Real Estate Course Chapter 18

Question 1

Floridians who homestead their residence and who reside on the property as their permanent legal residence are eligible for a $50,000 homestead tax exemption from city, county, and school board taxes.

Answer 1

FALSE. owners are entitled to a $25,000 exemption for city, county, and school board taxes. Owners with assessed values greater than $75,000 are entitled to an additional $25,000 tax exemption from city and county taxes only. Owners with assessed values between $50,001 and $75,000 receive a prorated amount of exemption in addition to the $25,000 base exemption.

Question 2

One mill can be written as .001.

Answer 2

TRUE. A mill is one one-thousandth of a dollar (or one-tenth of a cent). There are 1,000 mills in a dollar.

Question 3

Government buildings are immune properties—that is, government buildings are NOT subject to taxation.

Answer 3

TRUE. Immune properties are government buildings plus special categories that have been made immune by a statute or ordinance, such as municipal airports. Immune properties are not even assessed

Question 4

Ad valorem means according to cost.

Answer 4

FALSE. Ad valorem means according to value.

Question 5

Step 2 in protesting a property assessment is court litigation.

Answer 5

FALSE. Step 1 is seeking an adjustment by contacting the county property appraiser or a representative of that office; step 2 is filing an appeal with the Value Adjustment Board; and step 3 is court litigation.

Question 6

One of the requirements for establishing a homestead tax exemption is that the owner must have held title to the property as of January 1 of the year of application.

Answer 6

TRUE. Another requirement is that a recorded deed, recorded contract for deed, or property tax bill must be presented in the homeowner’s name, plus two forms of identification.

Question 7

Special assessments are levied according to the value of a property.

Answer 7

FALSE. Special assessments are a one-time tax levied on properties to help pay for some public improvement that benefits the property. Special assessments are not ad valorem taxes—they are not levied according to the value of a property.

Question 8

How are Special assessments levied?

Answer 8

Usually, special assessments are levied on a front-foot basis for items such as sidewalks and street paving. They are often levied on a per hookup basis for utility and sewer improvements.

Question 9

The IRS useful asset life of nonresidential income-producing property is 27.5 years for calculating depreciation allowance.

Answer 9

FALSE. The useful life of nonresidential income-producing property is 39 years. The useful life of residential rental property is 27.5 years.

Question 10

Disabled veterans must be at least 20 percent disabled by military service-connected injury to be entitled to an additional $5,000 exemption on their homesteaded property.

Answer 10

FALSE. Veterans must be at least 10 percent (not 20 percent) disabled by military service-connected misfortune to be entitled to an additional $5,000 exemption on homesteaded property.

Question 11

The purpose of Florida’s Green Belt Law is to protect coastal property from commercial development.

Answer 11

FALSE. Florida’s Green Belt Law was designed to protect farmers from having taxes increased just because the land might be in the path of urban growth and therefore well suited for development.

Question 12

If a request for a property tax adjustment is denied, what is the property owner’s next step?

Answer 12

File a petition with the Value Adjustment Board

Question 13

A homesteaded single-family residence has an assessed value of $92,800. The owner is a 25 percent service-disabled veteran who is 75 years of age. What is the total homestead tax exemption

Answer 13

The answer is $55,000. The solution is:

$50,000 homestead exemption + $5,000 disability = $55,000 total homestead tax exemption.

Question 14

The just value of a homesteaded property in Leon County is $425,800. The Consumer Price Index for the previous year was 2%. The property’s just value increased the maximum allowed under the Save Our Home Amendment. By what percent did the just value increase?

Answer 14

The answer is 2%. The just value of homesteaded property may be increased either three percent annually (based on the assessed value for the previous year), or the percentage change of the Consumer Price Index for the preceding year, whichever is less.

Question 15

You have been granted homestead tax exemption. Your assessed property value is $395,000. What is your taxable property value for county taxes?

Answer 15

$345,000. The solution is:

$395,000 assessed value – $50,000 homestead exemption = $345,000 taxable value.

