“Real Estate Investing Beyond the Basics” Class – Questions Only – FREE

“Real Estate Investing Beyond the Basics” Questions Only

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1) Depreciation can be used to shelter:
A. cash flow.
B. principal reduction.
C. both can be sheltered by depreciation.

2) Depreciation is also known as:
A. cost recovery.
B. cost discovery.
C. cost delivery.
D. cost trajectory.

3) Land is:
A. depreciated over 10 years.
B. depreciated over 35 years.
C. depreciated over 100 years.
D. not depreciable.

4) Principal reduction:
A. is one of the four financial benefits.
B. is not one of the financial benefits.
C. is never taxable.
D. All of the answers shown

5) Which of the following is a method investors use to allocate for depreciation purposes?
A. use the property tax assessor’s ratio.
B. have a cost segregation study done.
C. negotiate each of the items in the purchase contract.
D. All of the answers shown

6) When calculating depreciation, it’s best to allocate the purchase cost into which categories?
A. Land
B. Building
C. Personal property
D. Land improvements
E. All of the answers shown

7) Cash flow is taxable but:
A. not until the property is sold.
B. it can be sheltered by depreciation.
C. it is always positive.
D. All of the answers shown

8) What can be said about appreciation?
A. it’s frosting on the cake.
B. an investment property should make financial sense even without appreciation.
C. Both of the answers shown
9) If a property’s income changes:
A. the investment value of the property changes.
B. the investment value of the property is not affected.
C. it’s not a big deal.
D. All of the answers shown
10) It would probably be a good idea to:
A. complete the Investment Property Worksheet before listing a rental property.
B. complete the Investment Property Worksheet for several properties and compare results.
C. complete the Investment Property Worksheet as if there will be no appreciation.
D. All of the answers shown
11) The Investment Property Worksheet:
A. is a good tool to use when analyzing a rental property.
B. can be used on rental houses, shopping centers, and apartment buildings.
C. Both of the answers shown

12) Depreciation:
A. is also known as cost recovery.
B. is a non-cash expense.
C. can produce negative taxable income thereby saving income tax for property owners.
D. All of the answers shown

13) Using accurate numbers when analyzing rental property is:
A. not very important regarding income.
B. not very important regarding operating expenses.
C. very important regarding both income and operating expenses.

14) If the taxable income is a negative amount, it doesn’t necessarily mean you lost money.
A. True
B. False

15) Principal reduction:
A. is one of the four financial benefits.
B. is not one of the financial benefits.
C. is never taxable.
D. All of the answers shown

16) Cash flow before tax:
A. is not one of the financial benefits.
B. is one of the four financial benefits.
C. is not taxable.
D. All of the answers shown
17) When investing in real estate it’s a good idea to use the services of the following:
A. good accountant.
B. good attorney.
C. good REALTOR
D. All of the answers shown

18) The four financial benefits of owning rental property include:
A. cash flow before tax.
B. principal reduction.
C. income tax savings.
D. All of the answers shown

19) Once an investor’s modified adjusted gross income (MAGI) exceeds $100,000 he/she completely loses all ability to use the “$25,000 exclusion” shelter any active or portfolio income.
A. True
B. False
20) Material participation is required in order to use the exception for real estate professionals. Material participation is a higher standard than merely being “actively” involved.
A. True
B. False

21) Which of the following is a type of income with regard to the passive loss rules?
A. Active
B. Portfolio
C. Passive
D. All of the answers shown

The passive loss rules include the three types of income (active, portfolio and passive).
22) The exception for real estate professionals began in:
A. 1994.
B. 2014.
C. 1904.
D. None of the answers shown

23) The passive loss rules:
A. took effect beginning in 1904.
B. were part of the Tax Reform Act of 1986 and took effect in 1987.
C. have not taken effect yet.
D. All of the answers shown

24) For most people the limit for using passive losses to shelter active or portfolio income is:
A. $95,000.
B. $2,000.
C. $37,500.
D. $25,000.

25) Suspended losses:
A. can be carried forward.
B. can be used to shelter future passive income.
C. Both of the answers shown

26) Passive income includes income from:
A. commissions.
B. wages.
C. rental real estate.
D. All of the answers shown
27) The 1994 exception for real estate professionals:
A. requires both spouses to meet the rules.
B. requires at least one spouse to meet the rules.
C. is not available for married people.
D. is not available for single people.
28) In order to use the $25,000 exclusion, you must:
A. own at least 10% of the property.
B. be actively involved.
C. Both are required
29) Passive losses can be used to shelter passive income with no limit.
A. True
B. False

30) Active income generally includes income from:
A. your job.
B. savings accounts.
C. dividends.
D. limited partnerships.

