775. The Internal Revenue Service would define the marginal tax rate as:

1. 775. The Internal Revenue Service would define the marginal tax rate as: • The tax rate which is used for the next dollar of taxable income earned; • The 28% tax rate; • The tax rate used for your state income taxes; • None of the above.

2. 775. The Internal Revenue Service would define the marginal tax rate as: • The tax rate which is used for the next dollar of taxable income earned; • The 28% tax rate; • The tax rate used for your state income taxes; • None of the above. Marginal tax rate – Next dollar earned

3. 317. For federal income tax purposes, the basis of real property acquired by a purchaser is the property’s: • Cost; • Fair market value; • Basis to the seller plus the seller's profit; • Market value minus any outstanding loan balance.

4. 317. For federal income tax purposes, the basis of real property acquired by a purchaser is the property’s: • Cost; • Fair market value; • Basis to the seller plus the seller's profit; • Market value minus any outstanding loan balance. (Unadjusted) Basis – Cost

5. 745. All of the following may be added to the original cost basis of a property to arrive at an adjusted basis for federal income tax purposes, except: • Miscellaneous acquisition expenses; • Brokerage commission; • Cost of an improvement; • Mortgage payments.

6. 745. All of the following may be added to the original cost basis of a property to arrive at an adjusted basis for federal income tax purposes, except: • Miscellaneous acquisition expenses; • Brokerage commission; • Cost of an improvement; • Mortgage payments. Adjusted basis – Not mortgage payments

7. 575. Agent Flagg often refers to tax shelters when discussing a property with a customer. Agent Flagg is primarily referring to: • Real property taxes; • Mortgage relief; • Interest income; • Income taxes.

8. 575. Agent Flagg often refers to tax shelters when discussing a property with a customer. Agent Flagg is primarily referring to: • Real property taxes; • Mortgage relief; • Interest income; • Income taxes. Tax shelters – Income taxes

9. 621. Lawson bought a parcel of raw land in 1963 and subdivided it into four separate lots. Twenty-five years later, he sold each lot for $10,000. The adjusted basis for each lot was $2,000. Lawson's long-term capital gain on these transactions is: • $8,000; • $32,000; • $40,000; • Cannot be determined from the information given.

10. 621. Lawson bought a parcel of raw land in 1963 and subdivided it into four separate lots. Twenty-five years later, he sold each lot for $10,000. The adjusted basis for each lot was $2,000. Lawson's long-term capital gain on these transactions is: • $8,000; • $32,000; • $40,000; • Cannot be determined from the information given. Gain – $40,000 sale, $8,000 basis = $32,000 gain

11. 322. Which of the following items can be deducted for income tax purposes on real estate which is held as a personal residence: • Expenses of repair, maintenance, and care; • Annual depreciation; • Losses which occur if the property is sold; • Property taxes and mortgage interest.

12. 322. Which of the following items can be deducted for income tax purposes on real estate which is held as a personal residence: • Expenses of repair, maintenance, and care; • Annual depreciation; • Losses which occur if the property is sold; • Property taxes and mortgage interest. Personal residence – Deductions – Property taxes and interest

13. 319. A lender receives $360 a month as payment on a single-family home-owner's loan. He credits these installments as follows: $13.00 principal, $202.00 interest, $104.00 taxes, and $21.00 fire insurance. If these amounts remain constant for each month during a tax year, which of the following amounts would the homeowner be able to claim as deductions when filing an annual federal income tax return: • $327.00; • $2,420.00; • $3,672.00; • $3,942.00.

14. 319. A lender receives $360 a month as payment on a single-family home-owner's loan. He credits these installments as follows: $13.00 principal, $202.00 interest, $104.00 taxes, and $21.00 fire insurance. If these amounts remain constant for each month during a tax year, which of the following amounts would the homeowner be able to claim as deductions when filing an annual federal income tax return: • $327.00; • $2,420.00; • $3,672.00; • $3,942.00. Personal Residence – Deductions – $3,672

15. 855. If a condominium owner lives in his condominium and pays all of the following, which of the following would be deductible for federal income tax purposes? • The cost of repairing the condominium unit; • Any assessments that he pays for the upkeep of recreational facilities; • Any interest that he pays on a mortgage for his share of the common areas; • All of the above.

16. 855. If a condominium owner lives in his condominium and pays all of the following, which of the following would be deductible for federal income tax purposes? • The cost of repairing the condominium unit; • Any assessments that he pays for the upkeep of recreational facilities; • Any interest that he pays on a mortgagefor his share of the common areas; • All of the above. Personal Residence – Deductions – Interest on common area mortgage

17. 854. For federal income tax purposes, a taxpayer could adjust the cost basis of his personal residence for which of the following items: • Depreciation; • Interest on a loan; • Fire insurance premiums paid; • The addition of a concrete patio.

