Ch 13 Flashcards
The __ tax rate refers to the rate that will apply to the last dollar a taxpayer earns
Marginal
the mortgage interest deduction, which allows a property owner to deduct the __ interest paid on a mortgage
Annual
Why do tax credits represent a greater savings to the taxpayer?
A tax credit is deducted from the amount of tax owed instead of from the taxable income
A “tax shelter” is a term often used in reference to:
Select your answer below:
A. mortgage relief
B. income taxes
C. property taxes
D. sales taxes
B. income taxes
A tax shelter is a financial arrangement used to reduce a taxpayer’s income tax liability.
T/F: No deduction is allowed for a loss suffered on the sale of the taxpayer’s principal residence or other real property owned for personal use.
True
No more than ___ in net capital losses can be deducted in one year.
$3,000
T/F: Capital losses in excess of the limit may be carried forward and deducted in future years.
True
For income tax purposes, on which of the following might one take a capital gain or loss?
A. Receiving liquidated damages
B. Mortgaging a single-family residence
C. Sale of a property after a change in market value
D. Leasing properties at rates lower than market rates
D. Leasing properties at rates lower
When property is sold, if its market value has changed, the owner may take a capital gain or a capital loss. The other choices do not involve sale of a capital asset.
For federal income tax purposes, a property owner cannot deduct a loss on the sale of residential property unless the:
A. property was not used for personal purposes
B. loss exceeds 30% of the owner’s taxable income
C. property was sold within the same tax year that it was purchased
D. owner lived in the house for at least ten months out of the year
A. property was not used for personal purposes
loss on the sale of rental or investment property is deductible for federal income tax purposes. However, a loss on the sale of personal use property is not deductible.
Kathy and John, a married couple, purchase a home for $250,000. After living in it for six years, they sell it for $282,000. On what amount will they have to pay capital gains taxes?
A.$32,000
B.$250,000
C.$282,000
D.Nothing
D. Nothing
Since Kathy and John lived in the house for over two years, they qualify for the exclusion of a gain from the sale of a principal residence. Married couples can exclude a gain of up to $500,000, so Kathy and John won’t have to pay any taxes on this $32,000 gain.
On an income tax return, which of the following can be deducted in connection with a personal residence?
Select your answer below:
A. A capital loss
B. Depreciation
C. Mortgage interest and property taxes
D. Repair and maintenance expenses
C. Mortgage interest and property taxes
Two of the most commonly taken deductions for owners of principal residences are for mortgage interest and property taxes. Depreciation and repair expenses cannot be deducted for principal residences.
A condominium owner living in his condominium is permitted to deduct which of the following expenses on his federal income tax return?
Select your answer below:
A. Repair and upkeep of his individual unit
B. Interest paid on a loan secured by the common areas
C. Monthly payment toward upkeep of the common areas
D. None of the above
B. Interest paid on a loan secured by the common areas
He may deduct his share of the interest paid on a mortgage of the common areas. Individual unit maintenance and repair costs are not deductible, and neither are assessments for upkeep of common areas.
Which of the following personal residence expenses may be claimed as deductions on a federal income tax return?
A. Mortgage payments and property taxes
B. Mortgage payments, fire insurance, and broker’s commission
C. Prepayment penalty and broker’s commission
D. Mortgage interest payments, prepayment penalty, and property taxes
D. Mortgage interest payments, prepayment penalty, and property taxes
Mortgage interest, a mortgage prepayment penalty, and property taxes are all deductible expenses for a personal residence. Note that only payments of mortgage interest, not mortgage principal, are deductible.
The cost of acquiring depreciable property is deducted over a period of years. The tax code sets forth different recovery periods for different types of property.
For most real estate, the recovery period is between ___ and ___ years
27.5 and 39 years.
To be depreciable under income tax law, a property must be:
Select your answer below:
A. a personal residence
B. unencumbered
C. improved
D. vacant
C. improved
Vacant land doesn’t wear out, so it can’t be depreciated. Therefore, depreciable real estate must have some sort of improvement or development.
