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Investments/Income Tax/Environmental Issues > Investmnts,IncomeTax,Environmnt,Estates > Flashcards

Investmnts,IncomeTax,Environmnt,Estates Flashcards

1
Q

Memorize the Income Property Tax CASH FLOW MODEL:

Gross Scheduled Income -
Vacancy & Credit Losses =
Effective Gross Income -
Operating Expenses =
Net Operating Income -
Debt Service =
Cash Flow Before Income Taxes

A

Gross Scheduled Income -
Vacancy & Credit Losses =
Effective Gross Income -
Operating Expenses =
Net Operating Income -
Debt Service =
Cash Flow Before Income Taxes

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2
Q

Net Income/Annual Principal &Interest (PI) Pmts

Memorize:
Commercial Debt Coverage Ratio (DCR)

DCR

ex.
$1,000,000/$729.216=1.37
net income / Annual Debt Svc ($60,768 x 12)

A
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3
Q

The Comprehensive Environmental Response Compensation & Liability Act (CERCLA) established:

a. a homeowner’s responsibility to clean up polluted prop
b. the EPA
c. Superfunds to bear costs of cleaning up contaminated sites
d. state environmental standards

A

C.

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4
Q

A brownfield that causes a loss in value to neighboring properties is an example of:

a. economic obsolescence
b. economic quality
c. economic life
d. functional obsolescence

A

A.

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5
Q

Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) with regards to the cleanup of toxic waste spills, the current and previous owners have what type of responsibility?

a. Single liability
b. Several liability
c. Strict liability
d. Fractional liability

A

C. Strict

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6
Q

What is the time period that a home buyer has to inspect the property when receiving the lead-based paint disclosure:

a. 10 days
b. 14 days
c. 30 days
d. by close of escrow

A

A. 10

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7
Q

When a person declares a tax-free gain on a personal residence, the minimum holding period is:

a. 12 mos
b. 18 mos
c. 2 years
d. non req’d

A

C. 2 years

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8
Q

In order to qualify for a tax-deferred exchange, the properties must be:

a. same monetary value
b. like-kind
c. matching equities
d. equal mortgage amounts

A

B. Like Kind

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9
Q

A property owner may take depreciation for income tax purposes on all of the follwing except:

a. a home rented to friends
b. an apartment building
c. a vacant duplex
d. land held for future profit

A

d. land held for future profit

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10
Q

Unlike-kind property received or given in an exchange is:

a. excess rent
b. boot
c. net income
d. cash flow

A

B. boot

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11
Q

What is not considered to be an operating expense on income property?

a. property tax
b. insurance
c. repairs and maintenance
d. mortgage payments

A

D. mortgage pmts

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12
Q

When an LLC has net income:

a. the LLC pays tax on the income
b. the income passes through to the individual members
c. no tax is paid by the LLC or it’s members
d. only 50% of the income is passed thru to the members

A

B. income passes

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13
Q

Income from salaries or commissions is:

a. ordinary income
b. short-term income
c. capital gain income
d. pass-through income

A

A. ordinary

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14
Q

Under what circumstance can an owner of a single-family residence depreciate the property for tax purposes:

a. when the property is sold
b. if it is owner-occupied
c. if the property is a rental
c. if it is held for at leas 27.5 years

A

C.

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15
Q

If a subdivider wants to sell land in an active management area, they must provide:

a. certificate of assured water supply
b. type 1 non-irrigation rights
c. doctrine of prior appropriation
d. a water adequacy report

A

A.

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16
Q

The buyer of a property w/ a perfected surface water right would not be able to continue irrigation if the property has not been irrigated during the previous months:

a. a year
b. 2 years
c. 3 years
d. 5 years

A

D. 5 yrs

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17
Q

An Active Management Area is an area in which:

a. excessing overdraft is occurring
b. excessive irrigation is occurring
c. surface water is actively managed
d. no new wells can be drilled

A

A

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18
Q

A man willed his residence to his widow. Upon her death, it was to go to two of his three children. The widow received:

a. life estate
b. partial estate
c. remainder estate
d. leasehold

A

A. life estate

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19
Q

Which of the following elements in not a characteristic of fee simple absolute ownership:

a. Reversion to the grantor
b. Ability to will
c. Indefinite duration
d. Ability to transfer

A

A.

