REE 4204 Exam Questions With Revised
Answers
What are the four requirements for tax-deferred exchange? - answer1. it must be like-kind
and help for trade, business, or investment (can do farmland to apartments) CANT DO owner-
occupied residential (primary residence)
2. help for trade, business...
What are the four requirements for tax-deferred exchange? - answer✔✔1. it must be like-kind
and help for trade, business, or investment (can do farmland to apartments) CANT DO owner-
occupied residential (primary residence)
2. help for trade, business, or investment (can do farmland to apartments) CAN'T DO owner-
occupied residential (primary residence)
3. The exchange must occur cant sell for cash and immediately purchase
4. basis acquired for property is equal to the basis of relinquished property
What is the boot? - answer✔✔a term that represents non-like-kind property
e.g if Property A is worth 10 the owner can exchange it for Property worth 8 and 2 in cash
in this example, the 2 in cash is the boot and is a taxable portion of the exchange.
Time limits in tax deferred exchanges - answer✔✔3 requirements
1. replacement property must be identified by the owner of the relinquished property during the
identification period of 45 days ( starts the day the relinquished property is transferred and ends
45 days after)
2. the exchange must happen within the exchange period. (starts the day the relinquished
property is transferred and ends 180 days after)
3. the owner of the relinquished property must not be in constructive receipt of the proceeds from
the transfer of the property.
In tax-deferred exchanges where real estate is involved,
the tax laws clearly distinguish and prohibit exchanges between different types of real property
such as apartments and office buildings. - answer✔✔False
Exchanges can be made between different types of non-residential properties like apartments and
office buildings, but can not be made between owner-occupied properties.
What is an Installment sale? - answer✔✔it occurs when a seller takes back a promissory note
from the buyer and instead of receiving the full payment of the sale price in the year of the sale
the seller will receive a series of payments (installments) over a specified time
What are the benefits of an installment sale? - answer✔✔by reviving the payments in increments
it lowers (places you in) the marginal tax rate (only going to be taxed on the amount received in
a given year)
In an installment sale the gross profit % is the portion of capital gain that is taxed in each year -
answer✔✔since you only taxed on the gain from the sale this tells you how much of your
payment each year is taxable
The effect of an installment sale is a spreading of the gain and the resulting tax over the period of
the installment sale. - answer✔✔True
Imputed Interest Rule - answer✔✔-Requires a fair interest rate to be charged
-A seller may have an incentive to set an interest rate higher below the market and raise the
contract price to recapture lost interest because (capital gains tax is at a lower tax rate say 15%)
In you installment agreement you are going to have an installment period and debt amortization -
answer✔✔they may be equal but the amort period can be longer than the installment period to
cover debt service cheaper (more affordable)
Related Persons Rule - answer✔✔If an installment sale is made to a related person who sells the
property within a two-year period, the original seller must recognize the balance of the gain at
the time the related person makes the sale.
If the seller makes an installment sale to a related person who sells the property within two years,
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