Real Estate Taxation & Accounting Flashcards

A Qualified Opportunity Zone (QOZ) investment primarily provides investors with:

Answer: Deferral of prior capital gains, potential step-up in basis, and exclusion of new appreciation after 10 years

QOZ investments allow investors to defer capital gains on prior investments, potentially reduce those deferred gains after a holding period, and exclude all appreciation in the Opportunity Fund if held at least 10 years.

The 3.8% Net Investment Income Tax (NIIT) applies to:

Answer: Net investment income of high-income taxpayers with MAGI exceeding $200,000 (single) or $250,000 (MFJ)

The 3.8% NIIT applies to the lesser of net investment income or MAGI above $200,000 (single) or $250,000 (married filing jointly); passive rental income is generally subject to this surtax.

Under IRC Section 704(c), when a partner contributes appreciated property to a real estate partnership, the pre-contribution built-in gain is:

Answer: Allocated solely to the contributing partner upon the property's disposition

Section 704(c) requires that pre-contribution built-in gains or losses be allocated back to the contributing partner upon disposition, preventing the shifting of embedded tax consequences to other partners.

For U.S. GAAP financial reporting purposes, investment real property is typically carried at:

Answer: Historical cost less accumulated depreciation under the cost model

Under U.S. GAAP, investment real property is recorded at historical cost less accumulated depreciation; unlike IFRS, U.S. GAAP does not permit upward revaluation of real property to fair value.

The installment sale method under IRC Section 453 allows a real estate seller to:

Answer: Recognize gain proportionally as each payment is received based on the gross profit ratio

Under the installment method, gain is recognized proportionally as each payment is received based on the gross profit ratio (gain ÷ contract price), spreading the tax liability over multiple years.

Under the at-risk rules of IRC Section 465, qualified nonrecourse financing on real property is treated as:

Answer: Amounts at risk, allowing investors to include such debt in their loss deduction basis

IRC §465(b)(6) creates an exception for qualified nonrecourse financing secured by real property obtained from commercial lenders, allowing investors to include such debt in their at-risk amount for loss deduction purposes.

In a UPREIT (Umbrella Partnership REIT) structure, a property owner who contributes real estate receives operating partnership (OP) units primarily to:

Answer: Defer capital gains taxes, as the contribution is not a taxable event until units are converted

In a UPREIT contribution, a property owner exchanges real estate for OP units rather than cash or REIT shares, deferring capital gains recognition until the OP units are eventually converted to REIT shares or cash.