Real Estate Investing Tax Implications of Ownership 4

Question 1

What is the maximum rental real estate loss a non-real-estate-professional with active participation can deduct against ordinary income (subject to phase-out)?

Accepted Answer

$25,000

Answer

A taxpayer who actively participates in rental activities may deduct up to $25,000 of rental losses against ordinary income, subject to phase-out starting at $100,000 AGI.

Question 2

A property investor installs a new roof on a rental property. How should this cost be treated for tax purposes?

Accepted Answer

Capitalized and depreciated over the property's remaining useful life

Answer

A roof replacement is a capital improvement that must be capitalized and depreciated over 27.5 years (residential) or 39 years (commercial) rather than immediately expensed.

Question 3

What IRS provision allows investors to immediately expense a large portion of qualified improvement property in the year of purchase rather than depreciating it?

Accepted Answer

Bonus depreciation

Answer

Bonus depreciation allows investors to immediately expense a significant percentage of qualifying property costs in the year placed in service, reducing taxable income substantially.

Question 4

Which of the following is an example of a 'qualified opportunity zone' tax benefit for real estate investors?

Accepted Answer

Deferral and potential exclusion of capital gains reinvested in designated low-income communities

Answer

Qualified Opportunity Zone investments allow investors to defer capital gains and potentially exclude a portion of future appreciation if the investment is held for the required period.

Question 5

How does the IRS treat the exchange of a vacation home for an investment property in a 1031 exchange?

Accepted Answer

It qualifies only if the vacation home was rented for at least 14 days per year for two years before the exchange

Answer

Under IRS Revenue Procedure 2008-16, a vacation/second home can qualify for a 1031 exchange if it was rented at fair market rate for at least 14 days in each of the two years prior to the exchange.

Real Estate Investing Practice Test

Real Estate Investing Practice Test

Real Estate Investing Tax Implications of Ownership 4