Property ownership and Interest Flashcards
What is the difference between a freehold estate and a leasehold estate?
A freehold estate is an estate that lasts for an indeterminate length of time, while a leasehold estate is an estate that lasts for a fixed period of time
What is an encumbrance?
A claim or liability attached to real estate. Classified as liens and physical encumbrances.
What are the government powers?
Police power, Eminent domain, Taxation, and Escheatment
What is a fee simple absolute estate?
Absolute ownership; the holder is entitled to all rights to the property
What is a fee simple defeasable estate?
It is subject to the occurrence or nonoccurence of some specified event.
What is a fee simple determinable estate
An estate that can be inherited but only by special limitation
What are the four basic forms of co-ownership?
Tenancy in common, Joint Tenancy, tenancy by the entirety, and community property
What is Tenancy in common
Each owner holds an undivided interest in the property and can convey their individual interest in the property without agreement of the other owners
What is Joint Tenancy
Each owner holds an interest in unity with the other owner, so the property can only be conveyed as a unit with agreement of all owners
What is tenancy by the Entirety?
Creates a single unit of ownership and provides some legal protection from a lien being placed on the property due to a lawsuit against only one of the owners
What is the difference between a condominium and a cooperative?
A condo is a structure that has two or more units that are available for individual ownership but the connecting areas are owned by all unit owners with individual interest. A cooperative allows for a corporation to hold title in real estate and then offer shares of the corporation to purchasers
What business entities are allowed to own real estate?
Partnerships, Corporations, Limited Liability Companies, Syndicates/joint ventures, and real estate investment trusts
Which of these is NOT a cost or expense of owning a home (PITI)?
- Taxes on personal property
- Interest paid on borrowed capital
- Homeowners insurance
- Maintenance and repairs
Taxes on personal property
Homeowners may deduct which of the following expenses when preparing their income tax return?
- Interest paid on maintenance and repairs
- Real estate taxes
- Insurance premiums
- Flood insurance premiums
Real Estate Taxes
A couple paid $56,000 for their property 20 years ago. Today, the market value is $119,000, and the owe $5,000 on their mortgage. Regarding this situation, which of these is TRUE?
- The $114,000 difference between the market value and the amount owed on the mortgage is their equity.
- The $63,000 difference between the original investment and the market value is their tax basis
- The $63,000 difference between the original investment and the market value will be used to compute the capital gains
- The $114,000 difference between the market value and the mortgage is their replacement cost
The $63,000 difference between the original investment and the market value is their tax basis
A building that is remodeled into residential units and is no longer used for the purpose for which it was originally built is an example of
- urban homesteading
- Planned unit development
- A converted use property
- A modular home
A converted use property
A highrise development that includes office space, stores, theaters, and apartment units is an example of:
- A mixed use development (MUD)
- A planned unit development (PUD)
- A converted use property
- special cluster zoning
A mixed use development (MUD)
Each room of a house was pre-assembled at a factory, driven to the building site on a truck, and then lowered onto it’s foundation by a crane. Later, workers finished the structure and connected plumbing and wiring before the owners moved in. Which term BEST describes this type of home?
- Modular
- Mobile
- Manufactured
- converted
Modular
A single woman bought a home 18 months ago and is now selling because she found a new job in another city. A married couple filing joint taxes has owned a nine-bedroom home for three years, Now, the couple wants to move to a small condominium unit. A single man owned his home for 17 years, sold it, and will use the proceeds from the sale to purchase a larger house. Based on these facts, which of these people is entitled to the $500,000 capital gains exclusion?
- The married couple
- The single woman
- The married couple and the single mom
- The single woman and the single man
The married couple
When married homeowners who file jointly realize a profit from the sale of their home that exceeds $500,000, which of these is TRUE?
- the profit exceeding $500,000 will be taxed at the current applicable capital gains rate
- The homeowners will not pay capital gains tax if they are over 55
- Up to $125,000 of the excess profit will be taxed as a capital gain
- The excess gain will be taxed at the homeowners income tax rate
the profit exceeding $500,000 will be taxed at the current applicable capital gains rate
Theft, smoke damage, an damage from fire are covered under which type of homeowners insurance policy?
- Broad form
- Coinsurance
- National Flood Insurance Program policies
- Basic form
Basic form (page 27)
One result of the capital gains tax law is that MOST homeowners
- Will pay capital gains tax at an 8% lower rate on their home sales
- May build more equity in their primary residence
- May use the $250,000 or $500,000 capital gains exclusion if they lived in the property for two out of the last five years.
- will be permitted to use the $125,000 over-55 exclusion more than once
May use the $250,000 or $500,000 capital gains exclusion if they lived in the property for two out of the last five years.
In determing whether a prospective buyer can afford a certain home purchase, lenders will consider
- Ethnicity of the buyer
- All of these
- Address of the home
- Credit score
credit score
Tom, an art history professor from Dubuque, spends a year in Italy, after which he decides to sell his home to live in Rome. If Tome is single, he can expect to claim
- a one-time exemption of $250,000
- a 1031 exchange
- the $250,000 capital gains exception
- the $500,000 capital gains exception
the $250,000 capital gains exception
An unmarried homewoners has $80,000 in equity in his primary residence of three years. The owner sells the residence for $135,000 The broker’s commission was 5.5% and the other selling expenses amounted to $1200. What is the owner’s taxable gain on this transaction?
- $0
- $46,375
- $47,575
- $61,425
$0
A man incurs the following expenses: $9,500 in interest on a mortgage loan on his residence, $800 in real estate taxes plus a $450 late payment penalty, and a $1,000 loan origination fee paid in the course of purchasing his home. How much may be deducted from his gross income?
- $9,800
- $10,500
- $11,750
- $11,300
$11,300
A community that merges housing, recreation, and commercial units into one self-contained development is called a
- mixed use development (MUD)
- Cooperative
- Planned unit development (PUD)
- Condominium
Planned unit development (PUD)
Examples of policy efforts to increase home ownership include:
- Lower closing costs for first time homebuyers
- Requiring higher down payments
- Requiring higher credit scores
- Penalizing first time home buyers for using funds from IRAs
Lower closing costs for first time homebuyers
Which of the following would NOT be like-kind property in a 1031 exchange of a rental single family home?
- A condo purchased as income property
- Vacant land
- Three unit rental building
- Single family home to be used as principal residence
Three unit rental building
Which of these is NOT covered in either a basic form or a broad form homeowners insurance policy?
- fire and lightning
- Explosion
- Flood
- Windstorm and hail
Flood
Which clause is found in MOST homeowners insurance policies?
- Property improvement clause
- Coinsurance clause
- Co-ownership clause
- Property devaluation clause
Coinsurance clause (pg 27)
The portion of an owners’ property value that exceeds the amount of their mortgage debt is called
Equity
