QUESTION 16

A friend of yours wants to become a client and start a new company, Cyberdyne Systems, specializing in AI research. In order to get seed money, she wants to sell a rental property she has owned for about 15 years. She inherited this property from her uncle, who owned the home for many years before dying. Below is the information about the property that has been derived from her tax returns.

• Cost of the house (in 1950) $35,000
• Value of the house at date of death (1995): $250,000
• Value at time placed into service as rental property (2005): $400,000
• Depreciation taken on the house: $140,000
• Sales price of the house: $800,000
• Expenses of selling the home: $50,000

If your friend wants to take the home, sell it and purchase a new office building using all of the proceeds, can this be done in a tax efficient way? If so, how?

	a.	No, the law does not allow exchanges of rental property to commercial property.
	b.	Yes, this will qualify for 1031 gain exclusion treatment.
	c.	Yes, this will qualify for 1031 gain deferment treatment.
	d.	No, the new tax law does not allow exchanges on this kind of property.

5 points

QUESTION 17

A friend of yours wants to become a client and start a new company, Cyberdyne Systems, specializing in AI research. In order to get seed money, she wants to sell a rental property she has owned for about 15 years. She inherited this property from her uncle, who owned the home for many years before dying. Below is the information about the property that has been derived from her tax returns.

• Cost of the house (in 1950) $35,000
• Value of the house at date of death (1995): $250,000
• Value at time placed into service as rental property (2005): $400,000
• Depreciation taken on the house: $140,000
• Sales price of the house: $800,000
• Expenses of selling the home: $50,000

Say your friend has a buyer interested (who is a friend of your friend), but the buyer does not have good credit, so your friend (the client) wants to sell it to them on an installment basis. Assume that you have calculated the gain at $325,000 and the sales price is 610,000. What is the gross profit percentage for use on the installment sale?

	a.	34.76%
	b.	Insufficient information to calculate the gross profit percentage.
	c.	46.72%
	d.	53.28%

5 points

QUESTION 18

A friend of yours wants to become a client and start a new company, Cyberdyne Systems, specializing in AI research. In order to get seed money, she wants to sell a rental property she has owned for about 15 years. She inherited this property from her uncle, who owned the home for many years before dying. Below is the information about the property that has been derived from her tax returns.

• Cost of the house (in 1950) $35,000
• Value of the house at date of death (1995): $250,000
• Value at time placed into service as rental property (2005): $400,000
• Depreciation taken on the house: $140,000
• Sales price of the house: $800,000
• Expenses of selling the home: $50,000

What is the character of the gain?

	a.	1245 gain on 140,000 and 1231 gain on the rest, taxed at ordinary rates
	b.	1250 gain on 140,000 and 1231 gain on the rest, taxed at ordinary rates
	c.	1245 gain on 140,000 and 1231 gain on the rest, taxed at capital gain rates
	d.	1250 gain on 140,000 and 1231 gain on the rest, taxed at capital gain rates

5 points

QUESTION 19

A friend of yours wants to become a client and start a new company, Cyberdyne Systems, specializing in AI research. In order to get seed money, she wants to sell a rental property she has owned for about 15 years. She inherited this property from her uncle, who owned the home for many years before dying. Below is the information about the property that has been derived from her tax returns.

• Cost of the house (in 1950) $35,000
• Value of the house at date of death (1995): $250,000
• Value at time placed into service as rental property (2005): $400,000
• Depreciation taken on the house: $140,000
• Sales price of the house: $800,000
• Expenses of selling the home: $50,000

Assuming there is 1250 gain, what is the maximum tax rate on the gain?

		15%
		Ordinary rates for the taxpayer
		3.8%
		25%

5 points

QUESTION 20

A friend of yours wants to become a client and start a new company, Cyberdyne Systems, specializing in AI research. In order to get seed money, she wants to sell a rental property she has owned for about 15 years. She inherited this property from her uncle, who owned the home for many years before dying. Below is the information about the property that has been derived from her tax returns.

• Cost of the house (in 1950) $35,000
• Value of the house at date of death (1995): $250,000
• Value at time placed into service as rental property (2005): $400,000
• Depreciation taken on the house: $140,000
• Sales price of the house: $800,000
• Expenses of selling the home: $50,000

What is the AR when the house is sold?

	a.	800,000
	b.	660,000
	c.	610,000
	d.	750,000