31) The exception for real estate professionals allows some investors to shelter more than $25,000 of active and/or portfolio income.
A. True
B. False
32) Once an investor’s modified adjusted gross income (MAGI) exceeds $100,000 he/she begins to lose the ability to use the “$25,000 exclusion” to shelter active or portfolio income. The exclusion is phased out as follows:
A. $1 for every $2 of MAGI above $100,000.
B. $3 for every $2 of MAGI above $100,000.
C. $5 for every $1 of MAGI above $100,000.
D. All of the answers shown

33) Commissions would generally be treated as:
A. active income.
B. portfolio income.
C. passive income.
D. None of the answers shown

34) Interest from a savings account would generally be treated as:
A. active income.
B. portfolio income.
C. net income.
D. None of the answers shown
35) The passive loss rules were originally designed to:
A. limit taxpayers’ ability to use “paper losses” to shelter income.
B. have no influence on the real estate industry.
C. Be uncomplicated, simple and easy to understand.
D. All of the answers shown
36) Raw land would be depreciated over:
A. 15 years.
B. 94 years.
C. 12 years.
D. Land is not depreciable.

37) Savvy investors often negotiate the cost of which of these items:
A. Land.
B. Personal property.
C. Building.
D. Land improvements.
E. All of the answers shown

39) Which of the following would be depreciated over 27.5 years?
A. A rental house
B. A shopping center
C. An office building
D. A gas station

40) Land improvements are depreciated over:
A. 15 years.
B. 94 years.
C. 5 years.
D. 12 years.
41) Recapture is an accounting term that refers to the taxing of depreciation when a property sells.
A. True
B. False
42) Land improvements would include all of the following except:
A. Parking lot.
B. Driveway.
C. Washer/dryer.
D. Fence.
43) Capitalization rate does not directly take into account:
A. income.
B. operating expenses.
C. financing.
D. All of the answers shown
44) The formula for gross multiplier is:
A. operating expenses plus cash flow.
B. cost divided by gross operating income.
C. price multiplied by income.
D. All of the answers shown

45) Investment real estate can be compared to a “money machine.” The parts of the money machine include:
A. income.
B. expenses.
C. financing.
D. All of the answers shown
46) The formula for capitalization rate is:
A. Net Operating Income divided by price/value.
B. Net Operating Income divided by square footage.
C. Net Operating Income times interest rate.
D. cash flow plus principal reduction.

47) The cash invested is $60,000. The cash flow before tax is $3,000. The cash on cash is:
A. 9%.
B. 1%.
C. 5%.
D. None of the answers shown
48) The best way to determine the current value of a property is to ask the owner what price they paid years ago.
A. True
B. False

49) If the Net Operating Income is $100,000 and the cost is $1,000,000 the capitalization rate is:
A. 9%.
B. 1%.
C. 10%.
D. None of the answers shown

50) A property’s cap rate is 5%. The interest rate on the loan is 6%:
A. Be careful.
B. Borrowing too much money could “sink the ship.”
C. This is an example of “negative leverage.”
D. All of the answers shown
51) The investment value of a property depends on the interaction of the:
A. income.
B. expenses.
C. financing.
D. All of the answers shown
52) The formula for price per square foot is:
A. cost divided by number of units.
B. cost divided by number of square feet.
C. square footage multiplied by cost.
D. cost minus number of square feet.
53) The word “float” in the “Float and Desire” method refers to:
A. the loan amount.
B. the down payment.
54) With most investment properties there are how many investors?
A. Two (buyer and lender)
B. Zero
C. Six
D. None of the answers shown
55) The loan factor is:
A. the interest rate for the loan.
B. the principal rate for the loan.
C. the interest and principal rate for the loan.
56) Another term for loan factor is:
A. loan constant.
B. loan committee.
C. loan companion.
D. loan-a-rama.
57) Regarding the “Float and Desire” worksheet, it’s important to test your answer using the _______________.
A. double check portion
B. triple check portion

58) The “Float and Desire” method can be used on a single family house to determine:
A. the replacement cost of the house.
B. the homeowner (owner occupied) value of the property.
C. the investment value of the property.
D. the square footage of the house.
59) The “ingredients” for the “Float and Desire” method include all except:
A. Net Operating Income.
B. down payment.
C. cash on cash required.
D. street address.
60) Another term for loan factor is:
A. loan constant.
B. loan committee.
C. loan companion.
D. loan-a-rama.

