PRINCIPLES AND PRACTICES CHP 20

Question 1

Which list of items related to a principal residence may someone deduct from income taxes?

A. interest paid on home equity loan, new roof, in- home office

B. mortgage interest, losses not covered by insurance, maintenance costs

C. mortgage interest, property taxes, in-home office

D. mortgage interest, property taxes, losses covered by insurance

Answer 1

C. mortgage interest, property taxes, in-home office

Question 2

Carol and Doug purchased a home 25 years ago for $800,000 when they got married. They recently sold the property for $1.2 million. On what amount will they have to pay capital gains taxes?

A. $400,000

B. $250,000

C. $150,000

D. $0

Answer 2

D. $0

Question 3

An investor bought a warehouse for $100,000, paying $6,000 in closing costs. They spent $50,000 to add 1,000 square feet to the building a year later. When they sold the property for $180,000, they paid $14,000 in closing costs. What is the realized capital gain?

A. $10,000

B. $16,000

C. $30,000

D. $56,000

Answer 3

A. $10,000

Question 4

Ad valorem refers to a tax that is

A. based on the assessed value of property.

B. charged by the county to transfer a deed when property sells.

C. a percentage of a property’s sale price.

D. a percentage of someone’s income.

Answer 4

A. based on the assessed value of property.

Question 5

Of these, which is MOST LIKELY to be paid for with a special assessment?

A. new fire engine

B. new sports stadium

C. sewer repair

D. teacher’s salaries

Answer 5

C. sewer repair

Question 6

Ellen bought her house for $240,000. If an assessor’s opinion is that her property is worth $250,000 and the statutory assessment ratio is 33.33%, what is the assessed value?

A. $79,200

B. $79,992

C. $82,500

D. $83,325

Answer 6

D. $83,325

Question 7

Convert the tax rate of $145 per $100 to a decimal.

Α. 145.0

B. 14.5

C. 1.45

D. 0.145

Answer 7

C. 1.45

Question 8

A property is appraised at $250,000 and assessed for tax purposes at 40% of value. What are the quarterly taxes if the tax rate is $6 per $100?

A. $600

B. $1,500

C. $6,000

D. $12,000

Answer 8

B. $1,500

Question 9

What tax rate was used for a property with an assessed value of $148,900 that owes $8,200 in taxes?

A. 0.055 mills

B. 5.5 mills

C. 55 mills

D. 55%

Answer 9

C. 55 mills

Question 10

Property in town is assessed at 50%. The property tax rate is $1.80 per $100. If an owner’s annual taxes are $720, what is the market value of the property?

A. $40,000

B. $80,000

C. $90,000

D. $130,909

Answer 10

B. $80,000

Question 11

A buyer purchases a new home for $300,000, making a 20% down payment. What is the buyer’s equity in this new home?

A. $0

B. $60,000

C. $240,000

D. $300,000

Answer 11

B. $60,000

Question 12

An investor buys a vacant lot for $64,500. They split it into two lots and sell them for $37,200 each. What is their percent of profit?

A. 8.6%

B. 11.5%

C. 13.3%

D. 15.3%

Answer 12

D. 15.3%

Question 13

A homeowner bought a house for $278,000. They sold it nine years later for $264,000. What is their percent of loss?

Α. 3.9%

B. 5.0%

C. 5.3%

D. 9.5%

Answer 13

B. 5.0%

Question 14

Residential rental property can be depreciated over years.

Α. 27 1/2

Β. 31 1/2

C. 39

D. Residential rental property cannot be depreciated for tax purposes.

Answer 14

Α. 27 1/2

Question 15

A small strip mall has a market value of $350,000. The land on which it sits is valued at 45%. What is the total amount the owner will be able to deduct next year as depreciation?

A. $3,808

B. $4,038

C. $4,654

D. $4,936

Answer 15

D. $4,936

Question 16

An investor borrows money from a bank to purchase a small office building. They are able to make the mortgage payments from the rent generated by the leases and still realize a profit. This is an example of what financing concept?

A. appreciation

B. leverage

C. liquidity

D. marketability

Answer 16

B. leverage

Question 17

An investor is looking for an investment property that requires lower maintenance than the apartment building they currently own. They’re thinking about buying a warehouse instead. What is the primary reason the investor might consider a like-kind exchange?

A. They can avoid paying commission on the sale of the apartment building if they buy another property.

B. They can avoid transfer taxes on the purchase of the warehouse.

C. They can defer capital gains taxes on the sale of the apartment building by reinvesting.

D. They can defer income taxes on the cash flow produced by the warehouse until they sell it.

Answer 17

C. They can defer capital gains taxes on the sale of the apartment building by reinvesting.

Question 18

Of these, which would LEAST LIKELY be an exchange that would allow an investor to defer capital gains taxes?

A. a beet farm for a silver mine

B. a plane for an office building

C. a shopping mall for an apartment building

D. a warehouse for a vacant parcel of land

Answer 18

B. a plane for an office building

Question 19

The operating statement on a rental property shows an effective gross income of $48,750 and a net operating income of $28,000. The owner pays $2,900 a year for insurance, $7,000 a year for property taxes, and $15,600 a year on the mortgage. What is the before-tax cash flow?

A. $2,500

B. $12,400

C. $18,100

D. $23,250

Answer 19

B. $12,400

Question 20

A buyer purchases a four-unit apartment building, putting 10% down on a purchase price of $500,000. Based on the financing terms, the monthly principal and interest are approximately $2,700. The NOI is $35,000 annually. What is the cash-on-cash return?

A. 4.4%

B. 5.2%

C. 6.5%

D. 8.8%

Answer 20

B. 5.2%