Chp. 31 Quiz - Income Tax Issues Flashcards
What is the formula for determining the amount realized from the sale of a home?
Sale price – costs of sale
In a 1031 exchange, what is the period within which a person who has sold the relinquished property must receive the replacement property?
The exchange period
An unrealized capital gain is
The amount of profit that would result in the sale of an investment if it were to be sold.
The Taxpayer Relief Act allows penalty-free IRA withdrawals for
First time home buyers.
What is the class life for residential structures?
27.5 years
Section 1031 exchanges are
tax deferred.
Lori purchased a home for $250,000 with an additional $5,000 in related purchase costs and then added a garage at a cost of $25,000. She sold the home 10 years later for $575,000 and paid $35,000 in selling costs. She will pay capital gains tax on how much?
$10,000
*$250,000 + $5,000 = $255,000 beginning basis + $25,000 capital improvements = $280,000 adjusted basis; $575,000 selling price – $35,000 selling costs = $540,000 amount realized – $280,000 adjusted basis = $260,000 gain on sale. The capital gains tax exclusion for a single person is $250,000, so Lori will pay capital gains tax on $10,000 ($260,000 gain – $250,000 exclusion = $10,000).
Which of the following statements about points is true?
Points paid on a second home can only be deducted over the life of the loan.
The tax rate that applies to income is called the
Marginal tax bracket.
When was the Taxpayer Relief Act signed into law?
1997
A/n ______________ is the financial result of an investment that has been sold at a profit.
realized capital gain
The party who receives boot in a tax- free exchange has
a net gain and must pay taxes on the difference.
What is the formula for determining the gain on the sale of a home?
Amount realized – adjusted basis = gain on sale.
On what properties can the owner take a mortgage interest deduction?
A qualified primary or second home
John and Sheryl bought their home for $354,000. They made $129,000 of improvements. They sold the home for $1,085,000 and paid $56,000 in selling expenses, including the broker’s commission. On what amount will they pay capital gains tax?
$46,000
What is the maximum net capital loss that can be deducted annually?
$3,000
Which of the following properties are not eligible for like-kind exchange under Section 1031?
Properties outside the United States
Which provision of the Taxpayer Relief Act of 1997 allowed first time buyers to use IRA funds for a house purchase?
Retirement savings
Rob and Lori purchased a home for $350,000 with an additional $5,000 in related purchase costs and then added a garage at a cost of $25,000. They sold the home for $450,000 and paid $28,000 in selling costs. They will pay capital gains tax on how much?
Zero
*$350,000 + $5,000 = $355,000 beginning basis + $25,000 capital improvements = $380,000 adjusted basis; $450,000 selling price – $28,000 selling costs = $422,000 amount realized – $380,000 adjusted basis = $42,000 gain on sale. The capital gains tax exclusion for a married couple filing jointly is $500,000, so Rob and Lori will pay no capital gains tax on this sale because their gain is less than the exclusion.
What is a measurement of how much is invested in the property for tax purposes?
Basis
What do we call investment funds from investors who do not materially participate in managing the investment?
Passive activity income
