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 'bonus depreciation' as applied to real estate investing?
Answer: Accelerated first-year depreciation on qualifying personal property and improvements
Bonus depreciation allows investors to immediately deduct a large percentage of the cost of qualifying short-lived assets (e.g., appliances, fixtures) in the year they are placed in service.
Which of the following best describes a 'wrap-around mortgage'?
Answer: A new mortgage that encompasses an existing mortgage, with the seller collecting payments
In a wrap-around mortgage, the seller creates a new loan that includes the existing mortgage balance; the buyer pays the seller, who continues paying the original lender.
For federal income tax purposes, what is the holding period required for long-term capital gains treatment on investment property?
Answer: More than 12 months
An asset must be held for more than 12 months to qualify for the preferential long-term capital gains tax rates (0%, 15%, or 20%).
What does an 'as-is' clause in a real estate purchase contract typically mean?
Answer: The buyer accepts the property in its current condition with no repairs required from the seller
An 'as-is' clause means the buyer takes the property in its present condition; however, sellers must still disclose known material defects in most states.
A landlord fails to maintain a habitable unit (no heat in winter), and the tenant stops paying rent. This legal theory is called:
Answer: Constructive eviction
Constructive eviction occurs when a landlord's failure to maintain habitable conditions effectively forces the tenant to vacate or justify withholding rent.
Which federal law requires lenders to provide borrowers with a Loan Estimate and Closing Disclosure in residential mortgage transactions?
Answer: TRID (TILA-RESPA Integrated Disclosure)
TRID, which combined TILA and RESPA disclosures, requires lenders to issue a Loan Estimate within three business days of application and a Closing Disclosure three days before closing.
What is a 'homestead exemption' in the context of real estate investing?
Answer: A property tax reduction available on a primary residence
A homestead exemption reduces the assessed value of a primary residence for property tax purposes and in some states protects it from certain creditor claims.