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20
Q

The interest of a grantor who gives an interest with the expectation of getting it back is a:

a. remainder estate
b. life estate
c. reversionary estate
d. defeasible estate

A

reversionary estate

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21
Q

The greatest ownership right an individual can have is called:

a. leasehold
b. life estate
c. fee simple conditional
d. fee simple absolute

A

D. fee simple absolute

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22
Q

A lessee has an implied right of quiet enjoyment, and if the property is sold, the landlord must:

a. protect the tenant from people coming on the property from the outside
b. pay the tenant’s moving expenses
c. protect the tenant from parties who claim superior title
d. soundproof the tenant’s apartment

A

C.

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23
Q

F rents from G. F installs shelves, cabinets, and other equipment in the building for use in her store. If the lease says nothing about these items:

a. F cannot remove the fixtures before the lease expires
b. G owns them if F does not remove them before lease expires
c. F can remove them any time after the lease expires
d. they are fixtures and F has no right to them at all

A

B.

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24
Q

An estate will:

a. must be in writing
b. can be called by the lessee or lessor at any tie
c. is for a specific period of time
d. must have rent being paid

A

B.

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25
Q

B sold a property to Y and reserved a life estate for B. Y recorded the deed. B sold his life estate to D, who recorded the deed. Y demanded that the property pass to her in fee simple title immediately. In this case:

a. Y’s claim is invalid bc B controls his interest while alive
b. Y’s claim is invalid
c. Neither Y or B have a claim to this property
d. B needed to obtain Y’s permission to make the transfer

A

A.

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26
Q

When a tenant transfers the entire leasehold to a third party, it is an:

a. sublease
b. assumption
c. estoppel
d. assignment

A

D.

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27
Q

In a positive leasehold, the:

a. contract rent is higher than the economic rent
b. contract rent is higher than the market rent
c. economic rent is higher than the contract rent
d. economic rent is lower than the contract rent

A

C. eco rent is higher than the contract rent

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28
Q

In a sublease with a positive leasehold, who normally benefits from the excess rent?

a. sublessee
b. sublessor
c. lessor
d. broker

A

B.

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29
Q

Which statement is true:

a. subleasing or assigning a lease always requires the lessor’s permission
b. when a tenant’s interest in a lease is assigned, both the assignor and assignee have liability to the landlord
c. in a positive leasehold, there is no excess rent
d. economic rent may never be higher than contract rent

A

B.

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30
Q

If at the end of a lease, the tenant holds over wrongfully, this estate is best described as:

a. estate at sufferance
b. estate at will
c. estate for years
d. holdover tenancy

A

A.

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31
Q

Memorize:

Lessor or Landlord: Gives the lease
Lessee or Tenant: Receives the lease

A
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32
Q

When a property is rented for only one month, this is called what kind of tenancy?

a. period to period
b. at will
c. for years
d. month-to-month

A

C. for years
*** month-to-month is automatically renewed and requires notice to terminate
***Estate for years (tenancy for years) DOES NOT auto renew, has a specific end date, DOES NOT require notice to terminate

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33
Q

At a single-family home, A leases to B, and B leases to C. Who is responsible for the rent?

a. B to C
b. B to A
c. C to A
d. A to B

A

B. B to A

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34
Q

A transfer of possession of property, but not title, for a period of time for consideration best defines:

a. lease
b. distraint
c. force and detainer
d. actual eviction

A

A. lease

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35
Q

When a lease is for an indefinite period, this is called:

a. freehold estate
b. estate for years
c. estate at will
d. estate at sufferance

A

C. at will

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36
Q

A grantor conveyed a life estate to a party and also retained a future interest in the prop when the life tenant dies. The future interest is called:

a. remainder
b. reversion
c. pur autre vie
d. fee tail

A

b. reversion

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37
Q

A life estate would end by merger. Which best explains merger:

a. life tenant makes waste
b. remainder party buys the life tenant’s interest
c. the grantor dies intestate
d. grantor failed to pay property taxes

A

B.

