Reference no: EM132170507

Assignment - Principles of Real Estate Accounting and Taxation

(T or F) The holding period describes the length of time that an asset is held. If the holding period is less than 12 months, a taxpayer cannot get a preferential capital gain tax rate.

(T or F) A limited partnership can be taxed as a corporation if elected under the check the box rules.

(T or F) A corporation is subject to double tax, so every type of investor must pay two levels of tax (both corporate tax and tax on dividends) when a corporation is used for real estate investment transactions.

(T or F) A REIT is taxable as a corporation that gets the benefit of a deduction for dividends paid.

(T or F) A net passive loss that is limited on an individual's income tax return in one year can be carried forward and deducted in future tax years.

(T or F) A real estate professional who incurs losses on rental real estate activities where (s)he materially participates may deduct those losses against wages and other sources of active income.

(T or F) The same real estate asset may produce ordinary income in the hands of one taxpayer but produce capital gains in the hands of a different taxpayer with a different intent.

(T or F) The portfolio interest exception is a rule that allows non-U.S. persons to invest in certain U.S.- issued debt obligations without causing the interest income on such debt obligations to be subject to FDAP or any other U.S. tax.

(T or F) Assuming that it is not pension-held, a tax exempt investor will never have UBTI on dividend income from a REIT.

(T or F) An entity would not lose its REIT status because a single pension fund owns 99% and the remaining 1% is owned by 125 preferred shareholders

For each of the following income types, indicate the tax rate (if any) that would apply to a US individual:

"C" = Capital gain tax rate

"O" = Ordinary tax rate

"N" = No tax

• ____. Gain on sale of land held for over a year where the taxpayer is considered a dealer in land.
• ____. Gain on sale of a single condominium unit to a customers that was held for investment and rented for multiple years before the sale.
• ____. Unrealized appreciation in the value of real estate held.
• ____. Gain on the sale of stock held for less than one year.
• ____. Income earned from a management company.

Identify the following as "ECI" (effectively connected income) or "Not ECI" (not effectively connected income) if earned by a foreign person:

• Interest income from loans to U.S. corporate borrowers.
• Dividends from a US corporation.
• A gain on the sale of a shopping center located in Russia.
• Rental income from an actively managed storage center in Florida.

Indicate the highest tax rate for each of the following:

• Interest income to a non-U.S. (foreign) corporation
• Ordinary income to a U.S. corporation
• Capital gain income to a U.S. corporation
• Capital gain income to a U.S. individual
• Ordinary income to a U.S. corporation
• Interest income to a non-U.S. (foreign)

John is an individual and is not a real estate professional and he does not materially participates in Partnerships A or B. John is a limited partner in both of these two real estate partnerships. Partnership A produces a passive loss of $5,000 (allocated to John). Partnership B produces passive income of $3,000 (allocated to John). How does John treat the income/(loss) on his tax return?

• Deduct $2,000 net loss.
• Recognize income of $3,000 and don't deduct losses of $5,000.
• Recognize no income or loss.
• Deduct $5,000 loss but don't recognize $3,000 income.
• None of the above.

A particular parcel of real estate (land) is sold for $20,000,000 and was originally purchased for $10,000,000. On a taxable sale, explain a circumstance (type of investor, intent, entity, etc.) that would pay the following U.S. federal income tax results on the $10,000,000 gain (exclude the 3.8% net investment income tax and any state taxes in the calculation):

• No tax liability on the sale
• $2,000,000 of tax
• $2,960,000 of tax
• $2,100,000 of tax

Describe two examples of the type of income that could be earned from a real estate investment that would be taxed to a non-US investor as FDAP:

Describe two examples of the type of income that could be earned from a real estate investment that would be taxed to a non-US investor as ECI:

Jenny is a US individual who qualifies as a real estate professional. She purchases a commercial rental real estate property in 2016 and leases it out. The taxable net loss from the property was ($4,000) in 2016. Jenny's only other source of income or loss was $12,000 of interest income from a loan. She sells the real estate in 2017 at a $10,000 gain. How much taxable income and loss should Jenny report in each of the following tax years: 2016 and 2017.  Explain what happened (why was this the outcome).

Jenny is a US individual who does not qualifies as a real estate professional. She purchases a commercial rental real estate property in 2016 and leases it out. The taxable net loss from the property was ($9,000) in 2016. Jenny's only other source of income or loss was $12,000 of interest income from a loan. She sells the real estate in 2017 at a $10,000 gain. How much taxable income and loss should Jenny report in each of the following tax years: 2016 and 2017. Explain what happened (why was this the outcome).

The "fractions rule" is relevant to what type of taxpayer?

Matching: Place the number below next to the corresponding business entity being described:

ECI

FDAP

FIRPTA

Portfolio Interest

Branch Profits Tax

Exception from FDAP withholding on interest income from certain portfolio debt investments.

30% withholding tax on passive-type income (interest, dividends, etc..).

30% tax imposed on a foreign corporation based on a deemed distribution of US branch operations.

Imposed on 1980 by the Foreign Investment in Real Property Tax Act.

A withholding tax on income that is effectively connected with a United States trade or business.

Attachment:- Assignment File.rar