18. 854. For federal income tax purposes, a taxpayer could adjust the cost basis of his personal residence for which of the following items: • Depreciation; • Interest on a loan; • Fire insurance premiums paid; • The addition of a concrete patio. Adjusted basis – Concrete patio

19. 325. Daniel has purchased an 18-unit apartment building. If he reports his income on a cash basis, he can deduct all of the following on his next income tax return, except: • Loss of rental because of vacancies suffered by two units; • The cost of redecorating two vacant units; • Interest payments on the second trust deed; • Depreciation when the value of the property has increased.

20. 325. Daniel has purchased an 18-unit apartment building. If he reports his income on a cash basis, he can deduct all of the following on his next income tax return, except: • Loss of rental because of vacancies suffered by two units; • The cost of redecorating two vacant units; • Interest payments on the second trust deed; • Depreciation when the value of the property has increased. Income Property – Deductions – Not for vacancy

21. 327. Reynolds paid $100,000 cash for a lot and constructed a $500,000 income-producing building on the lot. The construction was financed by paying $100,000 cash and a $400,000 loan at 8% annual interest secured by a lien against the property. How much can Reynolds depreciate on future income tax returns: • $100,000; • $350,000; • $400,000; • $500,000.

22. 327. Reynolds paid $100,000 cash for a lot and constructed a $500,000 income-producing building on the lot. The construction was financed by paying $100,000 cash and a $400,000 loan at 8% annual interest secured by a lien against the property. How much can Reynolds depreciate on future income tax returns: • $100,000; • $350,000; • $400,000; • $500,000. Depreciation – Cost of building, not land

23. 728. According to income tax laws, which of the following is true about depreciation of land? • Land has a residual value but improvements do not; • The ACRS method of depreciation can be used when depreciating land; • Land is considered to be 25% of the total value and is depreciated; • Land is not depreciated.

24. 728. According to income tax laws, which of the following is true about depreciation of land? • Land has a residual value but improvements do not; • The ACRS method of depreciation can be used when depreciating land; • Land is considered to be 25% of the total value and is depreciated; • Land is not depreciated. Depreciation – Cost of building, not land

25. 326. As one of the qualifications for a depreciation deduction for income tax purposes, the real property must be: • Encumbered; • Personal residence; • Improved; • Unencumbered.

26. 326. As one of the qualifications for a depreciation deduction for income tax purposes, the real property must be: • Encumbered; • Personal residence; • Improved; • Unencumbered. Depreciation – Must be improved

27. 870. Mr. Smith, who owns an apartment and no other real property, sustained a $30,000 operational loss for the last tax year. For income tax purposes, he may • Deduct only $10,000 of the loss each year for the next three years on his income tax return; • Deduct the full amount from his ordinary income; • Use the loss to offset any capital gain realized; • Deduct only one-half of the loss from his ordinary income.

28. 870. Mr. Smith, who owns an apartment and no other real property, sustained a $30,000 operational loss for the last tax year. For income tax purposes, he may: • Deduct only $10,000 of the loss each year for the next three years on his income tax return; • Deduct the full amount from his ordinary income; • Use the loss to offset any capital gain realized; • Deduct only one-half of the loss from his ordinary income. Operational loss – might offset capital gain

29. 500. For federal income tax purposes, capital expenditures for improvements: • Are deducted in full as expenses that year; • Are added to the "cost basis" of the property and depreciated; • Are subtracted from the "cost basis" of the property; • Cannot be depreciated over the remaining life of the improvements.

30. 500. For federal income tax purposes, capital expenditures for improvements: • Are deducted in full as expenses that year; • Are added to the "cost basis" of the property and depreciated; • Are subtracted from the "cost basis" of the property; • Cannot be depreciated over the remaining life of the improvements. Capital expenditures – Added to cost basis, depreciated

31. 620. Under Federal Income Tax regulations, an individual may not deduct a loss on the sale of residential property unless: • The loss exceeds 20% of the individual's adjusted gross income; • The property was also used for business purposes and showed a profit for the 3-year period immediately preceding the sale; • The individual shows an additional capital gain which would be offset by the sale; • The property was bought as an investment and was rented or leased out as such.

32. 620. Under Federal Income Tax regulations, an individual may not deduct a loss on the sale of residential property unless: • The loss exceeds 20% of the individual's adjusted gross income; • The property was also used for business purposes and showed a profit for the 3-year period immediately preceding the sale; • The individual shows an additional capital gain which would be offset by the sale; • The property was bought as an investment and was rented or leased out as such. Loss upon sale – Could deduct if rental property

33. 808. In which of the following situations would an IRS Section 1031 exchange not be allowed: • The properties are not of a like kind; • The exchanged properties are both vacant land; • One of the properties is a leasehold over 30 years; • One property is in California the other is in Arizona.

