Chapter 1 - Introduction
|
1.
|
The tax system in the United States is based on taxing increases in wealth as opposed to taxing income. 2
|
|
|
|
|
2.
|
Forgiveness of debt is not taxable. 2
|
|
|
|
|
3.
|
The following creates taxable gains on the disposition of property: 4
|
|
  appreciation increases in the fair market value of the property
|
|
|
depreciation taken on the property over the years
|
|
|
neither create taxable gains
|
|
|
both create taxable gains
|
|
|
|
|
4.
|
In the author's opinion, taxable gains are good because the alternative is sure to be less desirable. 5
|
|
|
|
|
Chapter 2 - What Are Your Objectives?
|
5.
|
The four goals of investment or reinvestment are: 9
|
|
|
asset appreciation, security, income and retirement
|
|
|
building wealth, managing growth, maximizing income and estate planning
|
|
|
building wealth, protecting assets, creating a stream of income and estate planning
|
|
|
none of the above
|
|
|
|
|
Chapter 3 - How to Estimate Your Capital Gains Taxes
|
6.
|
How do capital improvements affect the adjusted basis of a property? 15
|
|
|
they increase it
|
|
|
they decrease it
|
|
|
they have no effect
|
|
|
they increase it only when depreciation is also taken
|
|
|
|
|
7.
|
A component of capital gain on a property is: 16
|
|
|
maintenance expenses
|
|
|
recapture of depreciation
|
|
|
points
|
|
|
none of the above
|
|
|
|
|
8.
|
The 1997 tax change which reduced the capital gains rate from 28% to 20% only reduced the rate of recapture of depreciation to 25%. 17
|
|
|
|
|
Chapter 4 - Benefiting from a Stepped-Up Basis
|
9.
|
When one joint tenant dies in a joint tenancy, his ownership interest: 24
|
|
|
passes to the heirs chosen in his 'last will and testament'
|
|
|
vests to his spouse if he does not live in a community property state
|
|
|
automatically and instantly vests to the surviving joint tenant or tenants
|
|
|
none of the above
|
|
|
|
|
10.
|
Community property vesting allows the surviving spouse to receive a full stepped-up basis on both the deceased spouse's share and on the surviving spouse's own share. 25
|
|
|
|
|
11.
|
Obtaining the highest possible value for stepped-up basis is always to your advantage. 31
|
|
|
|
|
Chapter 5 - Using the Primary Residence Exclusion
|
12.
|
To qualify for the primary residence exclusion, you must pass: 34
|
|
|
the ownership test
|
|
|
the use test
|
|
|
the CPA exam
|
|
|
both the ownership test and the use test
|
|
|
|
|
13.
|
The general rule to pass the primary residence exclusion 'use test' is that the owner must have lived in the home for at least two contiguous years. 35
|
|
|
|
|
14.
|
Depreciation taken as a home office deduction will have to be recaptured and taxed when the home is sold. 42
|
|
|
|
|
Chapter 6 - Starker 1031 Tax-Deferred Exchanges
|
15.
|
1031 Exchanges allow taxpayers to change the type or character of real estate investments. 43
|
|
|
|
|
16.
|
The party which facilitates and documents 1031 exchanges and holds funds between the sale of a relinquished property and the purchase of a replacement property is known as a(n): 44
|
|
|
acquisition specialist
|
|
|
1031 moderator
|
|
|
exchange arbiter
|
|
|
accommodator
|
|
|
|
|
17.
|
Trading up means: 48
|
|
|
buying a bigger property
|
|
|
increasing the overall amount of your real estate investment
|
|
|
buying a higher quality property
|
|
|
all of the above
|
|
|
|
|
18.
|
The adjusted basis of relinquished property in a 1031 exchange will transfer to the replacement property. 50
|
|
|
|
|
19.
|
The basic requirements for a fully tax-deferred 1031 exchange include: 56
|
|
|
properties exchanged must be for business use or held for investment
|
|
|
the taxpayer must not get actual or constructive receipt of the proceeds
|
|
|
the use of qualified intermediaries or accommodators
|
|
|
all of the above
|
|
|
|
|
20.
|
In a 1031 exchange where the mortgage on the replacement property is less than the mortgage on the relinquished property, the difference in the mortgage amount is called: 58
|
|
|
exchange relief
|
|
|
mortgage boot
|
|
|
mortgage alleviation
|
|
|
mortgage mercy
|
|
|
|
|
21.
