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REE 3043 Exam 3 question
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REE 3043 Exam 3 questions withverified answers
All recognized gains and losses must eventually be classified either as capital or
ordinary - ✔✔Capital is subjected to a maximum 20% rate,
Ordinary is subjected to a maximum rate of 39.6%
Gains due to recaptured depreciation are taxed at a maximum rate of 25%
For purpose of federal income tax, an apartment complex purchased and held
by an investor renting space to tenants is classified as: - ✔✔business
property
The dividends distributed to investors in real estate investment trust are classified
as - ✔✔portfolio income
Under current federal income tax law, for property obtained after
1994, the allowable cost recovery period for owner-occupied single-
family residential income property is: - ✔✔D. Owner occupied
residential property is nor depreciable
The total tax paid by a taxpayer, divided their taxable income is termed:
- ✔✔the average tax rate
,For individuals and partnerships, tax losses from passive activities can be
used to offset positive taxable income from - ✔✔other passive activities
if a real estate investor (sole owner) is an active participant, passive tax
losses from an investment may in some cases be used to offset -
✔✔Wages and salary
T/F: Real property held for resale to others by contractors and brokers is classified
by the IRS as "business property" - ✔✔False; it is a dealer property
T/F: Income earned from salaries, wages and commissions is termed earned
income. - ✔✔False; its called active income
T/F: When evaluating whether to invest in a project, the investment analysis
should consider the investor's marginal tax rate, as opposed to the investor's
average tax rate - ✔✔True
T/F: The income and expenses associated with directly owning rental property,
either in a form of a sole proprietorship or a partnership, are included as "income
from rental real estate, royalties, and partnerships" on the federal tax form -
✔✔True
T/F: If the taxable income on a property is greater than the before tax cash flows,
the property has tax sheltering characteristics - ✔✔False; the taxable income
on a property should be less than the before tax cash flow to have tax sheltering
characteristics
, T/F: 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 - ✔✔False:
reserves for replacement cannot be expensed
T/F: 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 - ✔✔True
T/F: Raw land purchased by an investor looking to develop a residential
subdivision in the future can be depreciated - ✔✔False; land is not
depreciable asset
T/F: Residential income property purchased today is depreciated over a 29.5 year
period - ✔✔False; its 27.5-year cost recovery period
T/F: Tax credits on low-income housing may be applied to reduce the taxes on
active and portfolio income, regardless of whether the developer "materially"
participates - ✔✔True
Perfect competitive markets characteristics include - ✔✔product
homogeneity, free markets- no transaction costs, perfect knowledge about the
competing goods and identical future expectations, individual buyers or sellers
cannot influence markets prices, products can be divided and are mobile
Market imperfections - ✔✔such as high transactions costs, cause prices to
often deviate from their market value. It makes it difficult for real estate investors
to consistently earn excess (abnormally high) returns
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