to tenants is classified as... - Answer business property
The dividends distributed to investors in a real estate investment trust are classified as: - Answer
portfolio income
Under current federal income tax law, for property obtained after 1994, the allowable recovery
period for owner-occupied single-family residential income property is... - Answer none
the total tax paid by a taxpayer, a dividend their taxable income in termed: - Answer 31.5
years
For individuals and partnerships, tax losses from passive activities can be used to offset positive
taxable income from - Answer other passive activities
If a real estate investor (sole owner) is an active participant, passive tax losses from investment
may in some cases be used to offset - Answer (all of the above)
wages and salary
dividend income
portfolio income
T or F Real property held for resale to others by contractors and brokers is classified by the IRS
as "business property" - Answer False; Property held for resale to others by contractors and
brokers is classified as "dealer property"
, Income earned from salaries, wages, and commissions is termed earned income - Answer
False; Income earned from salaries, wages, and commissions is termed active income
when evaluating whether to invest in a project, the investment analysis should consider the
investor's marginal tax rate as opposed to investor's average tax rate - Answer 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. - Answer true
If the taxable income on a property is greater than the before tax cash flows, the property has
tax sheltering characteristics - Answer False; the taxable income on a property should be less
than the before tax cash flow to have tax sheltering characteristics
Reserves that are set aside to be used in the future to replace capital item can be deducted
from the property's income for tax purposes - Answer False; reserves for replacement cannot
be expressed
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. - Answer True
Raw land purchased by an investor looking to develop a residential subdivision in the future can
be depreciated - Answer false; land is not a depreciable asset
Residential income property purchased today is depreciated over a 29.5 year period - Answer
false; residential income property can be depreciated over 27.5 year 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 - Answer true
corporate ownership structure which provides limited liability, however, it is not a separate
taxable entity. income and losses may flow through each stockholder - Answer S corporation
corporate ownership structure which provides limited liability. More than 75% of its gross
income must be derived from real estate - Answer Real estate investment fund
a partnership in which at least one party assumes unlimited liability while other parties' liability
is limited - Answer Limited partnership
Final Test Questions Fully Solved.
List 4 classes of real property - Answer personal residence
dealer property
trade or business property
investment property
List three kinds of income subject to federal taxation - Answer Active income
Portfolio income
Passive income
For the purpose of federal income tax, an apartment complex purchased and held by an
investor renting space to tenants is classified as... - Answer business property
The dividends distributed to investors in a real estate investment trust are classified as: - Answer
portfolio income
Under current federal income tax law, for property obtained after 1994, the allowable recovery
period for owner-occupied single-family residential income property is... - Answer none
the total tax paid by a taxpayer, a dividend their taxable income in termed: - Answer 31.5
years
For individuals and partnerships, tax losses from passive activities can be used to offset positive
taxable income from - Answer other passive activities
If a real estate investor (sole owner) is an active participant, passive tax losses from investment
may in some cases be used to offset - Answer (all of the above)
wages and salary
dividend income
portfolio income
T or F Real property held for resale to others by contractors and brokers is classified by the IRS
as "business property" - Answer False; Property held for resale to others by contractors and
brokers is classified as "dealer property"
, Income earned from salaries, wages, and commissions is termed earned income - Answer
False; Income earned from salaries, wages, and commissions is termed active income
when evaluating whether to invest in a project, the investment analysis should consider the
investor's marginal tax rate as opposed to investor's average tax rate - Answer 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. - Answer true
If the taxable income on a property is greater than the before tax cash flows, the property has
tax sheltering characteristics - Answer False; the taxable income on a property should be less
than the before tax cash flow to have tax sheltering characteristics
Reserves that are set aside to be used in the future to replace capital item can be deducted
from the property's income for tax purposes - Answer False; reserves for replacement cannot
be expressed
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. - Answer True
Raw land purchased by an investor looking to develop a residential subdivision in the future can
be depreciated - Answer false; land is not a depreciable asset
Residential income property purchased today is depreciated over a 29.5 year period - Answer
false; residential income property can be depreciated over 27.5 year 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 - Answer true
corporate ownership structure which provides limited liability, however, it is not a separate
taxable entity. income and losses may flow through each stockholder - Answer S corporation
corporate ownership structure which provides limited liability. More than 75% of its gross
income must be derived from real estate - Answer Real estate investment fund
a partnership in which at least one party assumes unlimited liability while other parties' liability
is limited - Answer Limited partnership
