Question

1. Jim, a US individual who qualifies as a real estate professional, purchases a certain rental real estate property in 2014 and leases it out producing a taxable loss each year from 2014-2017. Jim has no other passive income during any of these years.   He sells the real estate in 2017 at a gain. Jim can deduct the taxable losses as ordinary deductions generated from her rental activity in 2017, the year that he sold the rental real estate, and will recognize capital gain income on the sale under Section 1231.

True    False

2. Passive losses that are limited on an individual’s income tax return in one year can be carried forward and deducted in future tax years.

True    False

3. When condominiums are sold in the ordinary course of business by an individual, the income earned from the sale of the condo will be taxed as the capital gain tax rate.

True    False

4. Jane holds land with a tax basis of $100,000, but a fair market value of $500,000 (the land appreciated over several years). Jane donates the land to a qualified charitable organization. Jane must recognize the $400,000 gain and will be allowed to take a $500,000 charitable deduction for the value of the contribution.

True    False

5. The requirements to treat a transaction as a nontaxable Section 1031 exchange includes that the property must be held for investment, for productive use in a trade or business or as dealer property held for sale to customers in the ordinary course of a trade or business.

True    False

6. When property is inherited, the tax basis carries over to the heirs.

True    False

Answer 1

1. True

Because rental real property will be considered his business property because he is a qualified real estate property agent. capital gain will be recognized income on the sale under Section 1231 because 1231 property, defined by section 1231 of the U.S. Internal Revenue Code, is real or depreciable business property held for over a year.

2. False

passive activity losses are limited to the amount of your passive activity income for the taxable year. Any excess passive activity loss must be carried forward to the next year to be offset against any additional passive activity income.

3. False

When condominiums are sold in the ordinary course of business by an individual, the income earned from the sale of the condo will be taxed as ordinary income.

4. False

deduction for charitable contributions generally can't be more than 50% of adjusted gross income (AGI), but in some cases 20% and 30% limits may apply.

5. True

Property should be held for production use in a trade or business or for investment.

6. True

Carry-over basis generally means the basis of inherited property remains the same as it was for the deceased owner