Chapter 2.5 Quiz (8% Of The Exam)
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- 1.
The due date and delinquent date of the second installment of real property taxes in California, are respectively:
- A.
November 1 and December 10
- B.
July 1 and November 1
- C.
February 1 and April 10
- D.
January 1 and March 10
Correct Answer
C. February 1 and April 10Explanation
November 1 - first installment due, December 10 - first installment delinquent & February 1 - second installment due, April 10 - second installment delinquent
NDFA - No Darn Fooling AroundRate this question:
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- 2.
Which of the following are property tax exemptions stated in the California law?
- A.
Single family residence
- B.
Occupied single family residence
- C.
Owner occupied single family residence
- D.
Any of the above
Correct Answer
C. Owner occupied single family residenceExplanation
Must be owner occupiedRate this question:
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- 3.
Which of the following would have the least impact on property taxes?
- A.
New development
- B.
Compacted population density
- C.
Tax deferment
- D.
A recorded homestead
Correct Answer
D. A recorded homesteadExplanation
Recording a "declaration of homestead" has no impact on property taxes.Rate this question:
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- 4.
Special assessments levied under the Street Improvement Act of 1911 may be used for any of the following purposes except:
- A.
New drainage and sewer systems
- B.
To purchase vacant land
- C.
Build off-site local improvements
- D.
Improve street lighting
Correct Answer
B. To purchase vacant landExplanation
The Street Improvement Act of 1911 allows special assessments to be levied for various purposes, such as new drainage and sewer systems, building off-site local improvements, and improving street lighting. However, the act does not specifically mention using the assessments to purchase vacant land. Therefore, purchasing vacant land is not a permissible use of the special assessments under the Street Improvement Act of 1911.Rate this question:
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- 5.
The difference between property taxes and special assessments is that:
- A.
Assessment liens are always subordinate to property tax liens
- B.
Assessment liens can only be levied by local improvement districts
- C.
Foreclosure of assessment liens can only be achieved by court foreclosures
- D.
Special assessments are levied for the cost of specific local improvements, while property tax revenue goes into the general fund
Correct Answer
D. Special assessments are levied for the cost of specific local improvements, while property tax revenue goes into the general fundExplanation
Special assessments are levied for the cost of specific local improvements, while property tax revenue goes into the general fund. This means that special assessments are specifically collected to fund particular projects or improvements in a local area, such as road repairs or park development. On the other hand, property taxes are collected from all property owners in a jurisdiction and are used to fund general government operations and services. Therefore, the main difference between property taxes and special assessments lies in their purpose and allocation of funds.Rate this question:
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- 6.
The marginal tax rate:
- A.
Is the total income tax a person must pay
- B.
Is the minimum income tax rate a person must pay
- C.
Determines the tax rate applied to the next dollar earned
- D.
None of the above
Correct Answer
C. Determines the tax rate applied to the next dollar earnedExplanation
The marginal tax rate refers to the rate at which an individual's next dollar of income will be taxed. It is not the total income tax that a person must pay, nor is it the minimum income tax rate. Instead, it specifically determines the tax rate that will be applied to any additional income earned.Rate this question:
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- 7.
Mr. Smith purchased an apartment building for $180,000. The listed price was $200,000. Mr. Smith considered this a good deal on his part, since he only put $18,000 down and acquired a new first trust deed for the difference. The tax assessed value was indicated at $130,000. Mr. Smith's cost basis for income tax purposes would be:
- A.
$18,000
- B.
$130,000
- C.
$180,000
- D.
$200,000
Correct Answer
C. $180,000Explanation
Cost basis is the actual purchase priceRate this question:
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- 8.
The term "tax shelter" refers to:
- A.
Mortgage relief
- B.
Real property taxes
- C.
Interest income
- D.
Income taxes
Correct Answer
D. Income taxesExplanation
A "tax shelter" is an investment such as real estate which for income tax purposes allows an investor to defer payment of taxes on current income to a later yearRate this question:
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- 9.
A homeowner sold his personal residence and took a $30,000 loss on the sale. For federal income tax purposes:
- A.
He may not deduct the loss on the sale of his personal residence from his income tax
- B.