61) If the financing terms change, the investment value of the property:
A. is not affected.
B. changes.
C. doubles.

62) Regarding the “Float and Desire” worksheet, the lender is most concerned with which of the “ingredients.”
A. Loan to value and loan factor
B. Cash on cash and down payment
63) The word “desire” in the “Float and Desire” method refers to:
A. the loan amount.
B. the down payment.
64) Using accurate numbers is vital for the “Float and Desire” method.
A. True
B. False
65) The “Float and Desire” method can be compared to:
A. driving a car.
B. baking a cake.
C. chopping down a tree.
D. getting a haircut.
66) “Float and Desire”:
A. is a method of valuing real estate.
B. is known by appraisers as the “band of investment.”
C. is known by bankers as the “debt capacity method.”
D. All of the answers shown

T#1
1. Investor Lisa owns an apartment. If during her ownership period, she took $10,000 of depreciation deductions on the personal property, how much will she be taxed for this when she sold the property?
A. 5,000
B. 10,000
C. 20,000
D. 0

2. Nora has suspended losses that she plans to carry forward. How long can she hold onto these losses before they expire?
A. 7 years
B. There is no time limit
C. 5 years
D. 3 years

3. Agent Fred wants to determine if a property will produce enough income to satisfy both the buyer and the lender. What method should he use?
A. Cost per unit
B. Gross multiplier
C. Mortgage rate
D. Float and desire

4. Agent Rosie is analyzing a residential investment property. She is looking at the depreciation of the cost over a number of years. Over how many years can personal property be depreciated?
A. 5
B. 0
C. 15
D. 39

5. Agent Sasha is analyzing a residential investment property. She is looking at the depreciation of the cost over a number of years. Over how many years can a newly added parking lot be depreciated?
A. 5
B. 39
C. 15
D. 27.5

6. Investor Sylvia purchased a $390,000 apartment building that has 3,000 square feet and 6 units. The gross operating income is $56,715 and the net operating income is $30,065. The cap rate is ________%.
A. 8.9
B. 7.7
C. 1.5
D. 3.2

7. Sarah wants to invest in a building that is a bakery on the lower level and has four apartments upstairs. In order to be a residential rental property, _______% or more of the income must come from the apartments.
A. 60
B. 30
C. 50
D. 80

8. Investor Lloyd owns an apartment. He neglect to take any depreciation deductions during his ownership, even though $10,000 would have been allowable. When he sells the property, how much depreciation must he pay tax on?
A. $1,000
B. $5,000
C. $0
D. $10,000

9. Agent Frank is analyzing an investment property. One way to help verify the numbers is to make the transaction contingent on seeing the seller’s tax form where income and expenses are reported to the IRS. What is the name of this form?
A. 1098
B. W2
C. 10-40
D. Schedule E

10. Investor Ruth buys a small apartment building in January for a cost of $500,000. How much can Ruth claim in depreciation for the land over a 2-year period?
A. $5,000
B. Nothing, land is not depreciable
C. $15,000
D. $7,500

11. Jared has borrowed $306,000 and his loan payments are $2,036 per month. What is his annual debt service amount?
A. $15,300
B. $6,108
C. $24,432
D. $12,216

12. Investor Stone purchased a $390,000 apartment building that has 3,000 square feet and 6 units. The gross operating income is $56,715. What is the value according to the “gross multiplier” formula?
A. $65,000
B. $130
C. $6.88
D. $26.89

13) Leah wants to invest in a building that is a used book shop on the lower level and has 10 apartments upstairs. 83% of the income comes from the apartments. This building would be considered ______________.
A. Special-use
B. Commercial
C. Residential
D. Non-residential

14) Agent Barney is using the debt capacity method to determine if a property will produce enough income to satisfy both the buyer and the lender. Which of the following does this method include?
A. All of the answers are correct
B. Net operating income
C. Down payment
D. Cash on cash required

15) Agent Penny has a client who has multiple suspended losses. This client is a perfect candidate to list the property with Penny. When the property sells, the unused suspended losses:
A. Are multiplied by 10% of the sale price of the property
B. Are added to the capital gains of the sale
C. Can be exchanged for cash through the US Treasury Department
D. Become deductible against the capital gain and other types of income

