Real Estate Investing Legal and Tax Implications 4

Question 1

What is a 'deed in lieu of foreclosure'?

Accepted Answer

A voluntary transfer of property to the lender to avoid foreclosure

Answer

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.

Question 2

Which type of deed provides the LEAST protection to the buyer?

Accepted Answer

Quitclaim deed

Answer

A quitclaim deed transfers only whatever interest the grantor currently holds with no warranties, offering the buyer no protection against prior claims.

Question 3

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?

Accepted Answer

20%

Answer

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.

Question 4

What is the main purpose of title insurance in a real estate transaction?

Accepted Answer

To protect against losses from defects in title that existed before the policy date

Answer

Title insurance protects the policyholder from financial losses due to title defects, liens, or encumbrances that existed prior to the purchase.

Question 5

An investor claiming rental losses as a non-real-estate-professional with an AGI of $125,000 can deduct how much in passive losses?

Accepted Answer

$12,500

Answer

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.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Legal and Tax Implications 4