Real Estate Taxation & Accounting Flashcards

Under MACRS, the depreciation period for residential rental real property is:

Answer: 27.5 years using straight-line method

Under MACRS, residential rental property uses a 27.5-year straight-line depreciation period, which is shorter than the 39-year period for commercial real property.

In a Section 1031 like-kind exchange, the taxpayer's primary tax benefit is:

Answer: Deferring capital gains taxes by reinvesting proceeds into replacement property

A 1031 exchange defers—not permanently eliminates—capital gains recognition, provided the investor reinvests proceeds in qualifying like-kind property within required timeframes.

In a Section 1031 exchange, 'boot' is best defined as:

Answer: Non-like-kind property or cash received by the taxpayer that may trigger taxable gain

Boot is any non-like-kind property or cash received in the exchange; its receipt triggers taxable gain to the extent of the lesser of boot received or total realized gain.

Passive activity loss rules under IRC Section 469 generally require that:

Answer: Rental losses can only offset other passive income, subject to limited exceptions

Section 469 limits passive losses to offsetting passive income; unused passive losses are suspended and released when the passive activity is fully disposed of in a taxable transaction.

A taxpayer qualifies as a 'real estate professional' for federal tax purposes only if:

Answer: They spend more than 750 hours per year in real property activities AND this exceeds 50% of their total personal services

To qualify under IRC §469(c)(7), the taxpayer must perform more than 750 hours of services in real property trades/businesses AND this must represent more than half of their total personal services for the year.

Long-term capital gains on the sale of investment real estate held more than one year are taxed at:

Answer: Preferential rates of 0%, 15%, or 20% based on the taxpayer's taxable income

Long-term capital gains rates of 0%, 15%, or 20% apply based on the taxpayer's taxable income bracket, which are significantly lower than ordinary income rates.

The $25,000 special allowance for rental real estate losses is available to active participants whose modified adjusted gross income (MAGI) is:

Answer: Below $100,000, phasing out ratably to zero at $150,000

Active participants in rental activities may deduct up to $25,000 of rental losses against non-passive income, but this allowance phases out ratably between MAGI of $100,000 and $150,000.