Real Estate Tax Strategies Flashcards

Under IRC Section 1031, what type of property exchange allows a taxpayer to defer capital gains tax?

Answer: Like-kind exchange of investment or business property

IRC Section 1031 allows deferral of capital gains when taxpayers exchange investment or business property for property of a like-kind, provided specific identification and timeline rules are met.

What is the straight-line depreciation recovery period for residential rental property under MACRS?

Answer: 27.5 years

Residential rental property is depreciated over 27.5 years using the straight-line method under MACRS, while commercial real property uses 39 years.

Under the passive activity loss rules of IRC Section 469, what is the maximum rental real estate loss a taxpayer may deduct annually if AGI does not exceed $100,000?

Answer: $25,000

IRC Section 469(i) provides a $25,000 special allowance for rental real estate losses for taxpayers who actively participate and whose AGI does not exceed $100,000.

What is the annual depreciation period for commercial (nonresidential) real property under MACRS?

Answer: 39 years

Nonresidential commercial real property placed in service after May 12, 1993 is depreciated straight-line over 39 years under MACRS.

To qualify as a 'real estate professional' under IRC Section 469(c)(7) and avoid passive loss limitations, how many hours per year must a taxpayer spend in real property trades or businesses?

Answer: More than 750 hours

IRC Section 469(c)(7) requires more than 750 hours per year in real property trades or businesses in which the taxpayer materially participates, and this must exceed time spent in any other trade or business.

What rate does the Net Investment Income Tax (NIIT) impose on passive rental income for high-income taxpayers?

Answer: 3.8%

The NIIT imposes a 3.8% surtax on the lesser of net investment income (including passive rental income) or the excess of MAGI over the applicable threshold ($200,000 single / $250,000 MFJ).

Which tax strategy involves reclassifying a building's components into shorter depreciation lives to accelerate deductions?

Answer: Cost segregation study

A cost segregation study identifies and reclassifies building components (e.g., electrical, plumbing, land improvements) from 39-year or 27.5-year property into 5-, 7-, or 15-year MACRS property, accelerating depreciation deductions.