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38
Q

A father owns a house as a fee simple owner and gives his daughter a life estate in the property with a provision that the property will pass to the son after her death. The son has:

a. reversion interest
b. remainder interest
c. homestead interest
d. riparian interest

A

B. remainer

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39
Q

An alumnus of a school donated land to the school to be used only for sports. what type of ownership does the school have:

a. fee simple absolute
b. defeasible fee
c. leasehold estate
d. reversionary estate

A

B. defeasible fee (fee simple on condition subsequent

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40
Q

A person holding a life estate sells their interest to a buyer. If the life tenant dies, who owns the property:

a. life tenant’s heirs
b. the buyer
c. person who gave the life estate to the life tenant
d. state due to escheat

A

C.

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41
Q

On a personal residence, what is the max loan amount which interest may be deducted for tax purposes

a. 250k
b. 500k
c. 750k
d. 1,000,000

A

C.

42
Q

The projected income on an investment prop as if the prop is 100% occupied is the

a. operating expensed
b. net operating income
c. gross scheduled income
d. effective gross income (AGI)

A

C.

43
Q

If rent was uncollectable by a landlord, it is considered to be

a. vacancy loss
b. net income
c. recovery period
d. ordinary income

A

A.

44
Q

The actual income a rental prop produces is

a. net operating income
b. adjusted gross income
c. credit loss
d. gross scheduled income

A

B.

45
Q

The income remaining after operating expenses are deducted from the adjusted gross income is the

a. operating expense
b. effective gross income
c. fixed cost
d. net operating income

A

D.

46
Q

CASH FLOW MODEL FORMULAS

  • GSI - Gross Scheduled Income
  • EGI - Adjusted Gross Income (Effective)
  • NOI - Net Operating Expenses
  • PI - Principal and Interest payments on loan

Gross Scheduled Income – Vacancy & Credit Losses = EGI

EGI – Operating Expenses = NOI

NOI – PI = CASH FLOW BEFORE INCOME TAX

A
47
Q

Which is used to establish premiums for flood insurance

a. elevation certification
b. Wetlands designation
c. WQARF map
d. Superfund map

A

A. Elevation Cert

48
Q

A septic tank inspection report is valid for

a. 1 mos
b. 3 mos
c. 6 mos
d. 12 mos

A

C.

49
Q

Radon gas would primarily be found in which of the following substances

a. insulation material
b. lead based paint
c. underground minerals
d. building materials containing formaldehyde

A

C.

50
Q

Land that is abandoned, idled, or underused bc redevelopment and/or expansion is complicated by environmental contamination is

a. greenfield
b. grayfield
c. brownfield
d. blackfield

A

C.

51
Q

What is not considered to be an operating expense on income property

a. property tax
b. insurance
c. repairs and maintenance
d. mortgage payments

A

D.

52
Q

TAX DEDUCTIONS Owner-Occupied Residence/Second Homes

Owner-Occupied and 2nd homes

REAL PROPERTY TAXES

  • $10,000 Max deduction
  • Interest on loan up to $750k used to purchase or improve the property
A
53
Q

Capital Gain Exclusion-Sale of a Personal Residence

To Qualify for the Exclusion

Residence must have been OWNER OCCUPIED as a principal residence for at least 2 YEARS OUT OF THE LAST 5 YEARS prior to the sale. ****DOES NOT HAVE TO BE CONSECUTIVE 2YRS

  • SINGLE taxpayer - $250,000
  • MARRIED FILING JOINTLY - $500,000
A
54
Q

When a person declares a tax-free gain on a personal residence, the minimum holding period is

a. 12 mos
b. 18 mos
c. 2 yrs
d. none req’d

A

c. 2 yrs

55
Q

The max amount of gain that would be tax free to a married couple who sells their personal residence would be

a. 125k
b. 250k
c. 500k
d. unlimited

A

C. 500k

56
Q

To qualify for the exclusion of capital gain tax on the sale of a personal residence

a. the seller must purchase another prop of equal or greater value
b. the seller must be over 65 yrs of age
c. all proceeds must be reinvested in another home
d. the seller must have owned and lived in the house for 2 out of the 5 previous years

A

D.

