CTC Real Estate Tax Strategies 2 — Questions and Answers
Question 1: In a 1031 like-kind exchange, how many calendar days does a taxpayer have to identify potential replacement properties after closing on the relinquished property?
- 45 days (Correct answer)
- 60 days
- 90 days
- 180 days
Correct answer: 45 days
Under IRC Section 1031, the taxpayer must identify potential replacement properties in writing within 45 days of transferring the relinquished property.
Question 2: What is the total time allowed under IRC Section 1031 to complete a like-kind exchange by receiving the replacement property?
- 180 days from the transfer of the relinquished property (Correct answer)
- 45 days from closing
- One year from identification
- 90 days from the identification period
Correct answer: 180 days from the transfer of the relinquished property
The taxpayer must receive the replacement property by the earlier of 180 calendar days after the transfer of the relinquished property or the due date (including extensions) of the tax return for the year of the exchange.
Question 3: Under IRC Section 121, what is the maximum gain exclusion on the sale of a primary residence for a married couple filing jointly?
- $500,000 (Correct answer)
- $250,000
- $1,000,000
- $750,000
Correct answer: $500,000
IRC Section 121 allows exclusion of up to $500,000 of gain for married couples filing jointly who owned and used the home as their principal residence for at least 2 of the last 5 years.
Question 4: What is the depreciation recapture tax rate that applies to gains attributable to Section 1250 straight-line depreciation on real property (unrecaptured Section 1250 gain)?
- 25% (Correct answer)
- 15%
- 20%
- 28%
Correct answer: 25%
Unrecaptured Section 1250 gain — attributable to straight-line depreciation previously claimed on real property — is taxed at a maximum rate of 25% rather than the standard long-term capital gains rate.
Question 5: What primary tax benefit do Qualified Opportunity Zone (QOZ) fund investments offer to taxpayers who invest capital gains?
- Temporary deferral of gain, potential step-up in basis, and exclusion of appreciation after 10 years (Correct answer)
- Immediate exclusion of all capital gains
- Conversion of capital gains to ordinary loss deductions
- Permanent exclusion of gain up to $1 million
Correct answer: Temporary deferral of gain, potential step-up in basis, and exclusion of appreciation after 10 years
QOZ investments allow deferral of recognized gain until 2026 (or earlier sale), a 10% step-up if held 5 years, 15% if held 7 years, and complete exclusion of post-investment appreciation if held at least 10 years.
Question 6: When a rental property is sold for a gain, what tax treatment applies to the portion of gain attributable to depreciation previously deducted on personal property components (Section 1245 property)?
- Recaptured as ordinary income up to depreciation claimed (Correct answer)
- Taxed at unrecaptured Section 1250 rate of 25%
- Excluded if held more than one year
- Treated as long-term capital gain
Correct answer: Recaptured as ordinary income up to depreciation claimed
Under IRC Section 1245, gain attributable to depreciation on personal property (5-year, 7-year MACRS assets identified via cost segregation) is fully recaptured as ordinary income up to the amount of depreciation previously deducted.
Question 7: Which installment sale provision under IRC Section 453 provides a key tax benefit for real estate sellers?
- Spreading gain recognition over the years payments are received, deferring the tax liability (Correct answer)
- Converting ordinary income to capital gains on the sale
- Eliminating depreciation recapture on the sold property
- Allowing a deduction equal to the mortgage balance at sale
Correct answer: Spreading gain recognition over the years payments are received, deferring the tax liability
IRC Section 453 installment sale treatment allows a seller to recognize gain proportionally as payments are received, deferring tax on the gain not yet collected and keeping the seller in a potentially lower tax bracket each year.
CTC Real Estate Tax Strategies 2
In a 1031 like-kind exchange, how many calendar days does a taxpayer have to identify potential replacement properties after closing on the relinquished property?