REE 3043 EXAM 2 - WOODYARD FSU STUDY GUIDE
2026
*Four* classes of *Real Property* - Answers - 1. Personal Residence
2. Dealer Property
3. Trade/Business Property
4. Investment Property
Personal residence - Answers - an owner-occupied housing unit
Dealer property - Answers - real estate held for sale to others
Trade or business property - Answers - real estate held for use in a trade or business,
*includes most income producing property*
Investment property - Answers - real estate held as an investment for an investment for
the production of income
*Three* types of *Income* - Answers - 1. Active
2. Portfolio
3. Passive activity
Active income - Answers - income earned from *salary wages, commissions, fees, and
bonuses*
Portfolio income - Answers - income from investments in *dividends, stock, bond and
other securities*
Passive income - Answers - *real estate rental activities*
income generated from trade and business activities in which the taxpayer does not
"materially" participate or generated from certain rental activities such as rental real
estate
Tax shelter - Answers - Occurs when cash is received but not taxed primarily to
mortgage interest and depreciation deductions to taxable income.
Deep tax shelter - Answers - negative taxable income from operations
Partial tax shelter - Answers - taxable income from operations less than before-tax cash
flow
1031 Like-Kind Exchange - Answers - Owners may exchange their properties and avoid
paying capital at time of transaction.
1. Prop must be business/investment
2. must be "like-kind" props (*both must be real estate*)
, 3. Whatever used to pay must be identified as "boot"
The maximum rate on ordinary income is - Answers - *39.6%*
Straight-line depreciation - Answers - 1 / Recovery period
i.e 1/27.5 years= 0.03636, multiply by depreciable basis
Depreciable basis - Answers - generally, the value of the acquired property (aka original
cost basis) less the value of the land
Investment activity - Answers - actions taken to maximize the production of future
income
Cost recovery period - Answers - the period of time over which an asset is depreciated
for tax purposes
Cost recovery period for residential and nonresidential income property - Answers - -
*Residential income prop* can be depreciated over *27.5 years*
-*Nonresidential prop* over *39 years*
For purposes of federal income tax, an apartment complex purchased and held by an
investor renting space to tenants is classified as: - Answers - Business property
The dividends distributed to investors as a real estate trust investment are classified as:
- Answers - Portfolio income
The total tax paid by a taxpayer, divided by their taxable income is termed: - Answers -
Average tax rate
If a real estate investor (sole owner) is an active participant, passive tax losses from the
investment may in some cases be used to offset: - Answers - Wages, salary, dividend
income and portfolio income.
What does an appraiser adjust? - Answers - Adjusts the actual value of the house from
sellers asking price. Determine the current value of a property.
Fundamental Income Capitalization equation
*V = I / R* - Answers - Value = Income / the capitalization rate
General overall capitalization rate (Ro)
*Ro = y - g* - Answers - Overall cap. rate = *discount rate* - expected annual compound
*rate of growth*
Corporate ownership structure which provides limited liability, however, it is not a
separate taxable entity. Income and losses may flow through to each stockholder -
Answers - S Corporation
2026
*Four* classes of *Real Property* - Answers - 1. Personal Residence
2. Dealer Property
3. Trade/Business Property
4. Investment Property
Personal residence - Answers - an owner-occupied housing unit
Dealer property - Answers - real estate held for sale to others
Trade or business property - Answers - real estate held for use in a trade or business,
*includes most income producing property*
Investment property - Answers - real estate held as an investment for an investment for
the production of income
*Three* types of *Income* - Answers - 1. Active
2. Portfolio
3. Passive activity
Active income - Answers - income earned from *salary wages, commissions, fees, and
bonuses*
Portfolio income - Answers - income from investments in *dividends, stock, bond and
other securities*
Passive income - Answers - *real estate rental activities*
income generated from trade and business activities in which the taxpayer does not
"materially" participate or generated from certain rental activities such as rental real
estate
Tax shelter - Answers - Occurs when cash is received but not taxed primarily to
mortgage interest and depreciation deductions to taxable income.
Deep tax shelter - Answers - negative taxable income from operations
Partial tax shelter - Answers - taxable income from operations less than before-tax cash
flow
1031 Like-Kind Exchange - Answers - Owners may exchange their properties and avoid
paying capital at time of transaction.
1. Prop must be business/investment
2. must be "like-kind" props (*both must be real estate*)
, 3. Whatever used to pay must be identified as "boot"
The maximum rate on ordinary income is - Answers - *39.6%*
Straight-line depreciation - Answers - 1 / Recovery period
i.e 1/27.5 years= 0.03636, multiply by depreciable basis
Depreciable basis - Answers - generally, the value of the acquired property (aka original
cost basis) less the value of the land
Investment activity - Answers - actions taken to maximize the production of future
income
Cost recovery period - Answers - the period of time over which an asset is depreciated
for tax purposes
Cost recovery period for residential and nonresidential income property - Answers - -
*Residential income prop* can be depreciated over *27.5 years*
-*Nonresidential prop* over *39 years*
For purposes of federal income tax, an apartment complex purchased and held by an
investor renting space to tenants is classified as: - Answers - Business property
The dividends distributed to investors as a real estate trust investment are classified as:
- Answers - Portfolio income
The total tax paid by a taxpayer, divided by their taxable income is termed: - Answers -
Average tax rate
If a real estate investor (sole owner) is an active participant, passive tax losses from the
investment may in some cases be used to offset: - Answers - Wages, salary, dividend
income and portfolio income.
What does an appraiser adjust? - Answers - Adjusts the actual value of the house from
sellers asking price. Determine the current value of a property.
Fundamental Income Capitalization equation
*V = I / R* - Answers - Value = Income / the capitalization rate
General overall capitalization rate (Ro)
*Ro = y - g* - Answers - Overall cap. rate = *discount rate* - expected annual compound
*rate of growth*
Corporate ownership structure which provides limited liability, however, it is not a
separate taxable entity. Income and losses may flow through to each stockholder -
Answers - S Corporation
