Real Estate Investing Legal and Tax Implications 3 — Questions and Answers
Question 1: Under the Fair Housing Act, which of the following is a protected class at the federal level?
- Source of income
- Sexual orientation
- National origin (Correct answer)
- Marital status
Correct answer: National origin
The federal Fair Housing Act protects race, color, national origin, religion, sex, familial status, and disability — national origin is explicitly listed.
Question 2: What is the residential depreciation period for rental properties under current US tax law?
- 15 years
- 27.5 years (Correct answer)
- 30 years
- 39 years
Correct answer: 27.5 years
The IRS requires residential rental property to be depreciated using the straight-line method over 27.5 years.
Question 3: An investor purchases a rental property for $300,000. The land is valued at $50,000. What is the depreciable basis?
- $300,000
- $250,000 (Correct answer)
- $50,000
- $275,000
Correct answer: $250,000
Land cannot be depreciated, so the depreciable basis is the purchase price minus the land value: $300,000 − $50,000 = $250,000.
Question 4: Which legal doctrine allows a court to 'pierce the corporate veil' of an LLC?
- When the owner personally guarantees a loan
- When the owner commingles personal and business funds (Correct answer)
- When the LLC has fewer than three members
- When the LLC owns fewer than two properties
Correct answer: When the owner commingles personal and business funds
Courts may pierce the veil and hold owners personally liable if they fail to treat the LLC as a separate entity, such as by commingling funds.
Question 5: What is a 'quiet title' action in real estate?
- A lawsuit to resolve competing claims or clouds on a property's title (Correct answer)
- A lender's right to foreclose silently without public notice
- A process to reduce property tax assessments
- A zoning variance for noise ordinance violations
Correct answer: A lawsuit to resolve competing claims or clouds on a property's title
A quiet title action is a court proceeding used to establish clear ownership and remove any adverse claims, liens, or encumbrances clouding the title.
Question 6: For a married couple filing jointly, what is the capital gains exclusion on the sale of a primary residence under IRC Section 121?
- $100,000
- $250,000
- $500,000 (Correct answer)
- $750,000
Correct answer: $500,000
Married couples filing jointly can exclude up to $500,000 of capital gains on the sale of a primary residence if they meet the two-year ownership and use tests.
Question 7: A landlord enters a tenant's apartment without notice to inspect a minor repair. This most likely violates the tenant's right to:
- First right of refusal
- Quiet enjoyment (Correct answer)
- Implied warranty of habitability
- Constructive eviction
Correct answer: Quiet enjoyment
The right to quiet enjoyment guarantees tenants undisturbed possession of their unit; landlords generally must provide 24-48 hours' notice before entry.
Real Estate Investing Legal and Tax Implications 3
Under the Fair Housing Act, which of the following is a protected class at the federal level?