|
The proper time to arrange with an accommodator for a 1031 exchange is: 60
|
|
|
before the sale closes on the relinquished property
|
|
|
before the sale closes on the replacement property
|
|
|
45 days after the sale closes on the replacement property
|
|
|
45 days after the sales closes on the relinquished property
|
|
|
|
|
22.
|
A qualified intermediary creates a 'safe harbor' - that is a legal presumption that there was no actual or constructive receipt of funds. 61
|
|
|
|
|
23.
|
Government licensing requirements for accommodators are: 61
|
|
|
intense
|
|
|
nonexistent
|
|
|
flexible
|
|
|
regulated by the FCC
|
|
|
|
|
24.
|
Replacement property identified 46 days after the closing and transfer of relinquished property may qualify for a deferred 1031 exchange. 63
|
|
|
|
|
25.
|
Notifying your title company by telephone that you've identified a replacement property satisfies the 45 day identification rule. 65
|
|
|
|
|
26.
|
A common arrangement for reverse exchanges where a friendly party purchases and holds replacement property until such time as the relinquished property is sold is known as: 76
|
|
|
elbow rooming
|
|
|
parking
|
|
|
tactical maneuvering
|
|
|
none of the above
|
|
|
|
|
27.
|
A QEAA is a: 77
|
|
|
Questionable Exchange Arbiter Agreement
|
|
|
Quick Exchange Allowance Arrangement
|
|
|
Qualified External Accommodation Agreement
|
|
|
Qualified Exchange Accommodation Arrangement
|
|
|
|
|
Chapter 7 - Installment Sales
|
28.
|
In balancing the risks and benefits of installment sales, you should: 95
|
|
|
decide on an acceptable LTV ratio
|
|
|
determine how long you are willing to carry the note
|
|
|
structure the terms and conditions of the note to address foreseeable risks
|
|
|
do all of the above
|
|
|
|
|
29.
|
Too high of an interest rate on an installment sale may cause the buyer to refinance sooner which may trigger immediate capital gains tax. 99
|
|
|
|
|
Chapter 8 - Combining a 1031 Exchange with an Installment Sale
|
30.
|
One of the main reasons for using the combination 1031 exchange with an installment sale is to reduce the level of real estate investments as a whole. 111
|
|
|
|
|
Chapter 9 - Private Annuity Trusts
|
31.
|
Unlike an installment sale, when appreciated realty is exchanged for a private annuity contract, capital gains are triggered. 118
|
|
|
|
|
32.
|
The trustee of a private annuity trust is responsible for: 123
|
|
|
managing the investments of the trust
|
|
|
making the annuity payments to the annuitant at the predetermined times
|
|
|
none of the above
|
|
|
both of the above
|
|
|
|
|
33.
|
The requirement that a private annuity trust be unsecured may be discomforting to a property owner as they lose control of the asset. 131
|
|
|
|
|
Chapter 10 - Charitable Remainder Trusts
|
34.
|
With a charitable remainder trust, you are able to take a charitable gift income tax deduction to offset your immediate income tax liability subject to certain limitations. 143
|
|
|
|
|
35.
|
A charitable remainder trust is fairly simple to change or cancel once it's been set up. 144
|
|
|
|
|
36.
|
The trustee of a charitable remainder trust may not be: 149
|
|
|
the donor
|
|
|
the donor's spouse
|
|
|
the donor's CPA
|
|
|
none of the above
|
|
|
|
|
37.
|
A wealth replacement trust is a trust designed to purchase and continue paying premiums on a life insurance policy that will pay a set amount on the death of the donor. 152
|
|
|
|
|
Chapter 11 - Tax-Free Real Estate Investing in an IRA
|
38.
|
Self directed IRAs are illegal. 158
|
|
|
|
|
39.
|
Prohibited transactions of a self directed IRA include: 162
|
|
|
the sale or exchange, or leasing, of any property between the IRA and a disqualified person
|
|
|
lending money or other extension of credit between the IRA and a disqualified person
|
|
|
furnishing goods, services, or facilities between the IRA and a disqualified person
|
|
|
all of the above
|
|
|
|
|
40.
|
Income from debt-financed property is considered Unrelated Business Income (UBI). 163
|
|
|
|
|