34. 808. In which of the following situations would an IRS Section 1031 exchange not be allowed: • The properties are not of a like kind; • The exchanged properties are both vacant land; • One of the properties is a leasehold over 30 years; • One property is in California the other is in Arizona. Exchange – Like kind

35. 335. Which of the following would be an example of “boot,” for income tax purposes: • A decrease in basis; • Debt relief from a mortgage in the exchange; • A decrease in real estate property taxes; • An increase in deductible depreciation.

36. 335. Which of the following would be an example of “boot,” for income tax purposes: • A decrease in basis; • Debt relief from a mortgage in the exchange; • A decrease in real estate property taxes; • An increase in deductible depreciation. Boot – Debt relief or cash

37. 334. A real estate broker would most likely encounter the term “boot” when considering a problem involving: • Legal description; • Water rights; • Income tax; • Depreciation.

38. 334. A real estate broker would most likely encounter the term “boot” when considering a problem involving: • Legal description; • Water rights; • Income tax; • Depreciation. Boot – Debt relief or cash (relates to income taxes)

39. 689. Sampson owned a triplex valued at $160,000, with an adjusted basis of $70,000. King owned a duplex valued at $155,000. Both properties were owned free and clear. They exchanged their properties, with King giving Sampson $5,000 in cash. For Federal Income Tax purposes: • Both will be taxed on the difference between the value and the basis; • King has a taxable gain; • Sampson has a recognized gain; • Neither has a taxable gain.

40. 689. Sampson owned a triplex valued at $160,000, with an adjusted basis of $70,000. King owned a duplex valued at $155,000. Both properties were owned free and clear. They exchanged their properties, with King giving Sampson $5,000 in cash. For Federal Income Tax purposes: • Both will be taxed on the difference between the value and the basis; • King has a taxable gain; • Sampson has a recognized gain; • Neither has a taxable gain. Receiver (of boot) – May have recognized gain

41. 332. Mr. Wall owned an apartment building with an adjusted cost basis of $220,000 and a fair market value of $330,000. He exchanged the property for an apartment house which had a fair market value of $365,000. Both properties were free and clear and no adjustment was made for the differences in value. For federal income tax purposes, the new property will have a basis for Mr. Wall of: • $110,000; • $145,000; • $205,000; • $220,000.

42. 332. Mr. Wall owned an apartment building with an adjusted cost basis of $220,000 and a fair market value of $330,000. He exchanged the property for an apartment house which had a fair market value of $365,000. Both properties were free and clear and no adjustment was made for the differences in value. For federal income tax purposes, the new property will have a basis for Mr. Wall of: • $110,000; • $145,000; • $205,000; • $220,000. Basis of new property – Basis of old

43. 653. The owner of a hardware store who owned the real property where it was located, sold the real property and leased it back for a long term. For income tax purposes, the seller may: • Continue to depreciate the building; • Deduct 100 percent of future rents; • Keep the fee simple title to the property: • None of the above.

44. 653. The owner of a hardware store who owned the real property where it was located, sold the real property and leased it back for a long term. For income tax purposes, the seller may: • Continue to depreciate the building; • Deduct 100 percent of future rents; • Keep the fee simple title to the property: • None of the above. Sale/leaseback – Deduct all future rents paid

45. 897. The buyer of a commercial property under a sale/leaseback arrangement would be least concerned with: • The credit rating of the seller; • The condition of the building; • The depreciated book value of the building; • The location of the property in the general community.

46. 897. The buyer of a commercial property under a sale/leaseback arrangement would be least concerned with: • The credit rating of the seller; • The condition of the building; • The depreciated book value of the building; • The location of the property in the general community. Sale/leaseback – Not seller’s book value

47. 809. John sold a property to Sam on an installment sale for income tax purposes. The buyer assumed an existing loan which exceeded John's basis in the property. John thus had loan relief (excess mortgage over basis). The excess amount must be: • Deducted from the basis; • Made a part of the sales price; • Added to the basis; • Made a part of the down payment whether cash was received or not.

48. 809. John sold a property to Sam on an installment sale for income tax purposes. The buyer assumed an existing loan which exceeded John's basis in the property. John thus had loan relief (excess mortgage over basis). The excess amount must be: • Deducted from the basis; • Made a part of the sales price; • Added to the basis; • Made a part of the down payment whether cash was received or not. Installment sale – Mortgage relief is down payment

49. End of session