Unit 11: Ethics, Investment Properties, Income tax, Trust Accounts, Environmental Issues Flashcards
Radon
Odorless colorless gas mitigated by adding ventilation
EPA levels under 4.0 picocuries per liter
Asbestos
Better to encapsulate it instead of abating it.
Property built before this date requires seller to give buyer a lead base paint disclosure
January 1, 1978
Earnest money
Must be deposited into BROKER’s trust account
Commingling
Depositing client’s money into the same account with the broker’s money
Conversion
Using trust funds for personal reasons
Equity
Current value minus debt
1031 exchange
Tax advantage of real estate ownership that allows one to defer tax liability
Fraud
Willful intent to misrepresent or omit material facts
Willful misrepresentation or omission
Intentionally misinforming or withholding material fact
Negligent misrepresentation or omission
Unintentionally misinforming or withholding of a material fact
Real estate professionals must disclose the following:
Whom they represent
Obligations of all parties
Whether they are principal in the transaction
If there may be any environmental, material, or other issues that may impact the property
General partnership
All partners have equal share and liability
Limited partnership
Silent partners with no part in daily mgmnt.
Liability is limited to their investment
Advantageous to owners who want to own but not manage day to day decisions
Cash flow after debt service ( before tax cash flow or cash throw off)
What money is left after the property has paid all expenses including investor loans
Allowable tax deductions on 1st and 2nd Residences.
Must use an itemized tax return to take deductions
Property taxes
Mortgage interest
Points paid to improve or acquire
Some loan origination fees (points/origination/interest/and taxes)
Non deductible taxes
Home owners insurance
HOA dues
Repairs such as painting or capital improvements
Costs to obtain loan : appraisals, credit reports
Capital gains
Short term gain on property held 12 months or less, taxed at ratepayer’s ordinary income tax rate
Long term gain on property held more than 12 months
Taxation of gain on sale of primary residence
Excluded from full tax as follows:
$250,000 maximum if single or married filing separately
$500,000 maximum if married filing jointly
Capital gain calculation
Amount realized/adjusted sales price: (sales price minus selling expenses)
Minus
Adjusted basis (acquisition cost/tax basis + cost of capital improvements and special assessments)
Real estate investors can take a depreciation allowance on real estate improvements for how many years?
27 for residential property
39 for commercial property
Trust account
Brokerage firm required to maintain to hold earnest $$, tax and insurance and unearned commissions
Environmental issues and disclosure requirements and EPA
Environmental issues are considered material facts that must be disclosed by the seller and the brokers
Brokers who suspect an environmental issue that may affect the property must disclose it, even if the seller believes it should be cured or removed.
Lead based paint hazard reduction act of 1992.
Seller must disclose:
Location of any known lead based paint
Provide a copy of any report on the home
Give copy of the EPA pamphlet
Offer 10 day period to have home tested (buyer may refuse)
Seller NOT obligated to remove lead paint
Carbon monoxide
Odorless gas that is a byproduct of combustion
Many states require that properties have CO detectors . NC requires detectors in any residences that has appliances or heating systems that burn fossil fuel such as oil or gas
Mold
Not all are hazardous
Many do require remediation (removal) done by EPA and state regulations
Sellers must disclose any past or present mold issue