16) Investor Ruth buys a small apartment building in January for a cost of $500,000. Ruth asks her tax preparer how to figure the depreciation, and she’s told to separate the $500,000 cost into land and building using the tax assessor’s ratios. How does she calculate the percentage for land?
A. Divide the depreciated land value by the total appreciated value of the property
B. Divide the appreciated land value by the total depreciated value of the property
C. Divide the assessed land value by the total assessed value of the property
D. Divide total assessed value of the property by the assessed land value

17) Agent Albert is working with a buyer who is looking for an investment property. How is the value of the investment determined?
A. By how much money it produces
B. By its location
C. By its purpose
D. By its appraisal

18) Buyer Cathy wants to invest in real estate. Which is one of the possible financial benefits Cathy might reap from her investment?
A. Cash flow before tax
B. Principal increase
C. Property tax savings
D. Depreciation

19) Buyer Edward is investing in real estate because of the financial benefits it offers. His loans on the property are paid down with rent collected from the tenants, so they are essentially buying the property for him. This is an example of which benefit?
A. Cash flow before tax
B. Principal reduction
C. Income tax savings
D. Appreciation

20) Buyer Claire is investing in real estate because of the financial benefits it offers. She is hoping that in a few years, the property will be worth much more than she is purchasing it for. This is an example of which financial benefit?
A. Cash flow before tax
B. Principal reduction
C. Appreciation
D. Property tax savings

21. Investor Rich is considering purchasing an apartment building. He wants to measure how much cash flow he would be earning measured against the cash that he can invest. What formula would he use?
A. Cash invested divided by cash flow after tax
B. Cash invested divided by cash flow before tax
C. Cash flow before tax divided by cash invested
D. Cash flow after tax divided by cash invested

22. Hilary wants to use the passive loss rules to shelter her income. Unfortunately, her modified __________________ is too high, so she cannot use passive losses to shelter active or portfolio income this year.
A. Complete operating income
B. Gross depreciation
C. Net appreciation
D. Adjusted Gross Income

23. Investor Paco is considering purchasing an apartment building. He wants to figure out the capitalization rate. Which formula would he use?
A. Cost of the property divided by the number of square feet
B. Cost of the property divided by the number of units
C. Cost of the property divided by the gross operating income
D. Net operating income divided by the cost

24. James was an investor in the early 1980s. He used “paper losses” caused by depreciation as a tax shelter for his income. What law did Congress pass to prevent this practice?
A. Tax Reform Act of 1986
B. Real Estate Settlement Procedures Act
C. Regulation Z
D. Fair Housing Act

25. Agent Grace is analyzing an investment property. She is looking at the depreciation of the cost over a number of years and wants to allocate the costs. What is this called?
A. Depreciating
B. Subsisting
C. Bifurcating
D. Adding

26. Agent Andrea is working to determine the value of an investment property her client wants to purchase. Using the “Float and Desire” worksheet will allow her to:
A. Determine the investment value of a property
B. Determine the home-owner (owner occupied) value of a property
C. Determine the gross weight of a property
D. Determine the location of a property

27. Investor Kenneth has $28,480 in total depreciation for the first two years. How much income is shelter for every dollar in depreciation?
A. Every dollar of depreciation shelters a dollar of income
B. Every dollar of depreciation shelters 2 dollars of income
C. Every two dollars of depreciation shelters three dollars of income
D. Every three dollars of depreciation shelters a dollar of income

28. Investor Pam knows that the longer she owns a property, it’s likely that certain items will need to be replaced. So, Pam keeps part of your cash flow and tax savings in ____________ to be used to pay for future replacements.
A. Gold
B. Reserve
C. Limbo
D. Hock

29. Buyer Darrin wants to invest in real estate. Which is one of the possible financial benefits Darrin might reap from his investment?
A. Income tax savings
B. Cash flow after tax
C. Principal increase
D. Depreciation

30. The depreciation deductions that investor Lori enjoys while she owns the property are taxed back when the property sells. This is known as what?
A. Indemnification
B. Recapture
C. Elevation
D. Remuneration

31. Investor Robbie first uses his depreciation deductions to shelter the cash flow and principal reduction from the property. Any leftover depreciation deductions create a tax loss that can be used to shelter ________________.
A. Interest on his loans
B. Depreciation from unrelated investment properties
C. Income not related to the property
D. Additional income related to the property

32. Kyle has a taxable cash flow from an investment property. How can his cash flow be sheltered?
A. It cannot
B. If there is no depreciation
C. If there is enough appreciation
D. If there is enough depreciation

33. Agent Rebecca is working to determine the value of an investment property her client wants to purchase. Using the “Float and Desire” worksheet, which of the following are the most important to her client?
A. Loan to value and down payment
B. Loan to value and loan factor
C. Cash on cash and down payment
D. Loan factor and cash on cash

