Legal and Tax Implications Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Legal and Tax Implications flashcards as text
What is a 'deed in lieu of foreclosure'?
Answer: A voluntary transfer of property to the lender to avoid foreclosure
In a deed in lieu of foreclosure, the borrower voluntarily transfers title to the lender to satisfy the debt and avoid a formal foreclosure proceeding.
Which type of deed provides the LEAST protection to the buyer?
Answer: Quitclaim deed
A quitclaim deed transfers only whatever interest the grantor currently holds with no warranties, offering the buyer no protection against prior claims.
Under the Tax Cuts and Jobs Act (TCJA), the Section 199A deduction allows eligible pass-through real estate income to be deducted at what percentage?
Answer: 20%
The Section 199A qualified business income deduction allows eligible taxpayers to deduct up to 20% of qualified real estate rental income from pass-through entities.
What is the main purpose of title insurance in a real estate transaction?
Answer: To protect against losses from defects in title that existed before the policy date
Title insurance protects the policyholder from financial losses due to title defects, liens, or encumbrances that existed prior to the purchase.
An investor claiming rental losses as a non-real-estate-professional with an AGI of $125,000 can deduct how much in passive losses?
Answer: $12,500
The $25,000 passive loss allowance phases out by 50 cents for each dollar above $100,000 AGI, so at $125,000 AGI, only $12,500 remains deductible.
A real estate investor using a self-directed IRA to purchase rental property must be aware of which key restriction?
Answer: The investor cannot personally use or benefit from the property
IRS prohibited transaction rules bar the IRA owner and disqualified persons from personally using, managing, or benefiting from IRA-owned real estate.
What is an 'earnest money' deposit's legal significance in a real estate contract?
Answer: It demonstrates the buyer's good faith and may be forfeited if the buyer defaults
Earnest money signals the buyer's serious intent and is typically held in escrow; if the buyer defaults without a contingency, the seller may keep it as liquidated damages.