57
Q

When a LLC has net income

a. the LLC pays tax on the income
b. the income passes through to the individual members
c. no tax is paid by the LLC or it’s members
d. only 50% of the income is passed through to the members

A

B.

58
Q

Unlike-kind property received or given in an exchange is

a. excess rent
b. boot
c. net income
d. cash flow

A

B.

59
Q

Residential income property may be depreciated over a recovery period of

a. 20 years
b. 27.5 years
c. 39 years
d. 15 years

A

B.

60
Q

Non residential income property may be depriated over a recovery period of

a. 35 years
b. 39 years
c. 30 years
d. 27.5 years

A

B.

61
Q

Interest on loans on owner occupied homes may be deducted on a loan amounts up to ? that is used to improve or purchase the property

a. 250,000
b. 525,000
c. 750,000
d. 500,000

A

C

62
Q

Types of Income

Match term to definition
1. Income realized from the sale of an asset at a profit: Short Term or Long Term
2. Any type of income received by an entity such as an LLC that is not taxed at the level of the entity but “passes-through” to be taxed at the level of the individuals in the entity.
3. Any income from salaries, wages, commissions, and interest. Taxed at a marginal rate

Ordinary Income, Capital Gain Income, Pass-Through Income

A
  1. Capital Gain
  2. Pass Through
  3. Ordinary
63
Q

Tax Deductions for Owner-Occupied Residences & Second Homes

a) Max deduction $10,000 on personal tax return
b) Interest on loan amounts up to $750,000 may be deductible (purchase/improve property loan NOT home equity loans)

A

Tax Deductions for Owner-Occupied Residences and Second Homes

64
Q

In the sale of a personal residence the max amount of capital gain that, under certain circumstances, may not be taxed is $? for a single person and $? for a married couple filing jointly.

A

$250,000 single
$500,000 married filing jointly

65
Q
  1. Residential income property may be depreciated over a recovery period of ?
  2. Nonresidential income property may be depreciated over a recovery period of ?
A

1) 27.5 years
2) 39 years
Cost Recovery = deductible

66
Q

What must a property manager deliver to the tenant when renting a residential property that was constructed prior to 1978?

a. a lead paint addendum attached to the lease
b. a copy of the federal Fair Housing Law
c. An environmental site assessment
d. a list of the last three tenants

A

A.

67
Q

Which of the following is commonly found in minute airborne particles when it becomes friable?
a. radon
b. asbestos
c. carbon monoxide
d. urea-formaldehyde

A

B.

68
Q

Mold can be associated with
a. airtight windows
b. insulation
c. inferior grade building materials
d. low moisture conditions

A

A.

69
Q

A property is desgnated as being within a Superfund site, but the property receives water wells that are not contaminated. The broker must:

a. not disclose that it is within a Superfund site
b. make the disclosure but can provide information about the water
c. not make the disclosure because the broker represents the seller
d. refer the buyer to the Environmental Protection Agency

A

B.

70
Q

A broker selling a property that was built in 1952 must be sure that the buyer receives a notice concerning
a. radon
b. asbestos
c. formaldehyde
d. lead-based paint

A

D.

71
Q

A method used to treat asbestos is called
a. ventilation
b. encapsulation
c. capping
d. evaporation

A

B.

72
Q

A brownfield that causes a loss in value to neighboring properties is an example of
a. economic obsolescence
b. economic quality
c. economic life
d functional obselescence

A

A.

73
Q

Under CERCLA with regards to the cleanup of toxic waste spills, the current and previous owners have what type of responsibility

a. single liability
b. several liability
c. strict liability
d. fractional “

A

C.

74
Q

Who is required to complete the ADEQ notice of transfer for an on-site waste water treatment facility?
a. buyer
b. seller
c. broker
d. escrow agent

A

A.

75
Q

The notice of transfer form for a septic system must be filed with the ADEQ within
a. 15 days after the inspection
b. 15 days after closing
c. 6 mos after the inspection
d. 6 mos after closing

A

B.

76
Q

Water Quality Assurance Revolving Fund sites are another way of describing environmentally contaminated sites that are regulated by:
A. ADEQ
B. CERLCA
C. Arizona’s assured water supply regulations
D. Federal Superfund

A

A.