40% of the loss is tax deductible
- C.
He can deduct the $30,000 capital loss from any capital gain received during the tax year
- D.
$10,000 of the loss is tax deductible
Correct Answer
A. He may not deduct the loss on the sale of his personal residence from his income taxExplanation
The correct answer is that the homeowner may not deduct the loss on the sale of his personal residence from his income tax. This is because losses on the sale of personal residences are not tax deductible for federal income tax purposes.Rate this question:
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- 10.
Which of the following is true regarding the depreciation of land under federal income tax law?
- A.
Land may be depreciated by 125% declining balance method
- B.
An owner may deduct the accrued depreciation of land over time
- C.
Land may be depreciated by the sum of the year digits method
- D.
Land cannot be depreciated under federal income tax law
Correct Answer
D. Land cannot be depreciated under federal income tax lawExplanation
Land cannot be depreciated under federal income tax law. This is because land is considered a non-depreciable asset. Depreciation is only applicable to assets that have a limited useful life, such as buildings or equipment. Land, on the other hand, is considered to have an indefinite useful life and its value is expected to appreciate over time rather than depreciate. Therefore, the cost of land cannot be deducted as an expense for tax purposes.Rate this question:
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- 11.
Kim recently bought a commercial office building. What is the minimum period of time in which she may depreciate the building for federal income tax purposes?
- A.
27.5 years
- B.
39 years
- C.
40 years
- D.
50 years
Correct Answer
B. 39 yearsExplanation
Minimum depreciation periods: residential is 27.5 years minimum and commercial is 39 years minimumRate this question:
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- 12.
Brandon owns a large apartment complex that he wants to exchange for another property so he will be able to defer paying income taxes in the year of the exchange. He should exchange his apartment complex for:
- A.
A personal residence with a loan on it equal to it or greater than the mortgage on his apartment complex
- B.
A less valuable apartment complex and assume a smaller loan than the mortgage on his current apartment complex
- C.
A more valuable apartment complex, assuming a larger loan and paying cash boot to balance the equities
- D.
A less valuable apartment complex, receiving money from the other party to compensate for any difference in equities
Correct Answer
C. A more valuable apartment complex, assuming a larger loan and paying cash boot to balance the equitiesExplanation
Brandon should exchange his apartment complex for a more valuable apartment complex, assuming a larger loan and paying cash boot to balance the equities. This is because in a like-kind exchange, Brandon can defer paying income taxes if he exchanges his property for a similar or more valuable property. By assuming a larger loan and paying cash boot, Brandon can balance the equities and potentially avoid paying income taxes in the year of the exchange.Rate this question:
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- 13.
The buyer of a commercial building in a sale-leaseback transaction would be least concerned with:
- A.
Access to transportation for the property
- B.
Zoning of the property
- C.
Physical condition of the improvements
- D.
The seller's depreciated book value of the improvements
Correct Answer
D. The seller's depreciated book value of the improvementsExplanation
In a sale-leaseback transaction, the buyer of a commercial building is least concerned with the seller's depreciated book value of the improvements. The buyer's main focus would be on factors that directly affect the property's value and potential for generating income, such as access to transportation, zoning regulations, and the physical condition of the improvements. The seller's depreciated book value is a financial metric that reflects the historical cost of the improvements, but it does not necessarily reflect their current market value or income potential, which are more relevant to the buyer.Rate this question:
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- 14.
A grant deed has been executed once it has been:
- A.
Signed by the grantor
- B.
Delivered to escrow
- C.
Recorded
- D.
Delivered to the grantee
Correct Answer
A. Signed by the grantorExplanation
A grant deed is considered executed once it has been signed by the grantor. This means that the grantor has formally agreed to transfer ownership of the property to the grantee. The other steps mentioned, such as delivering the deed to escrow, recording it, and delivering it to the grantee, are important subsequent actions, but the actual execution of the deed occurs when the grantor signs it.Rate this question:
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- 15.
Which of the following is one of the implied warranties contained in the grant deed?
- A.
Title is free from all encumbrances
- B.
Grantor has not conveyed title to any other person
- C.
Property taxes are current
- D.
