Real Estate Investing Real Estate Investing Tax Implications of Ownership Questions and Answers 2

Question 1

What is the maximum annual passive activity loss deduction allowed for active participants in rental real estate under the special allowance rule?

Accepted Answer

$25,000

Answer

Active participants in rental real estate can deduct up to $25,000 in passive activity losses against non-passive income, subject to income phase-outs.

Question 2

When a property owner dies and passes real estate to heirs, the tax basis of the property is adjusted to what value?

Accepted Answer

Fair market value at date of death

Answer

Inherited real estate receives a stepped-up basis to the fair market value at the date of the decedent's death, potentially eliminating years of capital gains.

Question 3

Which IRS form is used to report rental real estate income and expenses?

Accepted Answer

Schedule E

Answer

Schedule E (Supplemental Income and Loss) is used to report income and expenses from rental real estate activities.

Question 4

What is the depreciation recapture tax rate applied when selling a rental property that has been depreciated?

Accepted Answer

25%

Answer

Depreciation recapture on real property is taxed at a maximum rate of 25% under Section 1250 rules, applied to the amount of depreciation previously claimed.

Question 5

In a tenancy in common (TIC) arrangement, how is rental income typically reported for tax purposes?

Accepted Answer

Each owner reports their proportional share on their own return

Answer

In a TIC arrangement, each co-owner reports their proportional share of rental income and expenses on their individual tax returns.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Tax Implications of Ownership Questions and Answers 2