Real Estate Investing Legal and Tax Implications 5

Question 1

What is 'bonus depreciation' as applied to real estate investing?

Accepted Answer

Accelerated first-year depreciation on qualifying personal property and improvements

Answer

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.

Question 2

Which of the following best describes a 'wrap-around mortgage'?

Accepted Answer

A new mortgage that encompasses an existing mortgage, with the seller collecting payments

Answer

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.

Question 3

For federal income tax purposes, what is the holding period required for long-term capital gains treatment on investment property?

Accepted Answer

More than 12 months

Answer

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%).

Question 4

What does an 'as-is' clause in a real estate purchase contract typically mean?

Accepted Answer

The buyer accepts the property in its current condition with no repairs required from the seller

Answer

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.

Question 5

A landlord fails to maintain a habitable unit (no heat in winter), and the tenant stops paying rent. This legal theory is called:

Accepted Answer

Constructive eviction

Answer

Constructive eviction occurs when a landlord's failure to maintain habitable conditions effectively forces the tenant to vacate or justify withholding rent.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Legal and Tax Implications 5