The property has been homesteaded
Correct Answer
B. Grantor has not conveyed title to any other personExplanation
A grant deed contains two implied warranties: (1) the estate is free from undisclosed encumbrances and (2) the grantor has not conveyed title to any other personRate this question:
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- 16.
Why are warranty deeds rarely used in California, but commonly used in other states?
- A.
The buyer may recover double damages when a grant deed is used
- B.
Warranty deeds are illegal in California
- C.
Recourse against a title company works better than trying to collect from the grantor
- D.
The law favors the use of the grant deed because the express covenants run with the land, while covenants of the warranty deed are personal to one particular buyer
Correct Answer
C. Recourse against a title company works better than trying to collect from the grantorExplanation
A problem with a warranty deed results in a claim against a seller who may lack the ability to pay. A claim against a title insurance company to enforce a title policy is far more likely to be enforceable.Rate this question:
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- 17.
Concurrent ownership of real property by two or more parties, each of whom has an undivided interest (not necessarily equal) without right of survivorship, would be described as:
- A.
Community property
- B.
Joint tenancy
- C.
Tenancy in common
- D.
Ownership in severalty
Correct Answer
C. Tenancy in commonExplanation
Tenancy in common refers to a situation where two or more individuals own a property together, with each person having an undivided interest in the property. Unlike joint tenancy, there is no right of survivorship, meaning that if one owner passes away, their share of the property will not automatically pass to the other owners. This type of ownership allows for unequal shares and each owner has the right to transfer or sell their share independently.Rate this question:
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- 18.
An uncle bought a home two years ago and purchased a standard title insurance policy. The uncle died and willed the home to his nephew. During probate it was discovered there was a defect in the title to the home because the grantor who sold the home to the uncle had been legally incompetent at the time of the sale. The title company denied any liability under the title policy. The probable outcome of this lawsuit will be:
- A.
The title company was liable because its obligation under the policy is not terminated by the death of the uncle
- B.
The title company was not liable because of the standard title insurance policy does not cover damage resulting from an incompetent grantor
- C.
The title company was liable if the nephew filed his lawsuit within one year of the uncle's death
- D.
Title company was not liable because the death of the policy holder terminated the obligation to defend the title
Correct Answer
A. The title company was liable because its obligation under the policy is not terminated by the death of the uncleExplanation
A title insurance policy insures title as of the date or transfer of title. The death of the policy holder (buyer) does not terminate the title insurance company's obligation to insure marketable title was present at the time of the transfer.Rate this question:
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- 19.
Which of the following is incorrect in regards to a "metes and bounds" description?
- A.
Using a watercourse as a boundary
- B.
Metes and bounds is a method used to legally describe land, not measure it
- C.
Using a boundary as a boundary
- D.
"metes" are boundaries and "bounds" are measurements
Correct Answer
D. "metes" are boundaries and "bounds" are measurementsExplanation
"metes" are measures of length, and "bounds"" are measures of boundariesRate this question:
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- 20.
A 36 mile square contains how many townships?
- A.
1 township
- B.
6 townships
- C.
18 townships
- D.
36 townships
Correct Answer
D. 36 townshipsExplanation
A 36 mile square measures 36 miles by 3 miles and contains 36 townships.Rate this question:
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- 21.
In the typical escrow, once all the conditions of the escrow have been satisfied, the escrow officer becomes:
- A.
An advisor to both the buyer and the seller
- B.
An advocate for the best interests of both principals
- C.
A separate agent for each party, whereas during escrow, the escrow officer was a dual agent for both parties
- D.
None of the above
Correct Answer
C. A separate agent for each party, whereas during escrow, the escrow officer was a dual agent for both partiesExplanation
Once all the conditions of escrow have been satisfied, the escrow officer becomes a separate agent for each party, whereas during escrow, the escrow officer was a dual agent for both partiesRate this question:
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- 22.
A real estate broker placed a deposit received with an offer to purchase property in his trust account. After the seller accepted the offer, but before escrow was opened, the buyer informed the broker that she had terminated the contract and demanded the return of her deposit. The broker, unsure of what was the proper course of action, turned the deposit over to the court. This would be an example of:
- A.
A surrender action
- B.
An interpleader action
- C.