Question 16

A development company purchased 1,000 acres of land from a foreign seller for $2,850,000. Federal law requires the buyer to withhold from the seller and pay to the IRS approximately

Answer 16

$285,000. The IRS requires that buyers withhold 10 percent of the gross sale price. The buyer must report the purchase and pay the IRS the amount withheld.

Question 17

For tax purposes, real estate commission is classified as which type of income?

Answer 17

ACTIVE

Question 18

A property owner has lived in her home for seven years. This year, the owner refinanced her mortgage loan in order to reduce her monthly housing expense. The property owner may NOT deduct which housing expense on her annual federal income tax return?
A)$11,749 mortgage interest
B)Gloria may deduct all of these expenses
C)$7,850 property taxes
D)$3,000 in points charged to refinance the mortgage loan

Answer 18

D) $3,000 in POINTS CHARGED TO REFINANCE THE MORTGAGE LOAN. Points are deductible in the year paid, unless they are paid when refinancing a loan. In such cases, the points must be deducted over the entire life of the mortgage loan.

Question 19

A holder of a tax certificate may request a tax deed
A)on January 1 of the following year.
B)after November 1 when taxes for the previous year become delinquent.
C)anytime up to ten years after the tax certificate was originally issued.
D)after holding the certificate for at least two years.

Answer 19

D) AFTER HOLDING THE CERTIFICATE FOR AT LEAST TWO YEARS. The holder of a tax certificate can force a public auction of the property after two years (but no later than seven years) by requesting a tax deed.

Question 20

The tax exemption filing period for first-time applicants ends on

Answer 20

March 1st. First-time applicants must file an application with the county property appraiser’s office on or before March 1.

Question 21

Tax advantages of homeownership do NOT include
A)a tax deduction of the interest paid on a home equity loan that does not exceed $100,000.
B)exclusion of gain from the sale of a principal residence up to $500,000 for a single adult.
C)up to $10,000 in penalty-free withdrawals from an IRA if used as a down payment on a personal residence for first-time home buyers.

Answer 21

B) EXCLUSION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE UP TO $500,000 FOR A SINGLE ADULT. The IRS allows an exclusion of up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale of a principal residence.

Question 22

The Value Adjustment Board is composed of

Answer 22

one school board member, two county commissioners, and two citizen members.

Question 23

A corner lot measures 120 by 100 feet. Street paving costs are $55 per running foot, and the city will pay 30 percent of paving costs. All of the streets in the neighborhood are being paved. What is the property owner’s assessment?

Answer 23

The answer is $4,235. The solution is:
120 feet + 100 feet = 220 total feet × $55 = $12,100; $12,100 × .30 = $3,630; $12,100 – $3,630 = $8,470 property owners’ share; $8,470 ÷ 2 sides of street = $4,235 assessment.

Question 24

Which statement is FALSE regarding property taxes?

A)Property taxes become a lien on all real estate in Florida on January 1 each year.
B)Property taxes for the previous year are due on November 1.
C)The county property appraiser assesses all real property within the county.
D)Ad valorem tax means according to value.

Answer 24

B) PROPERTY TAXES FOR THE PREVIOUS YEAR ARE DUE ON NOVEMBER 1. Property taxes are due November 1 for the current year. Property taxes are paid in arrears, meaning that although they are assessed on January 1, the bill is not due until November 1 of the same year.

Question 25

Which item is NOT a deductible expense for an income-producing property?
 A)Depreciation
 B)Mortgage interest
 C)Hazard insurance
 D)Reserve for replacement

Answer 25

D) RESERVE FOR REPLACEMENT. Reserve for replacement is not a cash expense and therefore is not deductible.

Question 26

Which property is exempt from property taxes?
 A)Church
 B)Federal Reserve Building
 C)Florida Museum of Natural History
 D)Air Force Base

Answer 26

A) CHURCH. Exempt properties include property belonging to churches and nonprofit organizations. Immune properties are city, county, state, and federal government buildings.

Question 27

What are the total property taxes if the assessed value is $265,800 and the homeowner qualifies for homestead exemption? The city tax rate is 10 mills, the county tax rate is 9.5 mills, and the school board tax rate is 5.8 mills.

