Real Estate Investing Real Estate Investing Real Estate Taxation Questions and Answers 2 — Questions and Answers
Question 1: Which IRS form is used to report rental real estate income and expenses?
- Schedule E (Correct answer)
- Schedule C
- Form 4797
- Schedule D
Correct answer: Schedule E
Schedule E (Form 1040) is used to report income or loss from rental real estate, royalties, partnerships, and S corporations.
Question 2: What is the standard depreciation recovery period for residential rental property under MACRS?
- 27.5 years (Correct answer)
- 39 years
- 15 years
- 31.5 years
Correct answer: 27.5 years
The IRS requires residential rental property to be depreciated over 27.5 years using the straight-line method under MACRS.
Question 3: In a 1031 exchange, what is the maximum number of days an investor has to identify replacement properties after selling the relinquished property?
- 45 days (Correct answer)
- 60 days
- 90 days
- 180 days
Correct answer: 45 days
The investor must identify potential replacement properties in writing within 45 days of selling the relinquished property.
Question 4: What tax benefit does cost segregation provide to real estate investors?
- Accelerated depreciation of certain building components (Correct answer)
- Elimination of capital gains tax
- Tax-free rental income for the first five years
- Permanent reduction of property tax assessments
Correct answer: Accelerated depreciation of certain building components
Cost segregation reclassifies building components into shorter depreciation periods (5, 7, or 15 years), accelerating deductions.
Question 5: Under the passive activity loss rules, how much rental loss can a qualifying active participant deduct against ordinary income?
- Up to $25,000 (Correct answer)
- Up to $10,000
- Up to $50,000
- Unlimited
Correct answer: Up to $25,000
Active participants in rental activities with adjusted gross income under $100,000 can deduct up to $25,000 in rental losses against non-passive income.
Question 6: What is the depreciation recapture tax rate on Section 1250 gain when selling rental property?
- 25% (Correct answer)
- 15%
- 20%
- 28%
Correct answer: 25%
Unrecaptured Section 1250 gain from depreciation on real property is taxed at a maximum rate of 25%.
Real Estate Investing Real Estate Investing Real Estate Taxation Questions and Answers 2
Which IRS form is used to report rental real estate income and expenses?