Real Estate Investing Real Estate Investing Real Estate Taxation Questions and Answers 3

Question 1

Which entity structure allows real estate income to pass through to investors while providing liability protection, and is the most common for rental properties?

Accepted Answer

Limited Liability Company (LLC)

Answer

LLCs provide pass-through taxation and liability protection, making them the most popular entity choice for holding rental real estate.

Question 2

What is the Net Investment Income Tax (NIIT) rate that may apply to rental income for high-income taxpayers?

Accepted Answer

3.8%

Answer

The NIIT imposes an additional 3.8% tax on net investment income, including rental income, for individuals exceeding certain AGI thresholds.

Question 3

When an investor sells a property held for more than one year, long-term capital gains are taxed at which maximum federal rate for the highest earners?

Accepted Answer

20%

Answer

The maximum federal long-term capital gains tax rate is 20% for taxpayers in the highest income bracket.

Question 4

What does the IRS require a real estate professional to demonstrate to deduct unlimited rental losses against other income?

Accepted Answer

750 hours and more than half of personal services in real property trades or businesses

Answer

To qualify as a real estate professional, a taxpayer must spend at least 750 hours and more than 50% of their personal service hours in real property trades or businesses.

Question 5

Which provision allows small landlords to deduct up to 20% of qualified business income from pass-through rental activities?

Accepted Answer

Section 199A deduction

Answer

The Section 199A qualified business income deduction allows eligible taxpayers to deduct up to 20% of net rental income from pass-through entities.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Real Estate Investing Real Estate Taxation Questions and Answers 3