An equitable assignment
- D.
An estoppel disposition
Correct Answer
B. An interpleader actionExplanation
When a broker or escrow is holding a client's money and the clients get into a dispute over the money, it is appropriate for the broker or escrow to file an interpleader action in court. The interpleader action asks the court to decide the dispute between the parties to a contract.Rate this question:
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- 23.
When examining a properly prepared escrow closing statement, a broker would discover that the purchase price would appear as:
- A.
A debit to the buyer
- B.
A debit to the seller
- C.
A credit to the seller and to the buyer
- D.
A credit to the buyer
Correct Answer
A. A debit to the buyerExplanation
In a properly prepared escrow closing statement, the purchase price would appear as a debit to the buyer. This means that the buyer owes the purchase price amount. Debits represent amounts owed, while credits represent amounts received. Therefore, the buyer is debited for the purchase price because they are responsible for paying it.Rate this question:
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- 24.
A home sold for $90,750. The buyer assumes an existing $30,000 trust deed and paid cash for the balance of the purchase price. If the documentary transfer rate is $.55 per $500 of consideration, what was the documentary transfer tax?
- A.
$33
- B.
$66.83
- C.
$67.10
- D.
$100.10
Correct Answer
C. $67.10Explanation
The consideration is the selling price minus existing loans assumed by the buyer.
$90,750 (selling price) - $30,000 (existing assumed loans) = $60,750 (consideration)
$60,750 divided by $500 = 121.5 taxable units
The tax rate is $.55 for each $500 of consideration + $.55 for any fraction of $500, therefore you multiply $.55 X 122 taxable units = $67.10Rate this question:
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- 25.
For property tax purposes, when is property normally reassessed?
- A.
Whenever the property is sold
- B.
Only when the building is remodeled
- C.
Every year
- D.
Every three years
Correct Answer
A. Whenever the property is soldExplanation
Property is normally reassessed for property tax purposes whenever the property is sold. This means that when a property changes ownership, its value is reassessed to determine the new property tax amount. Reassessment is necessary because the value of a property can change over time, and the tax amount should reflect the current market value. Reassessing only when the property is sold ensures that the tax assessment is fair and up-to-date.Rate this question:
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- 26.
Who is responsible for the disclosure of Mello Roos bonds against the property?
- A.
Seller
- B.
Seller's agent
- C.
Buyer's agent
- D.
Both buyer's and seller's agent
Correct Answer
A. SellerExplanation
The seller of one-to-four dwelling units subject to a Mello-Roos lien must make a good faith effort to obtain a disclosure notice concerning the special tax and give notice to a prospective buyer.Rate this question:
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- 27.
A benefit of ownership of real estate under the federal income tax law is:
- A.
Depreciation
- B.
1031 tax deferred exchange
- C.
Installment sale
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
The correct answer is "all of the above" because ownership of real estate under the federal income tax law provides several benefits. Depreciation allows owners to deduct a portion of the property's value over time, reducing taxable income. A 1031 tax deferred exchange allows owners to defer capital gains taxes by exchanging one investment property for another. An installment sale allows owners to spread out the recognition of income from the sale of a property over multiple years. Therefore, all three options mentioned (depreciation, 1031 tax deferred exchange, and installment sale) are benefits of real estate ownership under the federal income tax law.Rate this question:
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- 28.
Isabel recently bought a 10 unit apartment building. What is the minimum period of time in which she may depreciate the building for federal income tax purposes?
- A.
27.5 years
- B.
39 years
- C.
40 years
- D.
50 years
Correct Answer
A. 27.5 yearsExplanation
Residential is 27.5 years minimum and Commercial is 39 years minimumRate this question:
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- 29.
Kim currently has a freehold estate, which of the following would result in her having a less-than-freehold-estate?
- A.
Leasing her property to a tenant for 5 years
- B.
Selling the mineral rights to a third party
- C.
A sale-leaseback
- D.
Granting her a father a life estate
Correct Answer
C. A sale-leasebackExplanation
In a sale-leaseback the owner sells the property to an investor. The investor then leases the property back to the prior owner The prior owner stays in possession and becomes a tenant, holding a less-than-freehold estateRate this question:
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