77
Q

CERCLA liability generally attaches four broad categories of parties responsible for the cleanup of a particular contaminated site. All of the following parties would be responsible except:

a. current owners and operators of the site
b. past owners or operators at the time of sale
c. persons who arranged for the disposal of hazardous substances
d. real estate brokerage who arranged the transaction

A

D.

78
Q

Which of the following would not be considered an environmental hazard?
a. proximity to a dump area
b. air pollution
c. prior use of the property by a dry cleaner
d. leaking underground water storage tanks

A

D.

79
Q

CERCLA = Superfund
WQARF = Mini Superfund (created by AZ for sites not covered by CERLCA)

A
80
Q

Floodplain = FEMA

A
81
Q

After a lease expires, the tenants are living on the premises without the landlord’s consent. The tenants are:
a. tenants at will
b. tenants in common
c. tenants at sufferance
d. periodic tenants

A

C.

82
Q

An assignement of lease performs what function?
a. conveys the leasehold to the assignee
b. conveys trade fixtures to the assignee
c. conveys the emblements to the assignee
d. conveys the title insurance to the assignee

A

A.

83
Q

A sublease is:
a. is for basement premises
b. assigns the entire lease to a new tenant
c. makes the original lessee a lessor
d. terminates the original lease

A

C.

84
Q

Ownership interest and/or Possession a person has in real property: ESTATE
What are the TWO categories of Estates?

A
  1. Freehold Estate
  2. Leasehold Estate
85
Q

The degree, quantity, nature or extent of interest that a person holds in real property is a(n) ?

A

Estate

86
Q

The highest form of ownership is known as ?

A

Fee Simple

*aka Fee Simple Absolute, Fee, Absolute Fee

87
Q

The most common form of real property ownership is ?

A

Fee Simple aka Fee Simple Absolute

88
Q

If a fee simple estate has restrictions that limit the property’s use it is defined as ?

A

Fee Simple Defeasible

89
Q

If a condition in a deed is violated, ownership of the property may revert to ?

A

The grantor

90
Q

Freehold Estates can be a Fee Simple Estate OR a Life Estate

A
91
Q

An ownership interest that may NOT be willed to heirs is a ?

A

Life Estate

92
Q

The holder of the life estate is called the ?

A

Life Tenant

93
Q

When a life tenant impairs the value of the property, it is referred to as ?

A

Waste

94
Q

J conveys a life estate to his disabled brother, R, for R’s lifetime. When the life estate terminates, the ownership goes to J’s adult daughter, A.

a) This is a life estate with a REMAINDER or REVERSIONARY interest?
b) The life estate terminates (who)?
c) The life tenant is (who)?
d) Ther person with a remainder interest is (who) ?

A

a. remainder
b. R’s death
c. R
d. A

95
Q

A less than freehold estate is also known as a ?

A

leasehold estate

96
Q

Regarding Leasehold Estates, list the 4 types of tenancies:

A

a. Estate for Years (Tenancy for Years)
b. Estate from Period to Period
c. Estate at Wil
d. Estate at Sufferance

97
Q

Estate (Tenancy) for Years:
1. has an ending date and automatically terms on the end date
2. NO notice is necessary
3. DOES NOT auto renew itself
* ex: short term lease

A
98
Q

Estate from Period to Period (Periodic Tenancy):
1. has NO TERM DATE and AUTO RENEWS
2. NOTICE TO TENANT or LANDLORD is necessary for termination.

A
99
Q

Estate of Sufferance:
1. Rent is neither being paid nor accepted. Referred to as holdover tenancy

A
100
Q

Sublease aka Sandwich lease

A
101
Q

Positive and Negative Leaseholds

a) The rent stated in the lease:
*Contract Rent

b) The rent that could be obtained in the current market:
*Economic Rent

c) The difference between the contract rent and the economic rent (can be Positive or Negative Leasehold):
*Excess Rent

  • Positive Leasehold: (Positive Excess Rent) A lease in which the economic rent is higher than the contract rent:
    -     Negative Leasehold:     (Negative Excess Rent) A lease in which the contract rent is higher than the economic rent
A

Investments/Income Tax/Environmental Issues (1 decks)

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