34. Investor Sidney isn’t sure if she qualifies for the 1994 exception to the passive loss rules. Which of the following would mean that she qualifies?
A. Material participation
B. Active involvement
C. 10% ownership in her entity of employment
D. 33% ownership in her entity of employment

35. Agent Rod is calculating the financial benefits of an investment property. What is the formula he should use to determine the capitalization rate?
A. Net operating income multiplied by purchase cost
B. Net operating income plus purchase cost
C. Net operating income minus purchase cost
D. Net operating income divided by purchase cost

36. Terrance decided to invest in real estate because he knows that one of the biggest benefits of owning investment real estate is the ability to take:
A. Non-cash, depreciation deductions
B. Cash, depreciation deductions
C. Non-cash, appreciation deductions
D. Cash, appreciation deductions

37. Investor Carol purchased a $390,000 apartment building that has 3,000 square feet and 6 units. What is the value according to the “price per unit” method?
A. $65,000 per unit
B. $187,000 per unit
C. $35,000 per unit
D. $130 per unit

38. Investor Jeremy is a bifurcating specialist. He knows that by removing the cost of the personal property and land improvements before applying the assessor’s ratios, he avoids:
A. Overvaluing the non-depreciable land
B. Under-valuing the non-depreciable land
C. Under-valuing the depreciable land
D. Over-valuing the depreciable land

39. Investor Tom knows that principal reduction is taxable every year. Where is this captured on the Schedule E tax form?
A. Page 3, line 4
B. Line 2b
C. No where
D. Line 7

40. Jeff reported a loss of $10,000 from his investment property to the IRS. What rules apply if he wants to use this loss to shelter income from his job?
A. Passive loss rules
B. Communitive rules of depreciation
C. Associative income rules
D. Rules of nine

41. Agent Roy is calculating the financial benefits of an investment property. If he subtracts the operating expense from the gross operating income, what is he left with?
A. Principal reduction
B. Net operating income
C. Debt service
D. After tax cash flow

42. Agent Bill is working with a client who wants to invest in property. He explains to his client that an investment property is made up of three parts:
A. Real value, estimated value, and projected value
B. Income, expenses, and financing
C. Value, depreciation, and currency
D. Appreciation, cost, and interest

43. Jane is using the passive loss rules to shelter her income. Jane needs to remember that the $25,000 passive loss exclusion is ___________________ as her income ________________.
A. Reduced/declines
B. Increased/rises
C. Reduced/rises
D. Increased/declines

44. Investor Wilma is combining the income, expenses and financing to arrive at the investment value of a property. This is known as the _______________ method.
A. Float and desire
B. Rob Peter to pay Paul
C. A little here and a little there
D. Capitulated income

45. Investor Ruth buys a small apartment building in January for a cost of $500,000. Ruth asks her tax preparer how to figure the depreciation, and she’s told to separate the $500,000 cost into land and building using the tax assessor’s ratios. How does she calculate the percentage for the property?
A. Divide the assessed building value by the total assessed value of the property
B. Divide the total assessed value of the property by the assessed building value
C. Divide the appreciated value of the property by the total depreciated land value
D. Divide the depreciated land value by the total appreciated value of the property

46. Investor Chuck purchased a $390,000 apartment building that has 3,000 square feet and 6 units. What is the value according to the “price per square foot” method?
A. $57 per square foot
B. $365 per square foot
C. $130 per square foot
D. $260 per square foot

47. Marta had passive losses that cannot be used this year, but she will carry them forward to be used in the future against passive income. What are these losses called?
A. Suspended losses
B. Futuristic losses
C. Held losses
D. Lost gains

48. Tom is using the passive loss rules to shelter his income. The $25,000 limit for using passive losses to shelter active or portfolio income applies:
A. To most investors
B. Only investors above the age of 55
C. Only investors in property that is less than 5 years old
D. Only investors in commercial property

49. Investor Angela knows that even though appraisers often use the replacement cost method when appraising residential real estate, the “investment value” of a property is determined by the relationship between income and what?
A. Value and depreciation
B. Expenses and financing
C. Cost and interest
D. Depreciation and currency

50. Olga sold her investment property in a taxable transaction in a legitimate sale. Any unused suspended losses from that property are:
A. Withheld for 30 days
B. Expired on the day of the closing
C. Released to be used against other income
D. Forfeited by all parties

Real Estate Investing Beyond the Basics