Taxation Chapter 13 Quiz

Chapter 13 Quiz - Study Notes

• Question 1: Judy owns an apartment building worth $800,000 with a $770,000 adjusted cost basis and a $720,000 mortgage. She exchanges it for a shopping center worth $785,000 with a $700,000 mortgage and $10,000 cash. Judy's actual gain is $45,000, with $15,000 deferred gain.

• Question 2: Tax advantages can result from tax-free exchanges, installment sales, and depreciation deductions.

• Question 3: Adam, holding unimproved property for investment, can deduct losses on the sale of the property, not annual appreciation.

• Question 4: Depreciable properties include commercial apple orchards, not owner-occupied farmhouses, vacant land, or any of the above.

• Question 5: Depreciation on real property lowers the property's basis, not increases it or makes it worthless.

• Question 6: Selling a home can result in a capital gain or loss.

• Question 7: Married couples or individuals residing in a principal residence for at least two years qualify for the capital gain exclusion.

• Question 8: Tax-free exchanges involve exchanging like-kind properties used in trade or business or held for income. Personal residences can be exchanged for similar properties.

• Question 9: A property must be improved and used in business or held for investment to be tax-depreciable.

• Question 10: Tax-deductible expenses for personal residences include cleaning and maintenance, but not cleaning, repair, or property taxes and interest.

• Question 11: An owner is not allowed to deduct painting a bathroom, the cost of uninsured fire damage, property taxes, or mortgage interest on their owner-occupied residence.

• Question 12: Seymour's recognized gain in selling his home is $125,000. The cost basis of his new home is $657,000.

• Question 13: Kathy and John will pay capital gains tax on $32,000.

• Question 14: Condominium owners can deduct interest on a mortgage on common areas, but not unit repairs.

• Question 15: Lost income from vacancy is not tax-deductible.