The exam has three sections. The first is a multiple guess section, 10 questions, each worth 3 points each.The second section is a problem solving section, 2 questions.The last section is a client memo worth 30 points.You will be given a number of facts, etc., and I want you to advise the client.
Section 1: (Please select the best answer)
1.Real estate taxation is subject to all the same Internal Revenue Code as say insurance companies.
TrueFalse
2.C Corporations are the preferred way to own real estate.
TrueFalse
3.Kick-backs are allowed as a deduction, when:
a.The kickbacks are illegal
b.The kickbacks are ordinary and necessary
c.Kick-backs are never deductible
d.The kickbacks are in the ordinary course of business
e.None of the above
4.All real estate companies, whether partnerships, C or S Corporations or sole-proprietorships must be on the accrual basis of accounting.
TrueFalse
5.For real estate, the taxpayer cannot elect to pick MACRS or Straight-line depreciation.
TrueFalse
6.For real property passive activity losses, an individual can only take passive losses against passive income.
TrueFalse
7.In the following transaction, the taxpayer's gain is:
Sales price$150,000
Purchase price50,000
Depreciation taken, all post 9730,000
a. Capital gain $130,000
b. Capital gain $100,000 - Ordinary income $30,000
c. Ordinary income $130,000
d. None of the above
8.An individual can offer a perspective purchaser a zero interest loan, and he or she will not be required to apply the below market interest rules of the I.R.C.
TrueFalse
9.An individual, pursuant to a divorce decree, transfers ownership in his solely owned apartment building to his wife. The FMV of the property is $350,000, with an associated debt of $50,000.He purchased the property 10 years ago for $100,000 and has depreciated the property 40,000.He will have the following gain:
a. Forgiveness of indebtness $50,000, gain on the property of $290,000
b. There is no gain or loss
c. Forgiveness of indebtness $50,000
d. None of the above
10.A meat company needs to seal their basement after it comes the their attention that oil is seeping up from the ground since a new oil company next store started drilling for oil.The company can deduct the costs of sealing as an ordinary and necessary business expense.