Taxation

Question 1

Which of the following is considered an ad valorem tax?

(a) real property tax.
(b) unit tax.
(c) use tax.
(d) death tax.

Answer 1

(a) real property tax.

Question 2

Which of the following can a property owner expect after sewer lines are installed in front of his/her property?
(a) supplemental assessment
(b )general assessment
(c) special assessment
(d) all of these

Answer 2

(c) special assessment

Question 3

Proposition 13 limits annual increases in assessed valuation to

(a) 1 percent.
(b) 2 percent.
(c) 3 percent.
(d) 5 percent.

Answer 3

(b) 2 percent.

Question 4

Under Proposition 60, in order for a homeowner to transfer the current base-year value of their principal residence to a new home,

(a) they must be at least 55 years of age or be severely and permanently disabled.
(b) both properties must be in the same county.
(c) the new home must be purchased within two years of the sale of the original residence.
(d) all of the above.

Answer 4

(d) all of the above.

Question 5

Proposition 90 extends Proposition 60 to

(a) income property.
(b) rental property.
(c) participating counties
(d) other countries.

Answer 5

(c) participating counties

Question 6

A federal income tax advantage can be realized by

(a) depreciating income property.
(b) income tax delay tactics.
(c) deferring taxes.
(d) none of these.

Answer 6

(a) depreciating income property.

Depreciation is an expense deduction that allows for the recovery of the cost of the investment.

Question 7

The original basis of a taxpayer’s residence would be

(a) cost plus buying expenses.
(b) cost minus improvements.
(c) cost plus improvements.
(d) cost plus improvements minus depreciation.

Answer 7

(a) cost plus buying expenses.

Question 8

How would a taxpayer adjust the tax basis of his/her personal residence for Federal tax purposes?

(a) property taxes
(b) accrued depreciation
(c) addition of a concrete patio
(d) none of these

Answer 8

(c) addition of a concrete patio

The tax basis on a personal residence consists of the cost of the property plus capital improvements like the addition of a concrete patio.

Question 9

The capital gains tax rate for gains attributable to depreciation is

(a) 15 percent.
(b) 25 percent.
(c) 35 percent.
(d) 45 percent.

Answer 9

(b) 25 percent.

Question 10

For various reasons, an owner may want to do an exchange to

(a) eliminate taxes.
(b) defer taxes.
(c) transfer taxes.
(d) get a tax refund.

Answer 10

(b) defer taxes.

Question 11

With reference to a tax-deferred exchange, the term trade up means

(a) the new property must be a minimum of two stories.
(b) the new property must be a multiple unit dwelling.
(c) the new property must be equal to or greater in value than the old property.
(d) the new property must be held in a general partnership.

Answer 11

(c) the new property must be equal to or greater in value than the old property.

Question 12

For purposes of an exchange, which of the following would satisfy the like-kind rule?

(a) a duplex exchanged for a fourplex
(b) duplex exchanged for a principal residence.
(c) a ranch exchanged for a vacation home.
(d) cash exchanged for personal property.

Answer 12

(a) a duplex exchanged for a fourplex

Question 13

Boot in an exchange refers to

(a) cash.
(b) paper (trust deeds or notes).
(c) personal property.
(d) all of the above.

Answer 13

(d) all of the above.

Question 14

An installment sale represents a tax advantage because

(a) it reduces tax rates.
(b) it eliminates taxes all together.
(c) it is a tax exemption.
(d) it defers payment of capital gains.

Answer 14

(d) it defers payment of capital gains.

Depreciation is an expense deduction that allows for the recovery of the cost of the investment. An installment sale allows one to save on taxes by postponing the receipt and reporting of income to future years.

Question 15

Which of the following would disqualify the homeowner from using the universal exclusion from capital gains?

(a) the owner occupied the property for only two of the five years before the sale.
(b) the owner sold another home and used the exclusion one year prior to the sale.
(c) the owner occupied the property for two years within the preceding five years but is was not continuous.
(d) The homeowners file jointly.

Answer 15

(b) the owner sold another home and used the exclusion one year prior to the sale.

A seller of any age who has owned and used the home as a principal residence for at least two years of the five years before the sale can exclude from income up to $250,000 of gain ($500,000 for joint filers). In general, the exclusion can only be used once every two years. The two-year occupancy need not be continuous.

Question 16

During ownership, owners may write off real estate taxes and mortgage interest

(a) three years back.
(b) two years back.
(c) paid into an impound account.
(d) in the year they are paid.

Answer 16

(d)in the year they are paid.

