Unit 11: Ethics, Investment Properties, Income tax, Trust Accounts, Environmental Issues

Question 0

Radon

Answer 0

Odorless colorless gas mitigated by adding ventilation

EPA levels under 4.0 picocuries per liter

Question 1

Asbestos

Answer 1

Better to encapsulate it instead of abating it.

Question 2

Property built before this date requires seller to give buyer a lead base paint disclosure

Answer 2

January 1, 1978

Question 3

Earnest money

Answer 3

Must be deposited into BROKER’s trust account

Question 4

Commingling

Answer 4

Depositing client’s money into the same account with the broker’s money

Question 5

Conversion

Answer 5

Using trust funds for personal reasons

Question 6

Equity

Answer 6

Current value minus debt

Question 7

1031 exchange

Answer 7

Tax advantage of real estate ownership that allows one to defer tax liability

Question 8

Fraud

Answer 8

Willful intent to misrepresent or omit material facts

Question 9

Willful misrepresentation or omission

Answer 9

Intentionally misinforming or withholding material fact

Question 10

Negligent misrepresentation or omission

Answer 10

Unintentionally misinforming or withholding of a material fact

Question 11

Real estate professionals must disclose the following:

Answer 11

Whom they represent

Obligations of all parties

Whether they are principal in the transaction

If there may be any environmental, material, or other issues that may impact the property

Question 12

General partnership

Answer 12

All partners have equal share and liability

Question 13

Limited partnership

Answer 13

Silent partners with no part in daily mgmnt.

Liability is limited to their investment

Advantageous to owners who want to own but not manage day to day decisions

Question 14

Cash flow after debt service ( before tax cash flow or cash throw off)

Answer 14

What money is left after the property has paid all expenses including investor loans

Question 15

Allowable tax deductions on 1st and 2nd Residences.

Must use an itemized tax return to take deductions

Answer 15

Property taxes

Mortgage interest

Points paid to improve or acquire

Some loan origination fees (points/origination/interest/and taxes)

Question 16

Non deductible taxes

Answer 16

Home owners insurance

HOA dues

Repairs such as painting or capital improvements

Costs to obtain loan : appraisals, credit reports

Question 17

Capital gains

Answer 17

Short term gain on property held 12 months or less, taxed at ratepayer’s ordinary income tax rate

Long term gain on property held more than 12 months

Question 18

Taxation of gain on sale of primary residence

Answer 18

Excluded from full tax as follows:

$250,000 maximum if single or married filing separately

$500,000 maximum if married filing jointly

Question 19

Capital gain calculation

Answer 19

Amount realized/adjusted sales price: (sales price minus selling expenses)

Minus

Adjusted basis (acquisition cost/tax basis + cost of capital improvements and special assessments)

Question 20

Real estate investors can take a depreciation allowance on real estate improvements for how many years?

Answer 20

27 for residential property

39 for commercial property

Question 21

Trust account

Answer 21

Brokerage firm required to maintain to hold earnest $$, tax and insurance and unearned commissions

Question 22

Environmental issues and disclosure requirements and EPA

Answer 22

Environmental issues are considered material facts that must be disclosed by the seller and the brokers

Brokers who suspect an environmental issue that may affect the property must disclose it, even if the seller believes it should be cured or removed.

Question 23

Lead based paint hazard reduction act of 1992.

Answer 23

Seller must disclose:

Location of any known lead based paint

Provide a copy of any report on the home

Give copy of the EPA pamphlet

Offer 10 day period to have home tested (buyer may refuse)

Seller NOT obligated to remove lead paint

Question 24

Carbon monoxide

Answer 24

Odorless gas that is a byproduct of combustion

Many states require that properties have CO detectors . NC requires detectors in any residences that has appliances or heating systems that burn fossil fuel such as oil or gas

Question 25

Mold

Answer 25

Not all are hazardous

Many do require remediation (removal) done by EPA and state regulations

Sellers must disclose any past or present mold issue