REA Real Estate Taxation & Accounting 3

Question 1

A Qualified Opportunity Zone (QOZ) investment primarily provides investors with:

Accepted Answer

Deferral of prior capital gains, potential step-up in basis, and exclusion of new appreciation after 10 years

Answer

An immediate deduction of the invested amount against ordinary income in the year of investment

Answer

Exemption from local property taxes in federally designated low-income zones

Answer

Above-market guaranteed returns backed by municipal bond insurance

Question 2

The 3.8% Net Investment Income Tax (NIIT) applies to:

Accepted Answer

Net investment income of high-income taxpayers with MAGI exceeding $200,000 (single) or $250,000 (MFJ)

Answer

All rental income regardless of the investor's adjusted gross income

Answer

Only distributions from REITs and publicly traded real estate investment vehicles

Answer

Active real estate professional rental income classified as non-passive

Question 3

Under IRC Section 704(c), when a partner contributes appreciated property to a real estate partnership, the pre-contribution built-in gain is:

Accepted Answer

Allocated solely to the contributing partner upon the property's disposition

Answer

Allocated equally among all partners when the property is eventually sold

Answer

Recognized immediately by the partnership at the time of contribution

Answer

Permanently excluded from taxation due to the partnership's pass-through status

Question 4

For U.S. GAAP financial reporting purposes, investment real property is typically carried at:

Accepted Answer

Historical cost less accumulated depreciation under the cost model

Answer

Fair value with unrealized gains and losses recognized in net income each period

Answer

Replacement cost determined by an independent certified appraisal updated annually

Answer

Net realizable value when current fair value exceeds the historical carrying amount

Question 5

The installment sale method under IRC Section 453 allows a real estate seller to:

Accepted Answer

Recognize gain proportionally as each payment is received based on the gross profit ratio

Answer

Defer the entire capital gain until the final installment payment is received

Answer

Convert capital gain income into ordinary income to reduce the self-employment tax base

Answer

Immediately deduct all selling expenses against prior-year income to reduce taxes paid

Question 6

Under the at-risk rules of IRC Section 465, qualified nonrecourse financing on real property is treated as:

Accepted Answer

Amounts at risk, allowing investors to include such debt in their loss deduction basis

Answer

Excluded from the at-risk amount because lenders cannot pursue the borrower personally

Answer

A recourse obligation regardless of the loan terms negotiated with the lender

Answer

Applicable only to C-corporations, not individual real estate investors

Question 7

In a UPREIT (Umbrella Partnership REIT) structure, a property owner who contributes real estate receives operating partnership (OP) units primarily to:

Accepted Answer

Defer capital gains taxes, as the contribution is not a taxable event until units are converted

Answer

Receive immediate cash equal to the property's full appraised fair market value

Answer

Convert property directly into publicly traded REIT shares in a tax-free reorganization

Answer

Obtain a stepped-up basis in the OP units equal to the REIT's current net asset value per share