During ownership, owners may write off real estate taxes and mortgage interest in the year they are paid. Monies paid into an impound account are not deductible. Only the money paid from the impound account to the property authority can be deducted.

Question 17

To help reduce the gain at the time of sale, homeowners should

(a) keep track of travel expenses associated with maintaining the property.
(b) keep tract of amounts spent for home improvements.
(c) calculate deferred maintenance over the useful life of the property.
(d) all of the above.

Answer 17

(b) keep tract of amounts spent for home improvements.

Question 18

When real property is acquired from a foreign person, the IRS requires the transferee (buyer) to

(a) Notify the “foreign person’s” home country of the sale.
(b) Verify the foreign person’s citizenship status.
(c) Withhold a portion of the sales price for tax purposes.
(d) Withhold a portion of the sales price for tax purposes.

Answer 18

(c) Withhold a portion of the sales price for tax purposes.

FIRPTA generally requires that a buyer withhold estimated taxes equal to 10 percent of the sales price in transactions involving real property in the United States sold or exchanged by a foreign person.

Question 19

For personal residences, FED-FIRPTA applies only to sales prices of

(a) $300,000 or more.
(b) $500,000 or more.
(c) $600,000 or more.
(d) $1million or more.

Answer 19

(a) $300,000 or more.

Question 20

Real estate operating losses used by taxpayers to offset real estate income are called:

(a) active losses.
(b) passive losses.
(c) deferred losses.
(d) depreciated losses.

Answer 20

(b) passive losses.

Taxpayers can use real estate operating losses (passive losses) to offset real estate income without limit. Real estate losses also can be used, with limitations, to offset active income such as wages.

Question 21

The court approved procedure to pay off the just debts of a deceased and to distribute his or her assets according to a will is called:

(a) probate.
(b) testate.
(c) succession.
(d) distribution.

Answer 21

(a) probate.

Question 22

An ad valorem tax describes:

(a) real property taxes.
(b) taxes based on a person’s ability to pay.
(c) special assessments.
(d) none of these.

Answer 22

(a) real property taxes.

Question 23

The dates November 1st, December 10th, February 1st, and April 10th relate to:

(a) federal income taxes.
(b) real property taxes.
(c) inheritance taxes.
(d) sales taxes.

Answer 23

(b) real property taxes.

Question 24

Which proposition makes it possible for taxpayers 55 years or older to transfer current base-year value of their principal residence to a replacement home within the same county?

(a) Proposition 13
(b) Proposition 58
(c) Proposition 60
(d) Proposition 90

Answer 24

(c) Proposition 60

Question 25

The California Homeowner’s Exemption for property taxes is:

(a) $75,000.
(b) $7,000.
(c) $4,000.
(d) $1,000.

Answer 25

(b) $7,000.

Question 26

To have a valid delayed exchange:

(a) the exchange property must be identified within 45 days.
(b) the exchange must be completed no more than 180 days after transfer of exchanged property.
(c) both the exchange property must be identified within 45 days AND the exchange must be completed no more than 180 days after transfer of exchanged property.
(d) none of these.

Answer 26

(c) both the exchange property must be identified within 45 days AND the exchange must be completed no more than 180 days after transfer of exchanged property.

Question 27

Proposition 13 provided for:

(a) newly acquired property to have a maximum basic tax levy of 1%.
(b) property taxes to be increased up to 2% each year.
(c) assessed value of property acquired before 1978 to be reduced to the amount shown in the 1975 tax roll.
(d) all of these.

Answer 27

(d) all of these.

Question 28

Nonresidential real estate purchased since 1987 must be depreciated using:

(a) 39 years for the property life.
(b) the straight-line method.
(c) both A and B
(d) neither A nor B

Answer 28

(c) both A and B

Question 29

Requirements for a valid 1031 exchange include:

(a) the property must have been held for productive use in a trade or business or for investment purposes.
(b) exchange property must be of like-kind.
(c) both A and B.
(d) neither A nor B.

Answer 29

(c) both A and B.

Question 30

Tax benefits of a principal residence include all of the following EXCEPT:

(a) 1031 exchange.
(b) deductibility of interest.
(c) deductibility of taxes.
(d) universal exclusion.

Answer 30

(a) 1031 exchange.

Question 31

A married couple sells their principal residence of 30 years for $650,000.00. Their adjusted cost basis is $80,000.00. How much of their gain would be taxable?

(a) $650,000.00
(b) $570,000.00
(c) $70,000.00
(d) None of these

Answer 31

(c) $70,000.00

a married couple has an exemption rate of $500,000,($250,000 each). With the adjusted being $80,000, the balance is $70,000