Law 8 - Quiz

Question 1

Brenda and Carl, a married couple, bought a principal residence in 1998 for $300,000. They sold the property in 2006 with a capital gain of $600,000. Capital gains tax on their profit will be…

A. $0
B. $100,000
C. $600,000
D. $900,000

Answer 1

B. $100,000

$600,000 - $500,000 = $100,000. A married couple may exclude $500,000 from capital gains tax for profits on the sale of a principal residence if they file jointl

Question 2

Which deed would typically be used to cure a defect in title?

A. Bargain and sale deed
B. General Warranty deed
C. Quitclaim deed
D. Special Warranty deed

Answer 2

C. Quitclaim deed

The bargain and sale deed, general warranty deed, and special warranty deed all contain some type of warranty, whereas the quitclaim deed is to be used to “quit” any claim against title, such as a defect caused by a forged signature.

Question 3

Section 1031 of the Internal Revenue Code allows real estate investors to do which of the following when making a property exchange?

A. Avoid the capital-gains tax only if the exchange is of like kind
B. Phase out the capital-gains tax
C. Defer the capital-gains tax
D. Avoid the capital-gains tax even if the exchange is not of the like kind

Answer 3

C. Defer the capital-gains tax

Section 1031 of the IRC does not allow real estate investors to either avoid or phase out the tax; it only allows deferring of the tax.

Question 4

The deed that provides the buyer the greatest protection is the…

A. bargain and sale deed
B. general warranty deed
C. quitclaim deed
D. special warranty deed

Answer 4

B. general warranty deed

The general warranty deed provides the buyer with the greatest protection. The quitclaim with the leaast.