Real Estate Investing Tax Implications of Ownership 2

Question 1

What is the maximum amount of capital gains a married couple filing jointly can exclude from the sale of their primary residence under Section 121?

Accepted Answer

$500,000

Answer

Married couples filing jointly can exclude up to $500,000 of capital gains from the sale of a primary residence under the Section 121 exclusion.

Question 2

Which IRS tax form is used to report rental income and expenses from a residential rental property?

Accepted Answer

Schedule E

Answer

Schedule E (Supplemental Income and Loss) is used to report income and expenses from rental real estate, royalties, partnerships, and S corporations.

Question 3

How is real estate held for more than one year before sale typically taxed at the federal level?

Accepted Answer

At long-term capital gains rates

Answer

Real estate held for more than one year qualifies for long-term capital gains rates, which are generally lower than ordinary income tax rates.

Question 4

What does 'basis' mean in the context of real estate taxation?

Accepted Answer

The original purchase price plus capital improvements

Answer

Basis in real estate is generally the purchase price plus the cost of capital improvements, and it is used to calculate gain or loss upon sale.

Question 5

Which of the following expenses is NOT deductible against rental income?

Accepted Answer

Personal vacations to inspect the property

Answer

Personal vacation expenses are not deductible even if the owner visits the property, as the IRS requires expenses to be ordinary and necessary business costs.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Tax Implications of Ownership 2