Other Real Estate Contracts Flashcards
What is used when property owners swap property?
A contract for exchange
What are “like-kind” properties?
Properties of the same nature that are exchanged (such as real estate for real estate)
What happens when an exchange of property occurs, but the properties do not have the same value?
One owner will give something of value to equalize the value of the exchange. The “unlike” property is called boot. Boot may be cash, furniture, a car, a diamond, or anything else of value.
What is boot?
Something of value given to equalize the value in an exchange. Relief of mortgage debt is also considered boot received.
What does Section 1031 of the IRS code say about taxes for exchange of business or investment real estate?
It may be tax deferred, but this does not apply to personal residence, which gets preferential treatment under a different section of IRS code.
Explain tax deferment during the exchange process.
The gain realized will not be recognized (taxable) on the exchange at that time. The potential gain will be taxable in a later transaction.
True or False: Tax deferment applies to boot during an exchange.
False. It does not apply to unlike property received. Tax must be paid on boot received to the extent that there is gain.
When one or both properties is mortgaged, the fairness of the exchange is based on what?
Equalizing the equity value (market value minus debt) of the properties
During a tax-deferred exchange, property does not need to exchanged simultaneously for the gain to be deferred. After a sale, the seller must identify ______ within ___ days, and close within ____ days of the sale.
a limited number of substitute like-kind properties; 45 days; 180 days.
A seller finances a sale of real estate, but doesn’t give the buyer title until the final payment is made. What is this called? This a common method of selling what type of property?
A contract for deed; vacation or resort property
What are two other terms for a contract for deed?
Installment land sale contract or land contract.
What is the name for a contract that gives a party the right to buy within a certain time but not the obligation to buy?
An option.
Who is the optionor in an option contract? Who is the optionee?
Optionor is the landowner; optionee is the possible buyer
What is a unilateral contract?
A contract where only one party can act. In an option, this is the optionee.
What happens to money the optionee pays the property owner if he decides not to buy? What if he does buy?
The amount the optionee paid the property owner for the option is forfeited to the owner. If he does buy, the option price may or may not be applied to the purchase price, depending on what’s written in the contract.
