REE 3043 EXAM 2 QUESTIONS WITH CERTIFIED ANSWERS
T/F An investment philosophy outlines mainly whether the real estate investor will be an active or passive investor. - Answer-True
T/F The rental rate specified in the lease contract is termed 'market rent'. - Answer-False
T/F While income pr...
REE 3043 EXAM 2 QUESTIONS WITH
CERTIFIED ANSWERS
T/F An investment philosophy outlines mainly whether the real estate investor will be an
active or passive investor. - Answer-True
T/F The rental rate specified in the lease contract is termed 'market rent'. - Answer-
False
T/F While income property markets are local, most income properties tend to be
purchased by national investment companies, such as REITs. - Answer-False
T/F The presentation of projected contract rents in the first year of operations is known
as the property's rental roll. - Answer-True
T/F An often critical step in reconstructing the operating statement for a property to
determine its value is evaluating whether the existing contract rents are equal to market
rents. - Answer-True
T/F The current rent that can be obtained by offering the property in the open market is
termed the market rent. - Answer-True
T/F Net operating income minus leasing and capital costs is termed by the text 'the
before tax cash flows'. - Answer-False
T/F Major property improvement expenses that do not occur on a frequent and periodic
basis such as roof replacements, tenant improvements, and leasing commissions are
referred to as fixed costs. - Answer-False
T/F The net selling price is estimated by subtracting the expected selling expenses from
the expected selling price. - Answer-True
T/F The discount rate at which the NPV of the cash flows from an investment equal zero
is termed the break-even point. - Answer-False
List the four classes of real property: - Answer-1. Real estate held as a personal
residence
2. Real estate held for sale to others - dealer property
3. Real estate held for use in a trade or business - trade or business property
4. Real estate held as an investment for the production of income - investment property
A List the three types of income subject to federal taxation: - Answer-1.Active Income
2.Portfolio Income
3.Passive Income
, For purposes of federal income tax, an apartment complex purchased and held by an
investor renting space to tenants is classified as: - Answer-C. Business Property
The dividends distributed to investors in a real estate investment trust are classified as:
- Answer-D. 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: -
Answer-D. None of the above
The total tax paid by a taxpayer, divided by their taxable income is termed: - Answer-B.
the average tax rate
For individuals and partnerships, tax losses from passive activities can be used to offset
positive taxable income from ______. - Answer-A. other passive activities
If a real estate investor (sole owner) is an active participant, passive tax losses from the
investment may in some cases be used to offset: - Answer-D. all of the above
T/F Real property held for resale to others by contractors and brokers is classified by
the IRS as a 'business property'. - Answer-False
T/F Income earned from salaries, wages, and commissions is termed earned income -
Answer-False
T/F When evaluating whether to invest in a project, the investment analysis should
consider the investor's marginal rate, as opposed to the investor's average tax rate. -
Answer-True
T/F 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
T/F If the taxable income on a property is greater than the before tax ash flows, the
property has tax sheltering characteristics. - Answer-False
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 - Answer-False
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 - Answer-
True
T/F Raw land purchased by an investor looking to develop a residential subdivision in
the future can be depreciated. - Answer-False
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