Real Estate Investing Real Estate Taxation Questions and Answers

Question 1

An investor purchases a residential rental property for $450,000.
The land is valued at $100,000.
Under the Modified Accelerated Cost Recovery System (MACRS), what is the annual depreciation deduction the investor can claim?

Accepted Answer

$12,727.27

Answer

$8,974.36

Answer

$11,538.46

Answer

$16,363.64

Question 2

An investor sells a rental property held for 8 years. The total gain is $200,000, which consists of $120,000 from market appreciation and $80,000 from accumulated depreciation. How are these two components of the gain taxed at the federal level?

Accepted Answer

The $120,000 appreciation is taxed at the long-term capital gains rate, and the $80,000 is subject to depreciation recapture tax, capped at 25%.

Answer

The entire $200,000 is taxed at the long-term capital gains rate.

Answer

The $120,000 appreciation is taxed at ordinary income rates, and the $80,000 depreciation is taxed at the long-term capital gains rate.

Answer

The entire $200,000 is taxed as ordinary income.

Question 3

To successfully execute a 1031 like-kind exchange and defer capital gains taxes, an investor must adhere to strict IRS timelines after closing on the sale of the relinquished property. Which of the following timelines is correct?

Accepted Answer

Identify replacement properties within 45 days and close within 180 days.

Answer

Identify replacement properties within 30 days and close within 120 days.

Answer

Identify replacement properties within 60 days and close within 240 days.

Answer

Identify replacement properties within 90 days and close within 180 days.

Question 4

Which of the following costs associated with a residential rental property is generally NOT a currently deductible expense but must be capitalized and depreciated over time?

Accepted Answer

Installing a new central air conditioning system.

Answer

Replacing a broken window.

Answer

Paying the annual property insurance premium.

Answer

Hiring a plumber to fix a leaking faucet.

Question 5

An investor actively participates in their rental property management but is not a real estate professional. Under the special allowance for passive activity losses, what is the maximum amount of rental loss they can typically deduct against non-passive income, assuming their Modified Adjusted Gross Income (MAGI) is below $100,000?

Accepted Answer

$25,000

Answer

$3,000

Answer

$10,000

Answer

$50,000

Question 6

An investor purchases a property for $300,000. They pay $8,000 in closing costs (e.g., title fees, legal fees) and immediately invest $42,000 to completely renovate the kitchen. What is the investor's initial adjusted cost basis in the property?

Accepted Answer

$350,000

Answer

$300,000

Answer

$308,000

Answer

$342,000

An investor purchases a residential rental property for $450,000.The land is valued at $100,000.Under the Modified Accelerated Cost Recovery System (MACRS), what is the annual depreciation deduction the investor can claim?

An investor purchases a residential rental property for $450,000.
The land is valued at $100,000.
Under the Modified Accelerated Cost Recovery System (MACRS), what is the annual depreciation deduction the investor can claim?