Answer 27

The answer is $5,604.74. The solution is:

$265,800 – $50,000 exemption = $215,800 taxable value; 10 city mills + 9.5 county mills + 5.8 school mills = 25.3 or .0253 mills; $215,800 × .0253 tax rate = $5,459.74 taxes due; $25,000 additional exemption × .0058 school board mills = $145 additional taxes due; $5,459.74 + $145 = $5,604.74 total taxes due.

Question 28

If a married couple who files jointly realizes a profit from the sale of their home that exceeds $500,000, what is the result?

Answer 28

THE EXCESS GAIN WILL BE TAXED AT THE CURRENT APPLICABLE CAPITAL GAINS RATE. Gain is not taxed up to $500,000.

Question 29

In 2010, a taxpayer had a $30,000 loss from the sale of Investment Property A, a $28,000 gain from the sale of Investment Property B, and a $3,000 loss from the sale of his principal residence. All three properties were owned for more than 12 months. The taxpayer also earned a $75,000 salary. What is the 2010 total income for tax purposes, using just this information?

Answer 29

$73,000. The solution is:
$30,000 loss Property A + $28,000 gain Property B = $2,000 net loss from sale of investment properties; $75,000 salary – $2,000 loss = $73,000 taxable income.
Note: You cannot deduct loss from the sale of a principal residence.)

Question 30

An investor purchased a commercial building in January for $524,900. The contract specified that 80 percent of the purchase price was allocated to the structure and the remaining purchase price was allocated to the land. What is the annual depreciation deduction? (Round to nearest dollar.)
A)$15,270
B)$13,459
C)$3,817
D)$10,767

Answer 30

The answer is $10,767. The solution is:

$524,900 × .80 = $419,920 building; $419,920 ÷ 39 years = $10,767.

Question 31

A senior citizen who owns a home located in Pinellas County, with an assessed value of $112,800. The city tax rate is 9.5 mills, the county rate is 9.5 mills, and the school board tax rate is 7.3 mills. The senior citizen has homesteaded his principal residence. The amount of savings in property taxes realized by all allowable tax exemptions is

Answer 31

$1,132.50. The solution is:
9.5 city + 9.5 county + 7.3 school = 26.3 mills; $25,000 homestead × .0263 mills = $657.50 savings; 9.5 city mills + 9.5 county mills = 19 mills; $25,000 additional exemption × .019 = $475 savings; $657.50 + $475 = $1,132.50 total savings.

Question 32

To convert the tax rate from a decimal form to a mill you move __________

Answer 32

the decimal point three places to the right. Example: .010 = 10 mills .006 = 6 mills

Question 33

To convert the tax rate from a mill to decimal form you move __________

Answer 33

the mill amount three places to the left. Example: 10 mills = .010 6 mills = .006

Question 34

Are homesteads owned by quadriplegics exempt from taxation?

Answer 34

YES

Question 35

Florida has legislated a “cap” (ceiling) that limits cities, counties, and school boards to a basic real property tax rate of no more than ______ mills each.

Answer 35

10

Question 36

What is the exemption for widows or widowers, the legally blind, and non veterans who are totally and permanently disabled?

Answer 36

$500

Question 37

True or False: Fla Law authorizes counties and municipalities to grant by ordinance an additional homestead of $50k for persons 65 and over. Household income is not restricted.

Answer 37

False. Fla Law authorizes counties and municipalities to grant by ordinance an additional homestead of $50k for persons 65 and over. HOWEVER, Household income IS restricted in these cases to no more than $20k (adjusted annually for inflation).

Question 38

A capital gain from the sale of real estate investments property can be used to offset a capital loss for the sale of other investments property. Are there any limits?

Answer 38

Yes, if the loss exceeds the gain, the investor may deduct an additional $3000 of this loss in a given year. If the loss is more than $3000 he must carry over the additional amounts into the next tax year.

Question 39

Is income from rental or leased property Active, Portfolio or Passive income?

Answer 39

Passive

Question 40

When calculating special assessments on lot frontage and you are told to figure your cost Don’t forget that …

Answer 40

your street has two sides and the property across the street shares in the cost. So technically you would divide the cost in half after factoring in the lot frontage.