1. If an individual actively participates in the management of a rental property, he may deduct the full amount of the passive activity losses from active income, regardless of his adjusted gross income.
1) True
2) False
2. In general, the risk of default increases with the use of debt in financing.
1) True
2) False
3. A borrower incurring non-recourse debt is effectively acquiring a put option from the lender. The smaller the amount of debt allowed by the lender, the lower the value of the put option.
1) True
2) False
4. If the probability index for an investment project is less than your required rate of return, you should not invest in the project.
1) True
2) False
5. When making an accept/reject decision on an independent project, it is common for the NPV and the IRR to have conflicting recommendations.
1) True
2) False
6. Acquisition costs incurred at the outset of an investment must be written off in the depreciable basis of the property.
1) True
2) False
7. A test that determines if the original issue discount (OID) rules apply is the:
1) time value of money test
2) adequacy of interest test
3) risk-return test
4) (1) and (2)
5) (2) and (3)
8. When net present value is zero, the IRR is equal to the required rate of return.
1) True
2) False
9. Suspended losses are losses that
1) can never be used to offset income.
2) exceed the yearly allowable passive income writeoff.
3) can be used to offset taxable gain at the end of the holding period as long as they do not exceed $25,000.
4) 2 and 3
10. A property that produces an annual NOI of $100,000 was purchased for $1,200,000. Debt service for the year was $95,000 of which $93,400 was interest and the remainder was principal. Annual depreciation is $38,095. What is the passive income?
1) $5,000
2) $6,600
3) -$31,495
4) -$33,095
11. Income from a limited partnership is classified as:
1) active
2) passive
3) portfolio
4) deferred
12. A set-aside of funds into a replacement reserve is a tax-deductible expense.
1) True
2) False
13. The effect of an installment sale is a spreading of the gain and the resulting tax over the period of the installment sale.
1) True
2) False
14. Tax law changes that would affect the value of real estate include:
1) changes in marginal rates (bracket rates)
2) changes in depreciation allowance
3) changes in capital gains rates