Chapter 18: Real Estate Investment

Two of the rewards that investments offer are

• income and tax benefits.

• negative leverage and appreciation.

• appreciation and taxation.

• positive leverage and prestige.

An investor invests in fifteen diversified bond funds. This is an example of an investment in

• money.

• equity.

• debt.

• real estate

A real estate investment can take a long period of time to sell. For the investor, this means that real estate is

• management intensive.

• insensitive to marketing.

• vulnerable to seller's markets.

• relatively illiquid.

Compared to a stock portfolio, a real estate investment would be considered

• a riskier investment.

• a more management-intensive investment.

• a shorter-term investment.

• a more leveraged investment.

Six investors purchase a shopping center. One investor manages the tenants and another handles the marketing and leasing. Two investors manage accounting and finance, and the remaining two run the management office. This is a possible example of

• a general partnership.

• a limited partnership.

• a real estate investment trust

• an investment conduit.

Taxable income produced by an income property is

• gross income minus expenses plus land and building depreciation.

• gross income minus expenses minus land and building depreciation.

• gross income minus building depreciation plus land depreciation.

• gross income minus expenses minus building depreciation.

As a general rule, in deriving taxable income on an investment property, it is legal to

• deduct principal and interest payments from income.

• deduct principal payments from income.

• deduct interest payments from income.

• deduct principal and interest payments from income and capital gain.

Which of the following is true of the tax treatment of a principal residence?

• The owner may deduct the property's interest and principal from ordinary income.

• The owner may depreciate the property and deduct depreciation expenses.

• The owner can deduct any capital gain when the property is sold.

• The owner may be able to exclude capital gain from taxable income when the property is sold.

An investment property seller pays $14,000 in closing costs. These costs

• may be deducted from personal income.

• may be deducted from the property's income.

• may be deducted from the sale price for gains tax purposes.

• may be deducted from the adjusted basis for gains tax purposes.

Capital gain tax is figured by multiplying one's tax bracket times

• the sum of the beginning basis plus gain.

• the difference between net sale proceeds and adjusted basis.

• the sum of net sale proceeds and capital gain.

• the difference between net sale proceeds and capital gain.